In Selling Hulu, Network Owners Overlook Vertical Integration For More Revenue

Hulu is a valuable distribution asset for TV networks, but only as much as it can drive higher revenue for shows among all distributors.

Hulu’s early life seemed to yield quick, long-term success, which was a positive trend for News Corp, NBCUniversal,  and later Walt Disney. Its vertical business integration and program control seemed an obvious plus for these network owners who had long been at odds with some of their distribution partners.

But big media companies have always had diverse and sometimes conflicting arrangements.

For example, “Modern Family,” produced by 21st Century Fox, can cheer for strong ratings on ABC – at the same time that 21st Century Fox hopes for strong ratings on ABC’s competitor Fox Broadcasting.  Fox, as a producer, gets a hefty license fee from ABC, which scores against other broadcast networks -- CBS, NBC, Univision, CW and, yes, Fox.



Big media companies look to continue getting all sorts of shelf space -- perhaps in niches as yet to be determined. In that regard, specific business units will operate like church and state -- little comes between them.

Recently Fox made an “exclusive” deal with Netflix for “New Girl” -- which means Hulu gets fewer recent episodes of the comedy. Why would Fox do this? For Fox, it is about getting more license fee money -- from all partners.

Treating Hulu as a separate operating unit -- church and state -- hasn’t always been so clean, in part because of Hulu’s current big three media co-ownership. That’s another reason to sell it off.

Does this mean less broadcast TV content for the future Hulu? Not necessarily. That would only occur if Netflix, Amazon or some other growing premium video digital service outbids Hulu for the product.

Media companies, in the end, want as many distributors as possible for their new digital Internet businesses. Right now, all new digital businesses have one particular problem that will continue to reverberate for some time: scale.

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