Hulu's backers bicker as Web video soars

Woo wee, did Hulu's fortunes flip-flop fast.

The Web's deepest stockpile of full-length TV shows and feature films is seeing some very public infighting over its future. The disagreements are over how Hulu should generate revenue and even how to sell ads, according to a report in Mediaweek.

Things were going so well. Since Hulu's October 2007 launch, the Web video site founded by NBC Universal and News Corp., has grown its audience, generated big ad revenue, and been bathed in positive press.

Hulu has mounted the only serious challenge to YouTube. The site also enables its TV network backers to offer viewers an alternative to pirate sites. But the indications are Hollywood is dismayed over Hulu's earnings. On the issue of Web revenue, the studios seem to be saying: "Is that all there is?"

The first signs that Hulu may not be the cash cow that everyone involved had hoped for came earlier this year. Instead of ballyhooing the selling out of ad inventory like it had done a year earlier, Hulu's managers hushed up.

Then, NBC Universal CEO Jeff Zucker and News Corp. Chairman Rupert Murdoch said publicly that Hulu may charge for some content. In an interview with Dow Jones last week, News Corp. COO Chase Carey said it's important that Hulu have "a real subscription aspect," but added some content will always be free.

Want to bet that the content you'll have to buy will be the latest and most popular TV shows and films?

Hulu's management is wrestling with these issues at a time when the public increasingly develops an appetite for high-quality Web video.

The number of U.S. households with broadband access that watched full-length movies and TV shows online doubled in the past year, according to research firm, Parks Associates. According to the firm, 45 million households regularly watch either TV shows or films via the Internet.

Jayant Dasari, a research analyst at Parks, said people like the control that sites like Hulu give them. If they miss a favorite TV show, they can get caught up on Hulu.

"If they're on the road or don't have access to a (Digital Video Recorder) they are more than willing to consider the option of broadband video," Dasari said. "This is a trend that can no longer be ignored."

Dasari said Web video's growth is being stifled by the lack of content available at Hulu and other sites. For example, there are only a handful of feature films available at Hulu. Crackle.com, Sony Pictures' Web service, only posts a fraction of its vast library of films on the Internet, but there's not another studio even offering that.

So what? What does it mean if the studios hobble Hulu? Consumers have watched TV for over half a century. They can still go back there. Right?

Big Champagne CEO Eric Garland, whose company tracks traffic on peer-to-peer sites--where most illegal file sharing occurs--told me recently that consumers are heading online for video entertainment and he doesn't expect them to return to their traditional viewing habits ever again. Garland's data shows that Hulu is the first legal Web service to snatch market share away from the pirate sites.

He also said that the lords of video, with their rejection of Internet businesses, are behaving much the same way the music industry did when confronted by the digital age. If network and film studio executives are dissatisfied with the returns they see from Hulu and similar sites, they should consider the possibility that this is all the new media landscape will yield, Garland said.