Commentary

Hulu's Origins Sealed Its Fate -- And Will Change Its Sale

  • by October 5, 2011
Poor Hulu - it never had a chance.

Not that anything has happened to the popular but troubled TV-like Web site as yet, but the writing is on the wall and in a way, it always was.

Hulu was a grand experiment by the studios. They needed a way to test the business models for delivering their content via the Internet. It was safest to do this under a unique brand name.

After all, they didn't really know what they were doing, so chance of failure was high. It was best to invest some money and spin up a proxy that can test a few options. If failure occurred, you wash your hands of it. Even better, join forces with a few other studios, so that the whole experiment doesn't cost any single studio too much.

And so Hulu was born.

The thing is, Hulu didn't fail. Instead it has made ad deals, pulled in actual paying subscribers and has been the talk of analysts, customers and the public at large. Hulu became popular quickly and, while it may not have been a cash cow, companies learned what worked best and saw what they wanted to do with their own distribution.

That is Hulu's problem.

Hulu wasn't supposed to succeed -- at least not to that point. Remember, it was a test -- a toe dipped in the water by the big boys. Now they've seen what people like and what they don't. Those content backers have decided it's time they go their separate ways and develop their own brand for delivering the same business. With that decision made, it's time for them to sell Hulu. They are ready to kick that little bird out of the nest; it's time for the real deal, as far as they are concerned.

But what happens to Hulu? It's a fairly valuable property, but it's got a major weakness. It is dependent on those very sellers for its food. The content that is licensed to them for viewing is what keeps the crowds coming back.

So the site, while popular, will only remain so as long as that content keeps flowing. To be sure, the sale of the company will come with a license deal, but a short-term one. Whether its two years or five or something in between, that's how long Hulu and its new owner will have to do something with the property.

And as much as I'd like to believe they would grow the property into something strong enough and profitable enough to renew those contracts when the time comes, I have doubts that will really happen.

So who is going to buy Hulu? With this perspective on how the sale might go down long term, the acquisition is likely one of two types of companies.

It's either a totally new company in the market looking to make a splash and get some name recognition. Or, it's a company already in the market, but hoping to prop itself up and expand its offerings.

An Apple or Netflix could benefit by purchasing Hulu, but they already offer streaming video. This deal would just give them an established brand with a licensing deal to help them get started in the daily television market.

An AOL or a Yahoo! isn't in the streaming video market yet. This would be a new area for them. Hopefully, they'd be able to pick up on things quickly enough to continue Hulu's growth.

In my opinion, this perspective makes a purchase by an AOL or a Yahoo! much more likely than an Apple or Netflix, but it's even a hard sell for them, given how high the price tag may be.

While there is no real timeline in place yet, it does seem obvious that by the end of the year, a deal, whether announced or not, will likely be in place sealing Hulu's fate.

And like I said, it's a shame. As you can tell, the Hulu team wants to succeed - and they have -- despite their success being something they were never supposed to accomplish.

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