Hulu at a fork in the road

Hollywood's own online video service has been no match for its rivals. Now its owners are under pressure to pony up more money to expand the service.

By MSN Money Partner Dec 21, 2012 1:49PM

The Hulu website © Scott Eells/Bloomberg via Getty ImagesBy Christopher S. Stewart and John Jannarone, The Wall Street Journal 


Wall Street Journal on MSN Money

As Amazon.com (AMZN) and Netflix (NFLX) battle it out for dominance in online video, owners of the much smaller Hulu, Hollywood's own online video service, are under pressure to decide which direction to go.


Jason Kilar, the chief executive of Hulu, has asked the site's owners -- Walt Disney (DIS), Comcast (CMCSA) and News Corp. (NWSA) -- for about $200 million to fund more program purchases and an overseas expansion, according to people familiar with the situation. That is roughly twice the amount they contributed this year, one person said.


The request to sink more money into the unprofitable, 5-year-old venture has put the spotlight on differences between Disney and News Corp. -- the two voting partners -- over Hulu's business model, which involves both a free service and a fledgling subscription offering. (For regulatory reasons, Comcast, the majority owner of NBCUniversal, can't vote its stake.)


It isn't known how News Corp. and Disney will respond, but the request could prompt the owners to clarify the strategic vision for Hulu before increasing their bets on it.


News Corp., the parent of the FOX broadcast network, wants Hulu to evolve into solely a subscription service, whereas Disney, owner of the ABC network, favors the free, ad-supported approach.


A Hulu spokeswoman said, "We do not comment on continuing discussions regarding decisions that have yet to be made."


Betting on original programs

Hulu streams shows from its partner channels, as well from other networks, such as Viacom's (VIAB) Comedy Central. Over the past couple of years, it has begun to develop original programming, beginning in earnest with the documentary series "A Day in the Life," directed by Morgan Spurlock, and "Battleground," a 13-episode comedy about a dysfunctional Senate campaign.


Hulu already has incurred heavy costs for expansion. The company doesn't disclose profits or losses, but Disney for the first time gave some indication recently when it reported its fiscal 2012 earnings. Disney revealed Hulu had sustained larger losses for the fiscal year "driven by increased programming and marketing costs, partially offset by higher advertising and subscription revenues." Some number-crunching of Disney's comments indicates Hulu's quarterly operating loss was around $30 million.


Hulu had to borrow $338 million in October to finance the $200 million buyout of Providence Equity Partners' 10% stake in the venture, and a $134 million equity-compensation payout to employees, according to a regulatory filing by Disney. Of the employee payout, about $40 million went to Kilar, according to people familiar with the matter. Hulu's owners guaranteed the loan.


While Hulu invested more than $500 million in content in 2012, its competitors are spending far more.


Netflix has committed to spend $5 billion to secure movies and programming for online streaming over the next few years, with about $2 billion of that due in the 12 months through next September. The outlet has commissioned original series like "House of Cards," as well as paid for rights to an array of Hollywood content, as has Amazon.


Amazon declined to comment on the cost of its content, but Reed Hastings, chief executive of Netflix, estimates his competitor is losing between $500 million and $1 billion a year on building its subscription video-on-demand service.


Amazon this week said it had approved pilots for six original series including "Dark Minions," an animated series about workplace slackers written by stars of "The Big Bang Theory."

 

"If Amazon and Netflix are stepping it up, what are you going to do? That is the big question for everyone at Hulu," a person familiar with the matter said.


Tension over Hulu's purpose surfaced almost as soon as the site was unveiled in 2007. At that time, online video was beginning to take off and broadcasters were trying to respond. NBC and FOX, the two original driving forces behind Hulu, wanted to draw viewers away from Google's (GOOG) YouTube by making their content available on an array of sites including Web portals operated by AOL (AOL), Microsoft's (MSFT) MSN  and Yahoo (YHOO).


But Hulu has proved no match for YouTube. Hulu had 22 million unique viewers in November, including those visiting via partner sites like Yahoo, while YouTube had 152 million, according comScore.


And since 2007, Netflix's video streaming service has taken off. It had 23.8 million paid subscribers in the United States at Sept. 30. More recently Amazon began offering video streaming for subscribers to its $79-a-year Prime service, which gives customers free two-day shipping.


