Recent Hulucination Posts

Bankruptcy On-Demand

Chadwick Matlin — Thu, 29 Apr 2010 11:36:25 +0000

Blockbuster (BBI) is on its last legs. After moving billions upon billions of dollars through its registers, shepherding the transition from VHS to DVD and DVD to Blu-Ray and watching Netflix (NFLX) and Redbox invent new ways to rent movies, it stands on the brink. Last month, it warned the SEC that it could declare bankruptcy anytime (a threat that has since ebbed slightly), it plans to close more than 500 stores this year, and it’s in danger of getting delisted from the New York Stock Exchange. After 25 years, it appears people just don’t want to go see a Blockbuster anymore.

But when I told Kevin Lewis that I was worried about whether Blockbuster could survive, his face contorted. Lewis is Blockbuster’s senior vice-president of digital entertainment, and he is a man who believes in his employer. A few weeks ago, I met with him and two other guys in charge of Blockbuster’s digital strategy at the company’s loft office space in downtown Manhattan. It’s meant to be the headquarters for the digital team—the group of staffers who carry the weight of Blockbuster’s future. On the day I visited, none of the staffers were in the office. I suppressed the urge to see a metaphor where there wasn’t one. (They were all traveling.)

Blockbuster, I was told over and over again, is poised for a comeback. Its brand is more established than any other. It’s the only company that can offer movies in stores, in kiosks, online, and by mail. Most importantly, just because more and more Americans watch movies online—whether it be through Web-connected computers, Blu-Ray players, or DVRs—doesn’t mean they want to stop watching the newest movies. Netflix and Redbox can’t provide those when they first come out. Blockbuster is proud that it can—so proud that this is the first thing you see on its homepage:

The company’s final, last-gasp strategy to regain its swagger and prepare for the future is to harp on this fact over and over again. Lewis would not stop mentioning the “multichannel consumer”—the ideal people who “are in stores, they're renting digitally, they're going to kiosks, they're buying VOD, they're going to theaters. They’re entertainment omnivores…We’re the only company that spans all…of those (channels).” And these omnivores want their movies as soon as they can. According to Lewis, 70 percent of new rentals happen in their first 30 days of release.

When you combine all this, the motto is essentially that Blockbuster is the only place that can get you what you want, when you want it, how you want it. Taken as a whole, that’s true. But when you break down the motto to its three parts—what you want, when you want, how you want—things get far more muddled, and for Blockbuster, far more dire.

In Blockbuster’s view, it can survive because of the chart below. It shows last year’s top-10 grossing movies that are available digitally. Lewis bragged that all of them are on Blockbuster; none are on Netflix. It’s an especially important detail, as more than half of Netflix subscribers are now streaming movies. At my request, Blockbuster’s PR rep sent the chart over:

Netflix can’t stream those movies online because the studios won’t let them. Compared with Blockbuster’s well-stocked shelves, Netflix’s digital library is like a food pantry that contains only peanut butter and jelly. Netflix has made deals with several studios that give them a larger digital catalog, but it also forces them to wait 28 days to start sending them to customers the old-fashioned way: on disc. Similarly, Redbox, the king of kiosks, is being forced to delay the release of movies as a peace offering to the studios.

On this issue, Blockbuster is right; it’s far better digitally than Netflix. Blockbuster can offer digital downloads because it asks customers to pay for digital movies the same way they rent DVDs—a la carte. (The studios prefer this to Netflix’s come-one, come-all digital strategy.) Renting a movie on Blockbuster runs $4.

Of course, they’re not the only company that can do that. Steve Jobs long ago realized Blockbuster was on the ropes and decided to provide an alternative. So let’s amend that chart.

Nearly all are on iTunes. But that’s not the whole picture, either. If digital downloads are to be a success, they’re going to be watched on an actual TV, not on the computer screen. Netflix knows this, which is why it’s putting its Watch Instantly service on every Blu-Ray, TiVo, and game console known to man. Blockbuster is trying to do the same. By the end of the year it claims it’ll be on nearly every brand of Web-enabled TV and Blu-Ray device sold. Of course, once these services migrate off the computer and on to the TV, they’re contending with a new force: on-demand. Cable providers have steadily added to their pay-per-view offerings. I’m trotting the chart back out, this time with a new Comcast On-Demand column added.

