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Why Hulu Will Fail

Hulu is a product, or an arrangement between content owners--it doesn't actually own the TV shows or movies it distributes. Actually, NBC and News Corp. can stream as much of their content through their own Web sites as they want, and in any arrangement they want (commercial-free, for example). The only thing Hulu has the rights to is third-party distribution agreements. NBC, for example, couldn't strike a deal with YouTube, but Hulu could.

The exclusivity deal is also short-lived: two years, which illustrates that neither media giant wants to see this thing get too powerful. The economics are also poor. The operating costs (i.e. streaming) and research and development costs (both of which will rise) are to be paid for by Hulu. The company only gets 20% to 30% of ad revenue, and less where distributors like AOL are involved. Hulu.com is also at risk from myriad competitors, including the new CBS interactive network, ABC.com and a whole host of online video sites. That said, distribution seems to be its main strategy: Hulu is already in talks with YouTube--another bad sign given its economics.

Read the whole story at Silicon Alley Insider »

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