News Corp. and Disney Plan to Yank Hulu Content, But Hope to up Subscriptions
August 20, 2012 4:00 PM
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CEO and VPs are reportedly contemplating jumping off the ship on their golden parachutes
Since its inception, Hulu has had a rather baffling ownership stew and a tough goal -- making streaming, exclusive internet video content profitable. Yet somehow it made it work.
But all is not perfectly at peace in the land of Hulu green;
has an interesting piece detailing Hulu's growing pains, including preparations for the possible departure long-time CEO Jason Kilar.
I. Will Kilar Seize His Golden Parachute?
An internal memo quoted by the report writes, "Outline transition plan for new CEO. Discuss potential candidates and process."
Hulu has been kicking around on the net
since March 2007
and Mr. Kilar, a Harvard Business School grad, has been leading it since June 2007. Originally Hulu was to be an independent service -- co-owned by News Corp. (
) and Comcast Corp. (
) and distributed by Myspace, Yahoo, Inc. (
), Comcast, and Facebook, Inc. (
), among others. The site
went live in 2008
, and instantly
made a small splash
, being one of the few pages to rival Google Inc.'s (
) YouTube. Then in April 2009, The Walt Disney Comp. (
, purchasing a 27 percent stake.
Since then, News Corp. and Disney have taken a leading role in terms of steering the company's direction, as Comcast's
acquisition of co-owner NBC Universal
has prevented it from participating in decisions
for antitrust reasons
Things became complicated when the pair agreed to a management buyout from founding co-owner Providence Equity Partners. Part of the terms of that buyout was that Hulu's founding managers -- including Jason Kilar -- could now cash out a significant number of vested shares. For Mr. Kilar, who holds approximately 5 percent of Hulu shares, this may amount to a $100M USD compensation package payday -- pretty compelling temptation to leave.
Jason Kilar could score $100M USD if he leaves Hulu. [Image Source: The Hollywood Reporter]
The Hulu memo discusses eliminating
from the "free" (ad-supported) homepage. This means that Disney and others could potentially cut deals with Google's YouTube, weakening Hulu's position. It also eliminates "content parity", meaning players like Disney (owner of ABC) and News Corp. (owner of FOX) can hold back content for their own websites, to differentiate them -- further weakening Hulu.
Lastly, it also discusses cutting back on Hulu's international efforts. News Corp. expressed its desire to "limit" its investment in bringing Hulu International to $30M USD, while Disney "would like to discuss a less ambitious product which requires less capital investment but which could prove to be a good business."
II. The Networks Don't Know What They Want
Such provisions could yield a smaller, but more profitable Hulu, which could help drive away a high-profile executive like Mr. Kilar. But he insists in past interviews that he wants to continue to lead the business and help it mature.
Hulu is worth $2B USD today, approximately twice its $1B USD founding value. Providence Equity Partners is thought to have approximately doubled its $100M USD, 10 percent stake in the buyout.
The streaming video site is expected to make about $420M USD -- a level of monetization experts
. Many view
-- an $8 USD/month premium service -- as key to the site increasing its profits. Last year, Hulu pulled in almost $200M USD from its 2 million
. Boosting that number could mean bringing Hulu closer to moneymaking parity with major television networks like FOX, who draw far bigger revenues from advertisers and distribution/licensing payments.
Networks like ABC (Disney) and FOX (News Corp.) want to profit off of premium Hulu subscriptions, but they also want to yank exclusive content from Hulu to increase profits at their own private sites, yielding a troubled marriage.
The report also mentions fears that two other major executive shareholders -- Andy Forssell, senior VP of content, and Jean Paul (J.P.) Colaco, senior VP of advertising -- may leave/cash out, as well.
In short, this is a very volatile time for Hulu. Its big media network owners are waiving in their commitment, even as its top leadership consider seizing their golden parachutes and leaping off the ship. Ultimately the big media owners may be most to blame for this.
While Hulu is a bona fide success story, today rivaling YouTube, its big media ownership appears quite befuddled. It sends quite the mixed message for network investors to say they want to grow premium content customers, while also discussing removing premium content from the common site, to hoard their on your own private site.
Ultimately, this may be a case of big media's greed killing
a good thing they have going
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Apple TV negotiations??
8/21/2012 12:00:33 AM
I know I am speculating about this, but this does seem to be coincidentally happening at the same time rumors about Apple's TV system have been warming up. What if the non exclusive license is nothing more than a prelude to selling rights to Apple for a premium over the current model. Apple could make up the up front cost of signing on the big content makers with sales of the hardware to drive the ecosystem. There certainly doesn't seem to be a lack of cash in Apple's vaults to tempt Disney, Fox, NBC, and CBS into selling their shows through an Apple ecosystem. It sounds like another chapter in the most favored nation clause has been added to the Apple content stable. The music industry may still be smarting from having to pile into iTunes, but what other game is there for the video content providers to join up with? Amazon is certainly not going to bid up higher prices, they are a low cost, value added business model. Google is a competitor, and Apple may be making the lions share of the income, but iTunes doesn't really add much to their bottom line. It is the secret sauce that keeps everyone coming back.
RE: Apple TV negotiations??
8/21/2012 12:32:02 AM
That would make sense unfortunatly
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