So Blockbuster and Comcast On-Demand are identical for at least in this small sample. Blockbuster’s strategy is to double-down on these new releases because Netflix and RedBox don’t have them. But if cable providers do, that invalidates Blockbuster’s claim on the space. It’s correct that Netflix and Redbox have been Blockbuster’s greatest enemies over the last few years. But moving forward, it’s a different kind of netbox that will eventually beat Blockbuster’s: the cable box.

The last piece of Blockbuster’s motto left standing is its assertion that it’s the premiere place you can get these films when you want them. On-Demand will soon make that moot, as well. The film industry has finally wised up and realized it doesn’t need middlemen like Blockbuster anymore. It can use the cable operators instead. Last month, the New York Times reported that studios were collectively marketing on-demand cable as the best way to get their content. They’re tossing $30 million at it, mainly because they get 65 cents from every dollar spent on on-demand, compared with roughly 25 cents at Blockbuster. As of now, not all movies get released via on-demand at the same time they’re released on Blockbuster. But Comcast told me it has more movies on-demand this year than ever before, and it’s getting them sooner than it had in the past. Several of the on-demand movies from the previous chart were on-demand the same day they were available for rental at Blockbuster. Given the 65-cents versus 25-cents economics, one would figure that trend will only hold.

To be fair, Blockbuster’s big strategy isn’t just that it offers the movies you want, where you want them, when you want them. It’s that they’re the only place that can deliver all three at the same time. True enough. Blockbuster is readying a massive database of where all of its movies are available. This way if you want to rent, say, GoodFellas, and it’s not available online, the database will tell you it’s down the street at a retail location or available through Blockbuster’s Netflix-like DVD-by-mail service. It’s the integrated service for the Blockbuster diehard.

But in an age of iPads, Boxees, and Netflixes, how many Blockbuster diehards can there be? This is the age of gadget diversity. We don’t need or want one megalith to handle all our video needs. (Only Apple [AAPL] has managed to create the kind of cultish walled-garden that Blockbuster daydreams about.) And even for the less tech-inclined—if a video is available on their cable box, why go outside and get it from a retail store? Or even from the Blu-Ray player that has Blockbuster DVDs. When I was at Blockbuster’s digital office, their crew told me how pleased they were to be the first thing people see when they boot up a Samsung Blu-Ray player. But compared with cable on-demand, that Blu-Ray player is still a secondary option. That means Blockbuster is, too.

That leaves Blockbuster’s brick-and-mortar retail business as its one unique characteristic. Of course, brick-and-mortar is what got Blockbuster into this mess in the first place. The same social trends that forced Blockbuster to shutter those stores don’t look like they’re ebbing any time soon. Back-catalog movies are still available through RedBox and Netflix for far less than Blockbuster sells them for in stores. Broadband is becoming more and more prevalent in the country every day, allowing more people to download videos and skip the drive to the strip mall. Blockbuster isn’t just running out of time and money. It’s running out of customers. Unfortunately, those aren’t available on demand.

Hulu Subscription Rumor No. 815

Chadwick Matlin — Thu, 22 Apr 2010 13:54:17 +0000

At this rate, whenever Hulu does announce a subscription plan, it’s going to be anticlimactic. Hulu’s CEO, Jason Kilar, has been dropping hints about it for months, and now we have even more detail about what it’s probably going to look like.

The Los Angeles Times is reporting that by late May Hulu is going to charge $10 bucks a month for the privilege of watching old videos. If you don’t pay the $10, you’ll still be able to watch the last five episodes of current shows, but nothing beyond that. No word on whether subscribers will still see ads.

For Hulu, this is a gateway business model. The plan isn’t robust enough to fund Hulu’s future on its own. But it does begin to acclimate Hulu’s users to paying for an archive of content. What falls into that archive is up to Hulu, and there’s nothing that prevents it from moving more and more shows behind the subscription wall as time goes by. The Times reports that Hulu will continue to stream the last five episodes of a show for free. But what if that quickly becomes only the last three episodes? Or only the last one? Then the subscription plan becomes a must for people. Hulu would incentivize signing up by offering more for the subscription—and offering less to those without one.

