Hulu-Disney deal hurts YouTube, helps cable

Hulu now boasts long-form content from three major movie studios. One analyst says Hulu could solve the cable industry's Web problem.

Greg Sandoval Former Staff writer
Greg Sandoval covers media and digital entertainment for CNET News. Based in New York, Sandoval is a former reporter for The Washington Post and the Los Angeles Times. E-mail Greg, or follow him on Twitter at @sandoCNET.
Greg Sandoval
4 min read

Sure, for a year now, YouTube has trailed Hulu in the number of TV shows and films it offers, but in recent months all the momentum appeared to be with Google's video site.

That was until Thursday, when Hulu announced a partnership with Disney that at least one industry analyst believes has smashed YouTube's chances of becoming an online hub for top TV shows and feature films.

Disney will provide Hulu with full-length ad-supported episodes from ABC, SoapNet, and ABC Family. Some of the shows include "Lost," "Grey's Anatomy," "Ugly Betty," and "Scrubs." Some Disney films will also appear on Hulu, the ad-supported streaming video site formed by News Corp. and NBC Universal. Hulu has now locked up content from three of the largest six film studios.

As for the other three, Sony Pictures has deals to provide a small amount of long-form, ad-supported content with both Hulu and YouTube. Warner Bros. has largely kept long-form content off the Web, and Paramount, which provides Hulu with some TV shows and a smattering of films, is unlikely to join Google-owned YouTube anytime soon. Paramount's parent company, Viacom, has a $1 billion copyright suit pending against YouTube.

What this all means is there just aren't that many other places for YouTube to acquire high-end content.

"(The Disney-Hulu deal) is not good news for YouTube," said James McQuivey, an analyst at Forrester Research. "Any hope of creating a professional-content business has probably disappeared."

A YouTube spokesman issued this positive-spin statement: "More content coming online in more places is a win for consumers and provides further validation of the growth of the online video market."

Cable sector should jump on Hulu
Besides Hulu, the big winners in the Disney partnership--which also involves Disney taking an unspecified equity stake in the video site--could be Comcast, Time Warner, and the cable industry.

Some of the major cable operators have griped in recent months that some of their subscribers are dropping cable in favor of watching TV shows and films online. Now, according to reports, the cable guys are seeking ways to compete on the Web.

Up until now the cable companies have had to negotiate with individual studios. Hulu potentially provides a way, according to McQuivey, to obtain a wide swath of TV shows and films with a single handshake. He also sees the opportunity for offering premium Hulu services, which might make sense at a time when Hulu continues to offer fewer and fewer episodes from popular shows.

Man of the hour: After signing blockbuster deal with Disney, will Hulu CEO Jason Kilar partner with cable industry? Greg Sandoval/CNET Networks

"Comcast can tell NBC and News Corp., 'We want to put your Hulu system in front of our subscribers'," McQuivey said. "'But we want to give our customers more. If Hulu is posting four episodes of a show online we want our subscribers to have 12 episodes.' I'm 90 percent certain sure these conversations are already happening."

"In order to get Hulu," McQuivey continued, "you have to be high-speed broadband customer and maybe also spending top dollar on TV services."

What would Hulu receive in return? McQuivey said maybe the cable companies would share subscriber revenue with the site. He added that Hulu is probably making decent revenue on ads, but advertising is tougher online. Hulu, he said, "might look at cable to help accelerate some of their revenue potential."

Tougher to sell ads online? McQuivey might be guilty of a gross understatement. Anybody who spends any time on Hulu has noticed the growing number of paid service announcements. Last year at this time, site managers trumpeted that they had sold out of ad inventory. Hulu hasn't made any such announcements lately.

While advertising is down for nearly everyone in media, there is a growing skepticism in Hollywood that the ad-supported online model can generate the kind of revenue the studios see from broadcast, cable or DVD sales. One industry source told me that "to generate a worthwhile profit from an online broadcast, you have to throw in lots of ads, and that will only prompt viewers to log off."

As for McQuivey's idea that Comcast could negotiate to obtain more shows, the studio source said that there's a reason why Hulu is carrying fewer episodes from shows than it once did. There's concern in Hollywood that offering too many episodes may cut into DVD sales. The source said the studios see big revenue from the sale of DVD versions of TV shows. Asked whether the studios have seen a sales drop-off yet, the executive said, "No."

Of all the major studios, only Sony Pictures appears willing to offer consumers access to a wide variety of full-length feature films on an ad-supported basis. This week, the studio announced that more than 100 movies, including "Spiderman 2," "La Femme Nikita," and "Candyman," were available at Crackle.com, the studio's online video site.

McQuivey said that after doing an analysis on the problem, he's also doubtful ad sales can generate meaningful profits. Ads alone won't make the Internet a "replacement model," he said. "You're going to have to look at some kind of subscription model."

Maybe he's on to something. "With respect to how (YouTube) will get monetized, our first priority is on the advertising side," Eric Schmidt, Google's CEO, said after Google reported first-quarter profits earlier this month. "We do expect over time to see micropayments and other forms of subscription models."