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Wave goodbye to free Internet TV

The Internet held so much promise as a new, less expensive distribution platform for the most sought-after films and TV shows. Those dreams are dying.

Fox's decision to make anybody but cable, satellite, or Hulu Plus subscribers wait an extra week to access hit shows--such as Bones--is just the latest reduction of free Web TV. Fox

They said Hulu was going to save the film studios and television networks from repeating the mistakes of the music industry.

They said the video portal would help turn the Internet into a new means of distributing the most popular TV shows and movies for less money than cable and offer viewers much more control over where and when they watch.

But the latest news out of Hollywood seems to indicate that enthusiasm was misplaced, premature, or both. The most recent and most dramatic sign of this came yesterday, when the Fox Network, owned by Rupert Murdoch's News Corp., announced the network would begin limiting Web access of its TV shows to viewers who subscribed to participating cable and satellite TV providers (Dish Network is the only one so far to have signed on) or subscribers to Hulu Plus, the portal's paid-subscription service. If you don't pay for any one of those three then you'll have to wait eight days to watch the latest episodes of such Fox shows as "Bones" and "Glee."

Fox's move may not seem the sort of thing worthy of breathless "the free content dream is gone" coverage, but it's the most dramatic example of a yearlong trend. The studios and TV networks are giving up on Web distribution on an ad-supported basis. They want to quash the perception that the Internet is some magic gateway to cut-rate content. Instead, content creators are effectively turning the Web into an extension of the cash-rich cable industry.

Look at what's going on all across the Web: subscription prices are rising at Netflix; Hulu began charging last year and pushing more content behind the pay wall and now the media companies behind the service are trying to sell the portal; HBO Go dropped a bomb by building a slick streaming service and iPad app that offers all the best parts of Internet delivery--provided you are a cable customer and subscribe to HBO. That's television, but it isn't much different in Hollywood. Last year, Netflix agreed to hold off renting newly released DVDs for 28 days for such studios as Warner Bros., 20th Century Fox, and NBC Universal. The deal was designed to help boost disc sales.

According to Dan Rayburn, principal analyst at research firm Frost & Sullivan, some studios intend to try and extend those 28-day sales-only windows when they renegotiate their Netflix deals. Apparently, the windows do increase sales.

And the studios and TV networks aren't done yet. ABC and other broadcasters could follow Fox's move by walling off some of its content in the same way, according to The New York Times. Need more evidence? Major League Baseball and HBO content has never been available free online (legally) and that's unlikely to change anytime soon as their content is behind a pay wall and is doing just fine.

Related links
• Fox Network to limit Web access to its shows
• Netflix price hike stirs subscriber ire (roundup)
• What HBO's app can teach Netflix (and vice versa)
• Nine Netflix alternatives

The Web as a means to obtain free or less-expensive content was, unfortunately for consumers, a pipe dream, Rayburn argues.

"Somehow the idea got out there that consumers will have access to any type of content they want on any device," Rayburn said. "That's not going to be the reality...This stuff costs money. So, I'm not at all surprised by the Fox move and I expect we'll see a lot more of that down the road. Some will argue that that's not the right approach. You can debate that but the bottom line is they are obviously concerned about their core business and they want to do everything possible to protect that."

Judging by the hostile reaction Netflix has received to a planned rate increase, Fox is likely to take a lot of heat for the decision. Watchdog groups have already criticized the move as a step backward. "This development is very unfortunate for consumers and ultimately will be self-destructive for the TV industry," said Gigi Sohn, president of Public Knowledge, a public-interest group that focuses on digital issues.

Click on photo to read 'A defense of charging more for Web TV (Q&A)' Screen shot Greg Sandoval/CNET

What Sohn is referring to when she says "self destructive" is of course the piracy threat. Hulu first made its debut in 2007 to much fanfare. The site was easy to use, offered access to scores of popular TV shows from the major networks and was free--supported by advertising sales. Eric Garland, CEO of Big Champagne, which tracks consumption of digital media online, has stated that Hulu was the first service to snatch users away from illegal file-sharing sites.

Hulu was the great Web experiment for the TV networks. Built as a defense to YouTube, which at the time was a favorite place for people to post unauthorized clips of TV shows and films, Hulu was an immediate hit. The service quickly accumulated a large audience, providing evidence there was large demand for full-length premium shows delivered over the Web, even one that required users to watch commercials.

Then Hulu fell back to Earth. The company couldn't generate the kinds of returns that the networks were used to and worse, the cable and satellite companies that distributed the TV content and paid dearly for it became threatened.

"The networks have gotten so used to the subscription fees from the cable providers," said Aram Sinnreich, managing partner of Radar Research, a media and tech consultancy, "there's no way for them to staunch the blood flow when consumers are using the Web as a replacement for cable instead of as an auxiliary to cable."

A pull-back was inevitable says Rayburn. He advises consumers to get used to the idea that the best and newest content is going to come with a charge.

"This is the future," Rayburn said. "Like it or not as a consumer, content owners are the ones who are putting restrictions on who can see what, the quality that they can get it in, and the device they can play it on."

John Falcone, a CNET senior editor, contributed to this report