Tuesday, February 23, 2016

Just when you thought Hulu's anti-trust issues couldn't get any worse

Hulu has always been a great example of two important business principles:

First, that it is nearly impossible to get in trouble for anti-trust violations these days (Hulu was a partnership of ABC/Disney, NBC/Universal and Fox);

And second, no business model is idiot-proof (though it does take a great deal of incompetence to screw up something this close to a monopoly).

Because it has been so poorly conceived (starting with wildly optimistic estimates for advertising revenue) and badly run, Hulu's backers have been backing away for a while now and the company would love to find another pair of deep pockets, and since it has a near monopoly on its corner of the market, it offers potential buyers a unique opportunity to screw over the consumer.

Nathan McAlone writing for Business Insider
Time Warner is deep in talks to buy a 25% stake in Hulu, but the company ultimately wants episodes of current TV seasons to be kicked off Hulu, according to The Wall Street Journal. This isn't a condition for investment, but it puts Time Warner fundamentally at odds with something that has been an integral part of Hulu's business model and has helped the service snag 10 million subscribers (for reference, Netflix has about 45 million US subscribers). [Those two numbers practically meaningless. Hulu has a two-tier model (ad-based and fee-based) so most of its viewers and possibly most of its revenue come from non-subscribers. -- MP]

Why does Time Warner want to cripple Hulu's big advantage?

The company sees "next-day" TV content as something that undermines the value of its pay-TV packages, The Journal reports. Time Warner fears that Hulu's popularity, especially built on the back of current TV seasons, will accelerate cord-cutting, or the ditching of cable subscriptions altogether.

At its core, the argument comes down to whether you believe the big bundle, the 500-channel cable package, can be saved. Time Warner clearly does, and it wants to bulk up its own TV Everywhere packages, which are tied to a cable subscription. From this vantage point, it's easy to see why Time Warner sees Hulu as undercutting its business.

Time Warner is closely aligned with one of the most hated and antiquated industries in the entire economy, cable TV. That industry is being pressured by new technologies. Of those, perhaps the most threatening are services that allow viewers to see the most popular content cable offers a few days later on the internet for free. If those services were split up over a wide range of providers, Time Warner and the cable companies would probably have to deal with the new landscape by rethinking their business models, improving their product, cutting prices, and doing a wide range of other things we'd like to see.  Unfortunately, since so much of this potential competition is concentrated in one horribly managed company, Tim Warner apparently believes it can just buy a stake in the train wreck and force it to stop providing those services to the consumers.

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