Variety is reporting on an internal Hulu memo indicating that the imminent buyout of Hulu's private equity partner may spark a series of changes, including the possible departure of CEO Jason Kilar and modifications to its content licensing arrangements with its broadcast network TV owners. Kilar has done an excellent job with Hulu, creating a top-notch user experience that is monetized through both ads, and more recently through subscriptions at Hulu Plus. Kilar has more than defied the skeptics who dismissively labeled Hulu "Clown Co." prior to its launch.
Nonetheless, there can be no disputing the fact that Hulu's essential asset from the outset has been exclusive next-day access to programs from Fox and NBC (now Comcast) and more recently, Disney/ABC. Broadcast TV is still by far the most popular programming around, and even though Hulu has added dozens of content partners, including a high-profile deal with Viacom, the reality is that for many Hulu users, it's a destination to catch up on their favorite broadcast programs.
That's why potential changes to its network owners' content licensing arrangements - as outlined in the internal memo - could have a transformational impact on Hulu going forward. The memo notes amendments under consideration that would eliminate Hulu's exclusivity for current season programs, its ability to obtain all programs also available on the networks' own sites and its rights to exclusive "super-distribution" to syndicate content to third-parties, which would return to the networks.
Rather than Hulu being the go-to place to catch up on missed shows, the networks would have vastly more freedom to make their own sites the main places to view, or to strike new licensing arrangements with other parties.
Two companies stand out as having the most to gain from the networks' newfound flexibility: Google/YouTube and Apple. It's no secret that YouTube is trying to professionalize its content, and is investing heavily to create a series of new independent channels. In addition, Google is still trying to figure out a winning strategy for Google TV, and was famously stymied by Hulu, which blocked its programs from being viewed through Google TV. No wonder that Google kicked the tires when Hulu made a brief appearance on the auction block last year. Next-day access to broadcast programs would be very strategic to Google's device ambitions and YouTube's content agenda.
Meanwhile, Apple made news last week when talks it is having with large U.S. cable operators about building a set-top box surfaced (a plan I believe will go nowhere). The report follows months of speculation about Apple's plans to develop its own high-end TV. While nobody really knows what Apple is up to, what is true is that despite all of its device genius and financial riches, it hasn't been able to crack the TV nut in a big way. However, expanding beyond its traditional iTunes paid model by licensing programs directly from the networks for free, ad-supported viewing, could create an anchor for new devices/services. Apple might also dangle to the networks how its vast promotional power could turbocharge Hulu Plus subscriptions.
No doubt News Corp. and Disney, which control Hulu, are well aware of the opportunities with both Google/YouTube and Apple, not to mention others that would also covet their TV programs (e.g. Amazon, Microsoft, Netflix, etc.). One unknown in all of this is the role of authentication. As Variety notes, Fox programs have been authenticated in an 8 day window for some time, a route ABC hasn't pursued. Authentication is a key bargaining chip in pay-TV negotiations and so any upside from Google/Apple/other deals would have to be weighed against potential risks to pay-TV deal terms.
Broadcast TV programs have been a big online audience draw, as Hulu has amply demonstrated. But where Hulu's genesis was distinctly defensive - as a tactic to ward off piracy and broadcast networks to retain control of their destiny - the world has evolved a long way in five years. Now the networks seem ready to go on the offensive, tapping into online video's massive adoption and the proliferation of viewing devices. Hulu's role would become more subscription-focused and the broadcast networks would be poised to gain rich licensing fees.