Now Playing in Hulu Theaters Nationwide

Chadwick Matlin — Thu, 15 Apr 2010 16:14:40 +0000

We know that Hulu has disrupted the way we watch TV. But it’s done far less to change the way we watch movies. That’s because right now the movies on Hulu are incredibly obscure. But that doesn’t mean they have to be. Every week Hulucination will keep track of how many movies are on Hulu and how many reviews they have on Netflix (NFLX). We’ll chart the results as time goes by to tell you whether Hulu is getting closer to Transformers and farther from Thunderbolt and Lightfoot.

Hulu Theater is growing tired of Hulu’s cinematic inertia. Yet again this week, Hulu’s movies are just as obscure as they have been every other week. 62.6 percent of the movies are also in Netflix’s database. They’re reviewed relatively well, with an average of three out of five stars in both median and mean. The median number of rankings is slightly higher, though. They’ve got an average of 10,254 rankings instead of 10,083.

What You Watched on Hulu Last Week

Chadwick Matlin — Thu, 15 Apr 2010 14:59:04 +0000

Redbox Sees Red

Chadwick Matlin — Mon, 12 Apr 2010 11:19:27 +0000

Six years ago, Redboxes were meant to sell Goobers, not Goonies. The DVD-rental kiosks that are now in Wal-Marts (WMT), grocery stores, and McDonald’s joints across the country were meant to be automated 7-Elevens, not robotic Blockbusters. McDonald’s (MCD)—which owned Redbox at the time—figured convenience stores were convenient enough without somebody behind the counter. So why pay an employee when a machine could do all the work? Nothing in convenience stores is that fresh anyway, so customers wouldn’t care if the personal touch was removed from the transaction.

They were wrong. Something about buying a gallon of milk without someone actually selling it was too sterile, too cold. (Or maybe the fear was that it wasn’t cold enough.)

But all was not lost. At the same time McDonald’s released the convenience-store units, it also put 12 DVD kiosks into the field. People weren’t as untrusting toward an automated purchase of something they didn’t have to eat. They were still consuming; they just weren’t ingesting.

Since then, Redbox has seemingly added an automated kiosk for every closing of a manned video-rental shop. In six and a half years, it has gone from those 12 trial units to 22,400. Thanks to Redbox, Netflix (NFLX), and the rise of On Demand (both through cable and the Internet), the process of renting a movie has been completely disrupted. Blockbuster is either teetering on the edge of bankruptcy or pretending it’s not already there, and mom-and-pop rental stores have all but disappeared from small towns. Redbox is as responsible for the destruction as the rest of the hydra.

But at some point this new monster is going to run out of things to destroy. And when it does, it’s going to have to start turning on itself. Last week, word got out that Redbox was thinking about streaming movies over the Internet, just like all of its other competitors. If it happened, it would be a meaningful expansion to Redbox’s business model, and one that puts it in even fiercer competition with its crimson colleague, Netflix.

The reason it’s looking online is because it has been so successful offline. It did that by being comfortably innovative, offering something new without ripping the rug out from under the way consumers already rented DVDs. There were four elements to the old way of doing things: 1) Renting a movie was an impulse decision, 2) a real person checked you out, 3) you got to take a real disc (or tape) home, and 4) you had to remember to bring the disc back by a certain time. The On Demand services have retained only the first step. Netflix has held on to the third. Redbox, meanwhile, has held on to three. All but the real, live person have been retained. And on top of that, Redbox threw in budget prices. Renting a DVD usually costs $1 a day.

This gradualism has paid off handsomely. In 2005, supermarket-kiosk magnate Coinstar (CSTR) bought part of the company for $20 million. Four years later, it bought the rest for $176 million. It was worth the money. Redbox is growing faster than Robin Williams in Jack. In 2009, 8,700 new kiosks were spread out across the country. Pre-existing kiosks rented $105 million more in DVDs in 2009 than they did in 2008. Coinstar took in $385 million more from DVD rentals in 2009 than in 2008 (aided, no doubt, by its full purchase of Redbox). And that extra revenue brought in more profit, too: $56 million more from DVD operations. Redbox has become by far Coinstar’s biggest business. The company’s namesake—those machines you dump your coin jars into at the supermaket—now pales in comparison, bringing in one-third of the revenue that Redbox does.

