If Hulu loses CEO, who would want that gig?

Hulu's big-media owners no longer seem to believe in the company's business model. The job might require competing against Netflix and Amazon with one hand tied behind your back. Sound fun?

Toast.

That's what Jason Kilar's career at Hulu is supposed to be soon if all the media speculation is correct.

Hulu CEO Jason Kilar Greg Sandoval/CNET

Hulu is controlled by broadcast networks, NBC, ABC, and Fox, but that didn't stop Kilar, Hulu's CEO, from writing in a blog post Wednesday that TV is cluttered with too many ads and he predicted that prices and profit margins for the TV sector would decline. He even lamented the tendency of "incumbents" (read: TV execs) to fight change. Much of his post was about what Hulu needed to offer consumers if it is to be successful: low price, convenience and innovation.

Part of Kilar's message seemed to be that Hulu's backers are preventing the service from achieving those goals. It's hard to imagine a way Kilar can stay on. There's few places where employees can show up their bosses and keep their jobs.

If Kilar leaves, anyone interested in replacing him will find that Hulu's CEO position is impossible. Regardless of whether Kilar made a bad decision in admonishing his bosses publicly, how can anyone who operates Hulu compete effectively when the owners no longer appear to believe in the business model?

More than a year ago, News Corp. executives began expressing dissatisfaction with Hulu's financial performance and campaigned for Hulu to begin charging for some of the content. Kilar reportedly resisted, but last year Hulu began making some of its shows accessible only to paying subscribers . Since then, there have been numerous reports of skirmishes between Hulu managers and their network overseers.

The incident that likely sent Kilar to writing his blog occurred nearly two weeks ago, when the Wall Street Journal reported that there was a disagreement between Hulu's parent companies and management about how much content should be offered for free. Fox and Disney have even considered whether to pull some of their content from Hulu's ad-supported service, according to the Journal. Hulu appears to be in jeopardy of tearing itself apart.

Disruptive model
All the signs indicate that Hulu's founders have come to the same conclusion about Web services such as Netflix and Hulu, as many other TV and film execs: they produce too little revenue for content creators and are too disruptive to other more lucrative distribution partners. Executives from Time Warner, including CEO Jeff Bewkes, have been among the most vocal critics of these services.

Hulu's troubles aren't good news for consumers.

Netflix and Hulu have helped define Web TV by providing consumers a cheaper and more convenient way to access on-demand films and TV shows.

When Hulu launched in 2007, nobody ever promised the service would be offered free forever. Hulu was partly an experiment to see how lucrative Web distribution could be for the networks, but it was also a defensive move.

The networks didn't want someone else to cash in by delivering their shows over the Web. They had seen iTunes do that to the music industry and to a certain extent, they had seen Google do it to them. In 2005, YouTube began building a huge following partly because of the scores of pirated clips from films and TV shows available on the video-sharing site. NBC Universal and News Corp. decided that if their content was going to be available on the Web, they would put it there and be the ones who reaped the rewards.

Hulu was a huge hit at launch . The quality of video streams dazzled and it offered loads of popular shows from NBC and Fox that were unavailable elsewhere online. Hulu was said to be good enough to be the first legal video service to wrest viewers away from pirate sites.

But in the three years since Hulu debuted, the Web-video landscape has changed dramatically. The men who green lighted the service at the networks--former NBC Universal CEO Jeff Zucker and former News Corp. President Peter Chernin--are gone.

Can Hulu compete?
Netflix is now a streaming-media juggernaut . In the quarter ended December 31, Netflix added 3 million new subscribers, which gives the company a total of 20 million. That's 60 percent more than it had a year ago.

What does Kilar have to compete with this steamroller? Well, he once possessed some exclusive content, but Netflix now offers plenty of shows from Hulu's own network backers, including NBC's "30 Rock" and ABC's "Desperate Housewives."

Netflix's streaming video service is compatible with more than 200 Web-connected devices, many of which enable users to watch Netflix video on their home TVs. Hulu has a handful of these deals.

Because the service now charges for some of its content, Hulu's ad-supported free service isn't as attractive. Meanwhile, Hulu Plus charges $7.99 a month, the same price Netflix charges for its streaming-only plan. But Hulu Plus also requires viewers to watch ads. Netflix doesn't.

In his blog post, Kilar defended the ad-supported model and predicted Hulu would some day be a better advertising vehicle than traditional TV. "Our conviction remains that if we respect the customer and innovate effectively," Kilar wrote in his blog, "we can pay content owners more from the ad side of the business than anyone else's ad service."

Kilar said Hulu expects to see $500 million in revenue this year. That doesn't sound bad for a three-year-old company, but in contrast, Netflix reported $596 million in revenue in the fourth quarter alone.

Whether Kilar stays or goes, Hulu's challenges are only likely to mount. Amazon may be close to launching its own video-on-demand service, according to a report by Engadget. Dan Rayburn, an analyst covering Web video for consulting firm Frost & Sullivan, says Amazon has the tools to eventually pressure Hulu and Netflix and grab significant market share. He said Amazon has the money to stimulate interest in a video service by, say, streaming movies for free to Amazon Prime members or by giving away its own Roku-like boxes, Rayburn said.

That of course depends on whether Amazon can acquire content. The way it appears now, there's a chance the studios and networks could take a stand against Web TV services. It's easy to imagine a scenario where less quality content is available on Netflix and Hulu's free service. Maybe the companies are forced to raise prices or maybe the only way to watch quality content online will be at the Web sites operated by pay TV services.

But does anybody really want Web video to become an extension of the cable guys? The good news is that consumers could very likely have the final say.

"Content owners will bundle their content to the degree customers will respond," Kilar wrote in his blog post. "If enough customers refuse to purchase their bundles, then the bundles will either be reduced in price/scope (possible) or dismantled (far less likely). Customers will ultimately make the decisions here."

 

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