‘So it begins,’ were the words of King Theoden of Rohan, in the Lord of the Rings trilogy, uttered as Saruman’s 10,000 evil Uruk-hai chant outside the gates of Helm’s Deep. Which pretty much sums up the move by Hulu to come out guns blazing into the paid for, Over The Top video market, with a $10 a month offer and all the TV you could possible shake a stick at. It will certainly be a war to remember.
Jason Kilar, Hulu CEO has managed to get the combined forces of owners Fox, NBC Universal and Disney to push all of their new (as well as old) TV series out over the internet for a single unified price. As such Hulu is starting its paid subscription life as an overnight replacement for DVDs, and even for the Blu-ray format.
The service is called Hulu Plus and the launch strategy is to make it available directly on Samsung internet connected TV sets and Blu-ray players, with the promise that the Sony PlayStation 3 will be added shortly, and the likelihood that the Bravia range of internet connected TVs will follow shortly, as will the Xbox 360.
But it’s the breadth of the content that makes this move impressive. We won’t list them in full, but you’ll get the idea ‘ first off the current seasons of Glee, The Office, House, Modern Family, 30 Rock, Family Guy, Greys Anatomy ‘ some of the most watched programming in the US.
But then other current favorites such as 24, American Dad!, Bones, Castle
Cougar Town, Dancing With The Stars, Desperate Housewives,
FlashForward, Law & Order: Special Victims Unit, Lie To Me, Lost
Supernanny and Trauma.
Classic titles including the X-Files, all nine seasons of them, every Buffy the Vampire Slayer ever made, all past Grey’s Anatomy, past seasons of Angel, Dancing With The Stars, Legend of the Seeker
Miami Vice, Prison Break, Quantum Leap, The Pretender and many more.
We’ve looked at the launch of online services for the past 5 years, since 2006 threatened to be the year of the movie download, and in almost all instances of online launches the services are flawed by insufficient popular content.
And that leads us to another point. If Hulu gets this content on these terms ‘ no upfront payment and $10 a month all you can eat subscriptions – it will be pretty hard, for the owners of what makes up a significant proportion of total US audience draw, to allow these programs to be withheld from rival sites or similar terms. The licensing is in place, and in the same way there with the emergence of iTunes Music Store, similar, parallel services were launched, so we expect the same to happen here.
Hence our dramatic kick off to the story, ‘So it begins,’ and the potential conclusion that the DVD industry could find itself not so much dead and buried, as undermined as the primary home video option, after a relatively short period of time. And of course once that happens (or starts to happen) in the US, broadcasters and pay TV networks all over Europe, will follow suit, setting up their own Hulus, although that is already happening in the form of iPlayer in the UK, and its set top standard Canvas, and HbbTV around the rest of Europe.
First there will automatically be a flood of deals for new devices that will attach to Hulu Plus so that in a short space of time, perhaps 9 months or so, Hulu Plus will get to the point where Netflix is, able to more or less be delivered with any current TV device. It will be a default for all connected TV sets, and likely Google TV will look to offer it.
Secondly Apple and its much rumored iTunes TV might eventually emerge and offer an alternative. But right now this is good enough for Apple that it might not be necessary. Hulu Plus can be viewed over 3G or WiFi on Apple devices, says the Hulu release, and this takes in all iPhones, the iPad Touch and the iPad. In every instance, including the Samsung TVs, there is a Hulu Plus App to download, and the Apple version of that App is from the Apple App Store.
In order to keep up with this, the same App needs to come for Android devices from the Android Market and Verizon needs to make sure that all of its devices have such an App, or else all the work it has done to make it no longer necessary for US cellular customers to go to AT&T for the kind of touch experience created by Apple, will once again lose ground.
The level of interoperability, whereby viewers can watch halfway through a program on their TV, then pick up where they left off while on the road on the iPad, is fairly easy to create, and has to be enabled by linked accounts at the server level, so will naturally work with Android devices once such an App is out.
