HOLLYWOOD – Since Hulu launched early in 2008, its popularity has quadrupled as millions of people turn to the free online video site to watch episodes of such TV shows as “Family Guy,” “The Office” and “Modern Family.”
Some wonder how long the free flow of online video would last if Comcast Corp. ends up a part-owner of Hulu.
The nation’s leading cable company has made no secret of its disdain for Hulu’s approach of giving away the shows that Comcast and other pay-TV distributors spend billions of dollars for – and rely on to retain subscribers.
Comcast is in talks with NBC Universal about pooling their entertainment assets into a new company that would own 30 percent of Hulu in addition to such networks as NBC, Bravo, E! and Syfy. Comcast would control the new entity and possibly have the clout to push Hulu to begin charging for access to some of its most popular shows, including “It’s Always Sunny in Philadelphia,” “The Daily Show with Jon Stewart” and “Psych.”
“Would Comcast put an end to the Hulu model of using the Web to distribute free TV content?” asked Michael Nathanson, senior media analyst at Sanford C. Bernstein & Co. “Will Comcast continue to support Hulu?”
Hulu, a partnership among NBC, Fox and Walt Disney Co., has been a nagging concern among Wall Street investors, who see the site not as a hedge against Internet piracy or viral video phenomenon YouTube but as a threat to the economic underpinnings of the television business. The $22 billion a year in cable and satellite TV subscriptions paid to programmers underwrites the cost of producing all forms of television programming.
Hulu already has limited users’ access to certain cable programs, including FX’s “It’s Always Sunny in Philadelphia,” in response to an outcry from the TV producers and cable companies that object to paying TV programmers hundreds of millions of dollars each year for shows that are offered free online.
Comcast Chief Executive Brian L. Roberts is among the cable executives who have made their concerns known to TV programmers, both privately and publicly. He and other cable executives fear that Hulu could become the free alternative to cable TV subscriptions.
“If I am any one of these programmers, not just ESPN but the Food Network ... and I have a business in that 50 percent, 60 percent, 70 percent of my business comes from subscriptions, I want to think long and hard before I just put that content out there for free and not think through what it is going to mean to my business,” Roberts said at an investors conference in May.
Owning content would give Comcast some control over the matter.
“Arguably, their ability to shape online content distribution, and to recast windows for video on demand, would be an important attribute of any deal,” wrote Craig Moffett, a cable industry analyst at Sanford C. Bernstein.
Comcast’s interest in NBC Universal would dramatically expand its entertainment portfolio with such attractive cable channels as USA Network, MSNBC and CNBC as well as the Universal Pictures movie studio. The proposed Comcast-NBC Universal venture also would give the cable operator a greater role in deciding how and when TV shows and movies are distributed online and at what price to consumers.
The deal hinges on whether a French company, Vivendi, decides to unload its 20 percent stake in NBC Universal. Vivendi must decide in the next two months, and then federal regulators would have to sign off on the union of Comcast and NBC Universal.
Should the deal be completed, Comcast would be the majority owner with 51 percent and GE would have 49 percent. This would give the Philadelphia-based cable operator a stake in Hulu, whose online audience swelled to 38.5 million viewers in August, up from 10.2 million a year earlier, according to comScore Video Metrix, which tracks online audiences.
Wall Street isn’t alone in questioning whether Hulu is a help or a hindrance to the TV industry. Last month, Soleil Securities estimated that Disney, Fox and NBC subsidize $33 million of losses at Hulu, which is only partly offset by $123 million this year in incremental advertising. That doesn’t take into account the TV advertising revenue media companies are losing as viewers increasingly watch shows on their computers.
Soleil media analyst Laura Martin calculated that for every viewer who migrates to the Internet, the companies forfeit $920 a year in ad revenue. Comcast, Martin and other analysts hope, would champion a move away from offering so many shows online for free.
“It would accelerate the inevitable path of Hulu to charge for its premium content,” Martin said.