So, if things are going so well, why would Redbox turn its attention online? If it does begin to stream movies, it is going to be entering a marketplace brimming with retailers new and old. Amazon (AMZN), Apple (AAPL), and smaller upstarts allow users to rent movies a la carte. Netflix already has a streaming service on nearly every Internet-enabled device known to man. Hulu lets you watch (an obscure selection of) movies online, for free, with some ad interruptions. For these guys—Netflix included—the online plans have to work or else they’re screwed.

But Redbox isn’t nearly as desperate. It already knows it can survive as the country moves more toward online video. Otherwise its kiosk business wouldn’t be thriving. But for-profit companies like to sniff for more profit. Thus it has to at least explore the online option; not doing so would be irresponsible. There is money to be made online, especially when video is paid for by the customer, not advertising. Also, getting into video streaming is a nice hedge in case online video becomes wildly more popular than it is now.

But that doesn’t mean it’s the right move for Redbox. At first glance, a streaming Redbox would be more in competition with Amazon and iTunes than with Netflix. But Redbox would likely be forced/able to undercut their prices because of its existing business model. It’s hard to ask customers to spend more money for something online than they would at the store down the street. The same logic applies to the local kiosk. But Redbox may not be able to afford to do that. To make online streaming happen, Redbox would likely have to renegotiate its contracts with the studios to include streaming rights. (I asked a Redbox spokesman whether this is true, but he declined to comment.) And acquiring those rights is expensive; on new releases, the number is likely more than the $1 Redbox charges at its kiosks. At first, it may have to run the online business at a loss to get the momentum going and hope that acquisition prices go down so it doesn’t have to increase rental prices.

The low prices Redbox will likely charge mean it’s really competing with Netflix, not Amazon, Apple, et al. But Netflix’s subscription model is much pricier than Redbox’s $1 a la carte strategy. (Assuming Netflix users don’t stream eight movies a month.) Online, Netflix is better situated to reap profit, especially as customers ask it to stream more movies and send fewer DVDs.

Thus far, both Redbox and Netflix have been able to exist in the world of actual discs. (Netflix’s own revenue has steadily risen every year for the last five.) And similar to their offline offerings, both companies would provide different services online. Redbox would go after the impulse buyer who favors more big-budget fare. Netflix would cater to the person who wants a deep library of meaningful, arty classics. It’s essentially Avatar vs. The Hurt Locker all over again. But like Avatar, Redbox’s magic may not be as impressive online.

Everybody Calm Down About This Net Neutrality Thing

Chadwick Matlin — Tue, 06 Apr 2010 20:04:25 +0000

Because Congress doesn’t have enough to do, it’s time to add net neutrality to the legislative agenda. An appeals court has decided that the FCC, as currently comprised, doesn’t have the authority to enforce net neutrality on its own. Up until now the FCC has been regulating Internet companies under a questionable reading of the law. Like a cocky hall monitor, the FCC figured since it had control over some elements of the media spectrum it could pretend to have a say on the Internet side, as well. It was wrong.

Net neutrality—for those not masochistic enough to be acquainted—is the general principle that access to the Internet should remain equal for all people, no matter what company they use to get on the Internet. There is some (justified) concern that companies that provide Internet access (Comcast [CMCSA], Verizon [VZ], AT&T [ATT], etc.) would charge extra for speedy access to certain sites. Having full and quick access to Google (GOOG), for example, could run you an extra dollar per month. This kind of system is reminiscent of what the networks and cable companies have done with all those cable channels you love to watch. You want ESPN? Be prepared to pay an extra $6 a month on your cable bill. You want ESPN.com? Be prepared to pay an extra 60 cents a month on your Internet bill.

Now that the court has said net neutrality isn’t part of the FCC’s job description, three things can happen.

1) The FCC can go to a higher court to try to convince those judges that this appeals court was wrong. (For what its worth, the appeals court unanimously ruled against the FCC, 3-0.)

2) The FCC can give up and do nothing, leaving the Internet open to the very Net Neutrality abuses it is so committed to stopping.

3) The FCC and the Obama administration can harangue Congress into passing a law that says FCC does have the authority the court says it doesn’t.

