Summary
1. As online viewership grows, Pay TV companies reconsider sharing their content for free 2. Multichannel companies such as Comcast (CMCSA), Time Warner Cable (TWC) and DIRECTV (DTV) pay cable networks billions of dollars each year to carry programming
Analysis
With 42 million viewers in March, Hulu has leaped pasted Microsoft’s MSN and Yahoo and now has Google’s YouTube in its sights. This success has media companies worried that the video site's runaway accomplishments could undercut the financial foundation of the industry. As a result some media companies are pushing back, which could mean no more free tickets for many top cable programs that appear on Hulu.
By showing top shelf cable programming for free, ad based Hulu' and their owners; NBC Universal (GE), News Corp (NWS) and now Disney (DIS), have strained their profitable relationships with cable and satellite operators. Multichannel companies such as Comcast (CMCSA), Time Warner Cable (TWC) and DIRECTV (DTV) pay cable networks billions of dollars each year to carry their programming. These multichannel companies believe that they should have exclusivity as their payments support the huge cost of producing TV shows. Thus, they have been fighting against Hulu’s free cable TV programming.
The “Hulu dilemma” illustrates the predicament that media executives face as they consider the prospect of the Internet opposed to their traditional, old-line businesses. If the cable television industry does not find a way to preserve its two main revenue streams, advertising and subscription fees, the impact to the industry could be disastrous. Consider the deterioration of newspapers, which traded paying print subscribers in anticipation of online advertising revenue growth that has not materialized.
NBC Universal and News Corp. are considering whether to implement the multichannel industry scheme called authentication, which would require users to prove they are pay TV subscribers before they can watch current shows on Hulu. They are also discussing a tiered system, where some shows are available for free, such as prime-time network shows, while cable network programming would be reserved for existing cable TV and satellite TV subscribers.
