It has been reported that NBCUniversal, News Corporation, and Walt Disney Company
will
block access to Hulu unless you pay for both a broadband subscription and a
paid TV subscription. Such a move will
prevent an estimated
3.58 million
people from becoming Hulu customers and likely stifle Hulu’s future
success. Who else but the executives who
brought you the Stop Online Piracy Act (SOPA) would actively strangle their own
Internet success story? With an annual
doubling of revenue and average monthly growth of 100,000 paid subscribers, it
must be that Hulu was too successful (and disruptive) for its stakeholders to
handle. So rather than embrace the Internet, they have opted to reverse
course and try to preserve the increasingly rejected business model of cable
and satellite TV.
Now
it is not a surprise that after ten years of
subscription rate increases exceeding inflation, millions of
consumers have opted to save money and switch to
broadband only for video consumption.
One of the reasons prices have continued to climb over the years is due
to fees content companies (through broadcasters) have been extracting from
cable and satellite companies for program carriage. This process, known as retransmission
consent,
is also the reason why the bundles that are sold to you contain hundreds of
channels you do not want to watch. It
used to be that broadcast television made its money solely through advertising
and free use of spectrum (a multi-billion dollar asset) provided by the
government.
However,
now fees pushed by content companies through broadcasters onto cable and
satellite providers are seen as an easy way to
increase profits
and subsequently consumer’s bills. While
major content companies still make money with either Hulu or your cable and
satellite subscription, the Internet requires content to aggressively meet the consumer at the
price point they demand while the old business model forces one bulk high price.
The problem with this approach today is
that consumers have the choice to cut their subscription and pay and view
content through broadband. Look no
further than Comcast (who is also NBCU) and you will see that they have been
losing cable subscriptions for the last
five years running but continue to see growth in broadband
subscribers.
On
the issue of piracy as a separate policy matter, what do Hulu’s masters think
will happen when an estimated 5 percent to as high as 9 percent of TV
households suddenly lose access to Hulu (much of its content already free to
see via broadcast)? Does anyone truly
expect people to repurchase their expensive cable and satellite subscriptions? When
consumers have chosen to reject the old model with their dollars, one cannot
just force them back and require that they perpetually pay more of their
money. Unfortunately, what will happen
is more people will turn to piracy not out of malice towards to the industry,
but because that is the only option left to them in these tight budget times.
Now they have every right to change their
business model but this type of top down control belief that somehow you can
control people’s behavior on the Internet and force them to pay ever increasing
prices is the mindset that birthed SOPA.
The
irony in this situation is that it could have been possible that Hulu eventually
made more money than the old business model while simultaneously reducing
piracy (the alleged goal of SOPA).
Since
its launch in 2007, Hulu has shown that it is possible to profit from preventing
millions of consumers from engaging in piracy by making content legally
accessible on the Internet. Just in the
month of March 2012 alone, 31 million people decided to watch content they
could have pirated and choose to view advertising or directly pay for access
through a Hulu Plus subscription. With
growth approaching 2 million subscribers and an online
advertising platform that was serving 1.4 billion ads
per month
(more than YouTube), Hulu’s future was bright. Despite all of this good news of break neck
growth and substantial room for additional growth, the desire to preserve the
old business model continues to override the necessity to embrace the
future.