Because of this third option, there is no need to pop an Alka -eltzer and start frothing from the mouth. The court ruled against the FCC’s authority as currently comprised. It said nothing about the constitutionality of an agency like the FCC regulating net neutrality. (That, surely, will be the subject of another lawsuit if a bill passes Congress.) A bill that would give the FCC that power has been introduced in the House, but there hasn’t been much action on it. Today’s court decision lends an urgency to that bill that had been missing. The Obama administration is a supporter of network neutrality, and could possibly lean on Congress to pass some version of the proposed bill. The usual telecom lobby would surely call in favors to oppose.

Online video sites have as much at stake as any other Web properties. Online video costs more to host, costs more to transfer, but doesn’t cost more to receive than the rest of the Internet. That is an imbalance that an unregulated market won’t allow to persist. Those afraid of a world without net neutrality fear that online video would be the first thing to be priced differently based on who provides your Internet service. Comcast, for example, could slow down the streaming on ABC.com video because it wants to incentivize customers to watch Comcast programming online. It would charge an extra fee to get full-speed access to the throttled content. The same paradigm applies to Hulu, with the extra complication that Comcast may be taking over NBC’s share if the Comcast-NBC merger gets approved.

Today’s court decision doesn’t change the stakes of this battle. Nor does it change the historical outcome. It’s just something that defers the dream. My guess is Langston Hughes’. The dream won’t dry up, fester, or crust over. It’s going to explode.

Now Playing in Hulu Theaters Nationwide

Chadwick Matlin — Tue, 06 Apr 2010 17:35:09 +0000

Even Patrick Swayze couldn’t rescue Hulu Theater from the same old plotline. Despite adding Dirty Dancing to the movie roster last week, Hulu still can’t avoid its 62-63 percent rut. For weeks now, 62 percent or 63 percent of Hulu’s movies have also been available on Netflix. That’s the metric Hulucination uses to tell how mainstream Hulu’s movie section is. This week, the number remains unchanged. 63.2 percent of Hulu’s movies are in the Netflix database, the same number as last week. The ratings of those movies remain the same, as well. They average 2.99 stars, and a median of 10,083 rankings. Will this monotony ever end?!

In the Darkness: Hulu’s First Long Tail Movie

Chadwick Matlin — Tue, 06 Apr 2010 13:28:17 +0000

At what point does a movie stop being a movie? In the Darkness, Hulu’s first fictional “movie,” which had its online premiere last week, may not qualify. Darkness is 60 minutes long, was shot in five days, stars no-name actors, and for its first four weeks will be distributed only online.

Whatever it is, In the Darkness shows us yet another possible future for entertainment: one where movies turn the Web into their personal theaters. As usual, we can blame this new business model on the financial crisis. Darkness’ producers—a gang of relative newbies—originally wanted to make a bigger, more costly film. But that required raising funds as the financial system teetered, which happened to be precisely when no one was eager to donate to pet projects. So the producers scrapped the big-film idea, narrowed their scope, and came up with In the Darkness, a movie that was cool enough to merit making, but small enough to merit a different distribution method.

The movie’s plot is not as revolutionary as its business model. Two kids get killed in the high, lonesome hills, and detectives investigate. (Things, of course, are not what they appear to be.) But that’s all right , because the thing didn’t cost much money. One producer, Jeremy McGovern, declined to offer the budgeting details, but it’s not too difficult to tell the video was inexpensive. Not because it looks cheap—the shots and sets actually do look reasonably cinematic—but because there aren’t any locations. Nearly the whole video takes place in a scorched nature reserve somewhere in the mountains, an aid to the video’s aesthetics and economics.

And if you’re distributing a movie online, you’ve got to keep costs down. For now, Darkness’ only revenue stream is through Hulu’s advertising. McGovern wouldn’t share how much revenue they need to take in to be profitable, nor how much of the revenue goes to Hulu and how much to the filmmakers. (On the TV side, it’s estimated Hulu gets 30 percent to 50 percent.) Hulu did, though, specify the number of ads that had to be in the video based on a formula of a certain number of ads per hour of content. (Darkness has six ad breaks.) The Darkness crew wasn’t allowed to increase the ad load to try to make more money. Hulu, as the distributor of a film without corporate backing, was largely in control. (The producers were able to negotiate a certain amount of promotional love from Hulu. In the contract was a stipulation that Hulu promote the film on its movie channel page.)

