Disney’s arrival won’t open the content floodgates for Hulu

By Giles Cottle

Disney’s entrance last month into the Hulu fold marked another milestone in the young online-video service’s short history. The implications of the deal, which will see Disney TV shows and movies appear on Hulu for the first time, are serious and far-reaching. But the most obvious is that three of the four major US networks are now part of the service. If there were any lingering doubts that Hulu deserves its seat at the head table of US TV, they are now gone.

The deal makes CBS the odd man out, since none of the network’s content appears on Hulu. It is pursuing its own online-video strategy with its TV.com site. Hulu has been vocal in its desire to add CBS content to its roster of programming. One could forgive even the most fearless CBS executive for getting a little restless at the fact that all of its competitors are marching down a path that appears so different from its own.

But the broadcaster remains buoyant, even after the Disney deal, insisting that it is happy with its current plans. “We have had a different strategy than some of our competitors,” CEO Leslie Moonves said at the announcement of the company’s 1Q09 results. “We think TV.com will do extremely well and we will be in control of our own destiny.”

No major surprise there. Big broadcasters have never been eager to dole out their content to everyone, and there is inherent value – perceived, at least – in keeping its best assets to itself.

But the small print of the Disney deal reveals that the two paths might not be that divergent after all. Certainly it is not the case that the other three broadcasters have had a sudden desire to ditch old rivalries and start working together. Getting major media conglomerates to cooperate is no easy feat, and the Disney deal comes with several strings attached. If the whisperings of the tech blogosphere’s rumor mill are to be believed, the company has had to cough up about US$50 million to pay for advertising space and other marketing costs for Hulu. The deal also makes Disney an equity investor in Hulu, meaning it does not actually give up complete control of its content to a third party.

And crucially, Disney will keep a lot of its most premium content firmly within the various Disney distribution channels where they sit now. Much of ABC’s most popular content will be shown, including ratings-busters Lost and Desperate Housewives. Notable by its absence will be ESPN content, which is excluded from the deal entirely, and only some Disney Channel programming will be available. What content there is will be “windowed,” meaning that it will be available initially on the Disney channel, and later on Hulu.

The reason for this is obvious: Most content from both channels is available as paid-for content, so allowing it to be shown on Hulu would cannibalize this revenue stream. And although Hulu might want to “help people find and enjoy the world’s premium video content when, where and how they want it,” as their mission states, Disney does not – at least in some cases.

In Disney’s last set of results, CEO, Robert Iger said the company was “working really hard” to develop Disney.com and ESPN.com as “primary portals to access almost all things that fit under those brand umbrellas.” Reading between the lines, don’t hold your breath for much ESPN or Disney Channel content to appear on Hulu or any third-party sites.

Hulu’s existing content providers have been taking a similar approach. Much of Fox’s and NBCs’ cable content is not on Hulu. And although the service’s catalog is impressive in terms of titles, it is less so in terms of depth. Most series are incomplete, and Hulu rotates the episodes that are shown on the service, meaning that what is available one week might not be there the next. This is to protect DVD sales, which – though seldom mentioned in the same context as online video – are still a vital revenue stream for broadcasters, and one that would be cannibalized by always-on, unlimited access to content people desire from Hulu.

Perhaps the term “premium content” needs to be re-evaluated, since it can have two different meanings. The content Hulu has is premium in terms of its popularity, but it is also available to any American with a TV set. If premium is taken to mean paid-for, then Hulu scores poorly.

If anything, Disney’s entrance into Hulu could exacerbate this scenario. It will raise the service’s profile and increase viewing figures and ad revenues: all good news for Hulu. But this will make it an even greater threat to the satellite and cable companies, which might be even less willing than before to offer their content to the site.

Herein lies a quandary. The success of Hulu, iPlayer and similar ventures attests to the popularity of premium, or popular, long-form content. But lots of premium content is still produced, distributed and controlled by huge players with vested interests in deviating from Hulu’s mission statement of content for all. Hulu’s greatest challenge is not to persuade CBS to sign up for its service, but to find a way of shifting this fundamental dynamic.