Anthony DiClemente of Barclays Capital estimates the number of Amazon Prime users is slightly less than half of Netflix's subscriber count.


By contrast, Hulu has just three million subscribers -- although it said this week the figure is double what it was a year ago. Both Netflix and Hulu Plus, the subscription service, are $7.99 a month.


Hulu's partners contemplated throwing in the towel last year when they put Hulu up for sale. But that effort was abandoned, with only Providence being bought out.

 

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33Comments
Dec 21, 2012 5:24PM
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I will never pay for Hulu because even if you subscribe, you still have to endure commercials.  That is simply unacceptable to me.

I would be willing to pay for a commercial free service that lets me watch current TV shows, but only if there were no interruptions for the commercial garbage.

I have a DVR, and record everything.  HULU is going back a few years in TV watching.
Dec 22, 2012 3:04AM
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One very obvious problem that does not seem to be discussed. Wasted money on executive compensation. The article says the company is asking for $200 Million the coming year, and at the same time is making a payout of over $130 million in executive compensation. As with other industries, including the financial industry, there is no logical excuse for such compensation packages for a third place company that is losing money. If, on the other hand, the executive was making a profit with fewer resources and showing creativity and ingenuity, he/she should be compensated based upon such profits. But there are hundreds of executives that could be hired to LOSE money and run an unprofitable company. 

Why not cut executive compensation in half and charge customers $5.99 per month to undercut Netflix? If it is profitable, then give a bonus to executives. If not, you have still cut losses.
Dec 21, 2012 9:36PM
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hulu , just make all shows & movies available to everyone ... commercial free for paid subscription commercials for the free subscription ... you will make money that way trust me
Dec 21, 2012 6:47PM
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Hulu is a great service for free but if you are a subscriber then that's were the problems begin. The commercials are short 30 sec. or so and I can deal with that for the price of $7.99 vs. $13 monthly per DVR. Hulu can be seen on any devise you own in you home with one subscription as well. Their original series are very good and worth watching for sure.  So those are all pros.

The cons are the MOVIES are so old or if you want to catch up on a series from the start-good luck. Some you can, some you can not. It takes way too long between seasons before Hulu releases them for viewing if at all. If you are following a current season show, sometimes you have only a month to 3 weeks to watch the episode before it is off the air and you are screwed! So you either have to wait for re-runs on Hulu out of order or on TV. I don't know why but I am sure it has something to do with the $$$$$$$.

If they could get their seasons up to date as well as newer movies or at least more current like some made in 2000 & up-LOL they would do better in the market place I feel.

Hey maybe they should read the comments on their own pages their viewers write about-that would be a good start.

 

Dec 21, 2012 8:02PM
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the commercials are way too repititious,,,,, you know ,down there, the female yeast infection, 9 times i have to sit through listening to that. yes its  important to women, but lets face it,we as subscribers should be  able to click off the commercials and get back to watching what we pay for,,,, not being able to click them off really turns me off from any site like that.
Dec 21, 2012 8:28PM
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Hulu beat it's viewers to death with the constant commercial interrupts for all its contents whether movies or tv/cable series for several years then they decided to funnel any and all streamed shows that were worth a watch to it's pay for veiw + site.  Well low and behold they are seeing the same reaction that occurred to Netfix when they decided to gouge the public for its content.  I and many like me are just damned tired of these outfits with the idea that the public will just roll over and accept this crap just like they did for years with cable companies that we are boycotting these outfits and their crappy content.
Dec 21, 2012 9:15PM
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I subscribe to Hulu and I love it....I cancelled Netflix because they did not have any of the current content. I don't watch live TV; just watch all the shows I like on Hulu whenever I get a chance. The commercials do get a little repetitive but it doesn't really bother me there are commercials on TV. I hope that they stay in business and do not increase their price.

Dec 21, 2012 6:22PM
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I appreciate having Hulu...along with Netflix I have a healthy stream of entertainment.
I did switch to Hulu plus this month to catch up on some of the programs that I missed. Its been okay. I am hoping that if they get more content, that they get a deal with Cartoon Network.
That would be a huge win for Hulu...especially with the online crowd. It would also secure me as an ongoing hulu plus subscriber.