Just because the movie’s model is new doesn’t mean it will work. On top of the Hulu cut, the Darkness producers have to also split their ad revenue with IndieFlix, a distribution company that helped them get Darkness on Hulu in the first place. A few weeks from now the movie becomes available on DVD and iTunes, where it’s possible the film will make more money than on Hulu. Does that mean the producers should continue to encourage people to watch for free, or do they point them toward the more permanent—and profitable—options? It’s a question symptomatic of a film—and a media—industry that is uncertain about the way forward. Does it care more about audience or profitability?

In that sense In the Darkness is a typical movie. And yet Darkness can’t in good conscience be called a "movie"—it’s too short. But that doesn’t make it a TV show—it’s too standalone. It’s far too long to be a digital short. And “Web video” does a disservice to a work that carries a certain amount of narrative gravitas. We can’t quite call it a “made-for-TV movie,” either—it wasn’t made for TV. It’s partially a “made for online” movie, but it’ll find an afterlife on DVD. Because it’s a derivative of things we’ve already categorized, the movie defies categorization.

Thus I propose that we call In the Darkness a “Long Tail movie.” Its creators are tossing it into the ether, hoping that it catches some buzz. If it does, ad revenue and maybe some DVD purchases will lead to a modest profit. If it doesn’t, it still has a chance to break even because it was made on the cheap. The idea of the Long Tail benefiting films isn’t new. Netflix (NFLX) is more or less based on that idea. But what makes In the Darkness different is that it was made exclusively for the long tail. It’s not benefiting from it after the fact. It may be short, it may be low-budget, and it may be digital, but it’s still a movie—a Long Tail movie.

The Internet Is Rewiring Itself for the iPad...And Only the iPad Can Tell

E.J. Kalafarski — Fri, 02 Apr 2010 19:02:33 +0000

In the two short months since its announcement, the iPad has been rewiring the Internet, and it hasn't even been released yet. Sites like CNN, the New York Times, Vimeo, and Flickr have scrambled over the last eight weeks to make their video content viewable on the new magical machine, which doesn't have the near-ubiquitous Flash plugin. They'll instead provide their content in the cutting-edge HTML5 standard available in the newest browsers, including the iPad's Safari browser. Apple has even posted a list to let you know which sites are iPad ready.

Most interesting, though, is that only iPad users can see this newest feature. Even if you're using the latest, greatest browser on your PC, you'll still get Flash video instead. Popular tech lecture series TED takes pains to point out that only iPad users will see the HTML5 version of the site.

The reason for this kind of digital discrimination might have something to do with the way HTML5 gives the viewer more power than Flash. By making video as standard and accessible as photos, users can simply right-click a video to save it to their computer—making it that much easier for someone to download content and repost it elsewhere. That leads to more than just copyright issues. Sites like Hulu can only make money when they know its videos are being played. Saving videos to a hard drive or playing them outside of Hulu’s site means Hulu can’t control and track viewership. That's why you need to go through them to embed a Hulu clip in your own Web page or blog. That way they can still count the number of views.

Some of the early adopters are hip to the problem. Vimeo is one of the exceptions that lets you watch HTML5 video on your desktop, but they're doing some trickery deep in their Web site's code to prevent you from right-clicking your favorite video and hitting "save as" Expect video sites to proceed with similar caution while they figure out how to keep their content on a tight leash.

Presented By:

Fri, 02 Apr 2010 19:02:33 +0000

NBC Admits It’s As Confused By What to Do With the iPad As the Rest of Us

Chadwick Matlin — Fri, 02 Apr 2010 16:59:29 +0000

A week after saying its video would be on the iPad, NBC has changed its mind. The network has made the decision to block its content from the iPad browser. To buy NBC videos, you’ll now have to go to iTunes and pay $1-$2.