Once that happens, this service almost KILLs Qualcomm’s FLO TV, because so much good TV content, can be enjoyed NOT when it is broadcast, but on a VoD basis, on a large variety of the most popular portable devices ‘ instead of a handful of specialist offerings. What it does to ATSC M/H is also anybody’s business ‘ live local broadcast TV on your phone is still appealing, but not quite so appealing as it may once have been. On the other hand, if you get used to seeing SOME of the popular TV channels in this way, for a payment, it will raise the expectation that ALL of local broadcast TV should also be available using ATSC M/H, so it might actually drive it forward, as similar initiatives did in the Japan and Korea.
After there has been a device rush for Hulu Plus, then there will be a content rush from the other studios. They will want their content on Hulu Plus, so other studios will either negotiate terms or be forced to come out with their own rival to Hulu, and quite frankly there isn’t enough TV content left over for such a service, if you take this content out of the equation. Sure there is a lot of premium content from cable networks, but that will come to market through TV Everywhere efforts from all the major pay TV platforms, as long those moves are not blocked by regulators.
This service is the outcome that we never thought was possible for Hulu when it first launched, for two reasons. First off, the three studios behind Hulu all had their own online efforts and we thought that they would be competing with this, and would stand for driving all of the revenue away from their own efforts, to one they only shared. Secondly we expected, and still expect, that any single effort of this size from the main broadcast networks, would be frowned upon in the same way that TV Everywhere may yet end up frowned upon by the US competition authorities in the form of the Justice Department or the Federal Trade Commission.
If the US ends up taking cable networks over the top in a manner which protects Pay TV operators, and if it lets the Broadcast Networks take content to market in the identical fashion, then Over The Top TV is established in the US, but it is established by the existing players. It just happens, and there is no new business model, little innovation, just retention of the status quo, and that’s not too surprising. No-one else will find it easy or even possible, to manage the licensing of enough content. It works for the consumer, but unlike most innovations in the internet, lets in no new players. A cellular analogy would be like licensing tons of spectrum, but only allowing it to go to Verizon and AT&T. It is this reason that these companies will be willing to do same term deals for new rivals which come into the equation later.
We have suggested that Apple might be one of these, but also Netflix could also be one of them, given that it has signed a phenomenal amount of movie content to its own online service. Right now you have to ask why you would need cable TV or any kind of Pay TV if you had Hulu Plus AND Netflix. You’re pretty much set with all forms of content at that point, and can afford to ‘cut the cord’ from your pay TV supplier.
There is the issue of where do you ‘discover’ new content, and some TV service has to be made available for that, but it can be a fairly basic service or recommendations can travel around YouTube and Facebook, or indeed become part of the service.
We have talked at length about what Google needs to do to get itself access to licensed content (see separate story this week) which might preclude it from getting any deal that involves Viacom content at the very least, until it buries the hatchet with that organization. But such a powerful grouping as this would have to let Android devices access this service. But what’s in it for Google?
Hulu Plus will kick back advertising revenues directly to the content owners who own Hulu, not to Google, not unless Google offers to sell this advertising for Hulu Plus, and Hulu Plus accepts such an offer. Which we don’t think will happen.
Google would prefer to offer the same content and pay a percentage of advertising and drive its own service. Google might be in a position to argue that this collection of national broadcasters are acting in concert as a cabal, and blockading a huge part of the future online advertising market, and perhaps weigh this against getting a content licensing deal.
There are also the international licensees of the same content. In Hulu Plus they will have a model to work from, whether they are using Canvas technology or any other online streaming service, and can affectively block any rival user, including Hulu itself, from international distribution. These players, particularly the established European broadcasters, make up too much of the revenues of the Hulu owner companies for them to look to change existing terms there.
We have already seen attempts by Hulu to sub-license outside of the US, where it was offering minority ownership and no control, to traditional TV partners and the deal did not fly. We expect that it may come back to this in future years if Hulu Plus is highly successful, but right now it must just continue to let its licensees make their own decisions.
Finally a key point is the manner in which Hulu has gone about this ‘ it has not shut or deprived the existing Hulu service of content. Instead it is a new, ad-supported subscription product, which it says is incremental to the existing Hulu service. In doing this it has a wider reach in the broader free Hulu, with which to cast a net to catch paying customers.