Dec 24, 2012 9:42AM
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I love having Hulu and while it does have commercials, the amount of time of the commercials is far less and the volume doesn't triple.

 

I dumped my cable service 6 months ago, bought a 25 dollar indoor antenna with a 50 dollar converter box and I get PBS, ABC, NBC, CBS. Free Hulu and 7.99 Netflix and no whopping cable bill!

 

I don't really miss much as I can see most programs for free on Hulu and stream movies for 7.99.

 

That put an extra 125.00 a month in my pocket...  I don't miss cable at all. 

Dec 21, 2012 6:04PM
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 they should have commercials before and after  the shows. They will still get the revenue and apease the masses. 
Dec 22, 2012 12:59AM
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I am a heavy Hulu user because I am hearing impaired and Hulu has the largest inventory of good closed captioned material.  Amazon does not offer closed captioning at all.  Hulu will not run on any Android platform that I know of.  I have never had a problem with Hulu, finding it a great source for series T.V..  I can only DVR so much.
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Hulu has the worst movies. Not even one movie is worth watching. The amount of commercials they have in an hour of programming is crazy.
Dec 24, 2012 11:10AM
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I already have Netflix, why the heck do I need another redundant thing like that .

too many already in the field, just leave it be.

TV mfgrs are already trying to force you into one or the other. I tried a Mitsubishi...''smart'' tv last month and I could NEVER access my Netflix. It forced me to Hulu or nothing !...so I sent it back and got a Vizio 70".

Dec 23, 2012 4:36PM
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Hulu charges a fee for several reasons. The price of content is becoming expensive. To help find a balance on the cost they charge a minimal fee in conjunction  with commercials. If it was a fee only service and only provided current TV series the cost to the consumer would probably be exceed $30 or more a month. People would be outraged because they had to actually pay more to not have to watch commercials. 

Like the article also stated Hulu doesn't make money, it has actually been loosing money. Its more of a tool to get people to watch the shows then hopefully you will start watching them on their networks. making them more money.

Disney, Comcast, News Corp (parents of FOX networks) are the owners of Hulu.  So with those companies being the owner of Hulu it appears it will never be a commercial free service and their will prob be fee hike in the near future for this service.

I don't hear people complain about product placement in movies and TV shows. You are paying to actually watch commercials when you pay to go see a movie in the theater. Also, people pay to read commercials in newspapers, magazines, and on the internet!

To sum up. Your always going to pay to watch commercials.






Dec 24, 2012 9:04AM
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it's funny that fox news , MSNBC and ABC news are partners in this venture, but they make us believe they hate each other. In the end is allways about money and not politics with this guy's.
Dec 24, 2012 11:06AM
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Hulu has to many commercials per show, it's plain annoying. I can watch Crackle and their commercials are nowhere near as bad or pervasive. When it takes about 45 minutes to watch a 30 minute tv show because of the commercials, it's not worth it!!!
Dec 24, 2012 9:48AM
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The biggest problem with online video are the forced commercials. It doesn't matter what the content, nothing is worth having to endure the pervasive asinine commercials spewed by ad agencies. Don't watch any video online; have no plans to ever. I avoid brands with particularly insulting or over-repeated advertisements. Good products need little advertisement.
Dec 24, 2012 3:01PM
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If you just download utorrent on your computer, you can watch all the tv shows and movies for free.  Problem solved.  
Dec 24, 2012 2:09PM
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I have Hulu Plus, and though it does have a few good shows, it has far too many Japanese animation shows and even non-animated Japanese shows.  I have nothing against Japan, but why all these shows?  They must be cheap to buy, but I don't watch anime.  Why don't they put on more seasons of good sci-fi shows like Farscape or maybe old Star Trek shows?  Why don't they have more westerns?  Though the service is cheap, it really leaves a lot to be desired, and you have to weed through hundreds of shows you don't want to see to find the few that you do want to see.  Even if you find a series you like, they may only have one of four or five seasons.
Dec 24, 2012 2:18PM
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I tried hulu it sucked. Netflix went the way of the Dinasour to me. Old content and  half what it used to be.  They both suck!
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