Normally this would just be the case of a network getting cold feet. Its reversal is driven by economic considerations. It figures it will make more money if a select few buy an episode in iTunes than if many more watch ad-supported content for free. (How this affects plans for an eventual Hulu app on the iPad is unclear.) It’s NBC’s decision to make, of course, but it’s one that two of its competitor networks disagree with. Both ABC and CBS are making their video available on the iPad from Day one. (CBS, though, is only making Survivor available at first. Other shows may follow.)

NBC’s decision is especially curious because its shows have long been visible on an iPhone. That it’s banning it for the iPad suggests the network believes people will be watching far more video on the tablet than on their phones. The problem is that they’re going to want to watch free content, just like they do on their computer. ABC and CBS are acknowledging that. NBC now seems to be in denial.

More Than $100 Million Later, Hulu Outs Itself as a Profitable Business

Chadwick Matlin — Thu, 01 Apr 2010 19:25:16 +0000

For two years, Hulu has treated its revenue as a cougar treats her age. Ask what the number is, and you’ll get a disapproving scoff, as though you’ve offended by daring to bring it up. And it's for the best. You don’t actually want to know the answer, because once you do, all the intrigue is gone.

Now we know Hulu’s number. In an exclusive interview with the New York Times, Hulu CEO Jason Kilar revealed that revenue was more than $100 million last year. (This might explain that Kilar buzz cut—the result of a bet about how much money Hulu could make.) Better yet, Kilar says the site can hit that number by early summer. Early summer! The implication—but not the assurance—being that Hulu could double its revenue this year, assuming its ad sales hold up and all the rest.

Revenue is one thing, but profitability is another. The site needs to split its money with the content partners, pay for its data-hosting bills, and keep its own staff paid and relatively pampered. Yet Kilar says Hulu is profitable. Its operating costs can't be too high.

And yet the murmurings of a subscription model for Hulu persist. Kilar all but admitted one was coming, and the Times speculates we could first see it tied to Hulu’s forthcoming (but not confirmed) iPad app. But Hulu is profitable! Why does it need to make more money? Because in order for NBC, Fox, and ABC to keep feeding it content, it needs to be a profitable part of their business model. Otherwise, they’ll go and start their own sites and services, like we’ve already seen them begin to do for the iPad. Thus, Hulu has to stay aggressive. A cougar not on the prowl isn’t a cougar at all.

Netflix, ABC, CBS, and NBC All Coming to the iPad

Chadwick Matlin — Thu, 01 Apr 2010 16:33:32 +0000

And here we thought this iPad-can’t-play-Flash thing was a big deal. Netflix (NFLX) and ABC are both coming to the app store with standalone apps that plan to offer all of their full-length content. That’s every streamable Netflix movie on a wireless, .5 inch thick device that you can take with you wherever you go. That’s every episode of Lost accessible whenever you want, Hulu app or no. These two apps are yet more examples of how the industry is not ignoring the iPad. CBS has already announced it’s making its website friendly to the iPad. (No word yet on whether an app is forthcoming.) And NBC.com video has long been able to stream on the device.

The tally, then, is this: Three of the top four networks and the dominant movie-subscription service in the country are all coming to the iPad. For free. (You’ll have to pay for Netflix, of course.) On day one. This should make Hulu very nervous.

The New York Times reports Hulu is working on its own iPad app. (We’ll have more on that Times report later.) But it won’t be available on the iPad's first day and it may not be free—the Times suggests it will be part of Hulu’s unannounced subscription model. And yet nearly all of its programming—except the Fox shows, for now—is going to be freely available on the iPad. Likewise, a large percentage of Hulu’s movies will also be available through Netflix. What, exactly, will be the incentive for people to use Hulu rather than the network apps? Will the video be ad free in exchange for the subscription fee? (The other networks’ apps will presumably include ads in the videos.)

This is Hulu’s crucible as it pushes forward with its mobile strategy. Can it survive as it—and its parent companies—begin to distribute premium video outside of a traditional computer? In the past, Hulu has been reluctant to leave the confines of the traditional browser, partly because of pressure from NBC, ABC, and Fox, who were nervous themselves. Which makes the current situation ironic. Because Hulu was so slow to start distributing its content, the networks that own the content (and who prevented Hulu from distributing it) have taken matters into their own hands. It’s the kind of sabotage that happens whenever you remove a middle-man. And Hulu, no matter its quality, will always be just that. A distributor, a courier, a site stuck in between content and its audience.

By no means does this mean Hulu is doomed. The networks, remember, got to Web streaming well before Hulu did. But without Hulu, Web video didn’t prove that popular. It needed Hulu to collect all the video and host it in one place. Hulu became a word synonymous with streaming video. But that industry has matured now, and the focus is switching back toward the content. The iPad is now the delivery device, not Hulu. At the hypercompetitive intersection of media and tech, there is rarely space for two middle-men.

Now Playing in Hulu Theaters Nationwide

Chadwick Matlin — Tue, 30 Mar 2010 21:17:22 +0000

Hulu keeps jogging in place, and Hulucination keeps marveling at its lack of progress. Last week, 63 percent of Hulu’s films were in Netflix’s database. This week, it’s 63.2 percent, 467 of the 739 movies on Hulu. And of the crop of movies that can be put in your Netflix queue, it’s more or less reviewed the same way it was last week. The Hulu-on-Netflix crop rates an average of 2.995 stars, down .005 from last week’s average. The number of reviews is slightly up, to 10,128 rankings on average.

What You Watched on Hulu Last Week

Chadwick Matlin — Tue, 30 Mar 2010 18:43:39 +0000

Yet Another Story Asks Whether Hulu Can Pull This Thing Off

Chadwick Matlin — Mon, 29 Mar 2010 14:35:26 +0000

About once a week some media publication writes a piece that asks whether Hulu can survive. Inevitably, the question isn’t answered. But along the way a few points are always raised: 1) Hulu doesn’t have enough advertising to fill all of its ad slots. (That’s why you see so many public service announcements.) 2) The networks are getting antsy in this new economic climate, trying to monetize as much as possible. This is why they’ve gone to war with the cable companies for carriage fees—to maximize the revenue for each channel’s programming. 3) The trend in the industry is toward paid content, not toward advertising-supported video. 4) Hulu has a rumored subscription model that may debut in the coming months. 5.) Viacom’s removal of The Daily Show and The Colbert Report suggests more content could disappear from Hulu.

This week, the can-Hulu-make-it story comes from AdAge. I’d say you should read it here, but you’ve already read it. It uses some questionable math to say that Hulu can barely pay its bandwidth bills. Hulucination has no more knowledge of whether that’s true than AdAge does. The piece appears to use its own estimates to come up with that news, rather than a source inside or outside the company.

What the piece doesn’t do is actually answer whether or not Hulu can survive. And that’s because nobody knows, including people within Hulu, probably. Hulu’s fate has always been reliant upon its parent companies’ faith. Without NBC, Fox, and ABC’s content, the site would have nothing but Japanese anime and low-budget schlock movies in its library.

Will a subscription service save it? Maybe ... unless it drives an audience away. Can it survive on ads alone? Maybe not ... unless advertisers wake up and realize advertising online provides a more enriching environment than advertising on a standard TV. Can Hulu navigate the new era of tablets, cell-phones, and Web-enabled set-top boxes? As of now, no ... but that’s because it hasn’t tried. One iPad-customized site, iPhone app, or Hulu Box and perceptions change.

The Hulu guessing game is just that—a game. For the media, it’s the equivalent of Washington politicos debating how many seats the Democrats will lose in November midterms. You can make educated guesses, but they’re still guesses.

But apparently guess we must. An entire industry seems to rest on whether Hulu can survive. If Hulu can’t figure out a business model, the thinking goes, then nobody can. And that means an end to the utopian ideal of streaming TV. It’s the same reason that this blog was created: As Hulu goes, so goes Web video.

But we’re beginning to see that that’s not necessarily true. Fox has started a new mobile video service called BitBop that asks users to pay for $10 a month for Fox, NBC, and Discovery content. Overseas, Hulu knockoffs are beginning to colonize foreign streaming markets. Domestically, the iPad looks ready to usher in a new era of a la carte video purchases. As technology and economics have matured, Hulu has lost its status as the only big fish in a small sea. It helped create a revolution that is now larger than itself. And when a movement takes on a life of its own, it sometimes no longer has room for its creators.

But this one may leave room for Hulu. Who knows. Certainly not AdAge. And definitely not Hulucination.