Walt Disney Co., signaling a dramatic shift in its Internet strategy, is negotiating with longtime media rivals to take an equity stake in Hulu.com, the fast-growing website where users can watch movies and TV episodes for free.
In exchange, Disney would provide episodes of ABC shows to Hulu, significantly broadening the program offerings to include such hits as "Grey's Anatomy" and "Desperate Housewives."
The discussions, which heated up in recent weeks, represent an evolution of ABC's Web strategy, which had focused on drawing viewers to the network's own site. Disney appears to have decided that the power of the ABC and Disney names is not strong enough for the company to compete and that it needs broader distribution for its shows.
Disney's willingness to join Hulu also validates the success of the joint venture created two years ago by rivals News Corp. and NBC Universal. The website, along with its quirky name, was initially greeted with skepticism as observers questioned whether the two media giants, longtime competitors, could create an online destination for professional content.
"This is an acknowledgment of Hulu's rapid growth and its ability to sustain a very large audience," said Michael McGuire, media analyst with Gartner Inc.
Disney, he said, has "got to go where the people are."
Hulu's audience has exploded. The site attracted 34.7 million viewers in February -- slightly more people than those watching an episode of Fox's hit show "American Idol," according to ComScore Video Metrix, which tracks online traffic. Still, that's about a quarter of the more than 145 million U.S. Internet users. The number of Hulu video viewers jumped 42% in February, according to ComScore. But the audience for the site is still dwarfed by Google Inc.'s popular YouTube.com.
"We're seeing a confirmation of a very important new power center," McGuire said. "Hulu has turned into much more than what a lot of people thought it would."
Disney made a bet three years ago that the strength of its ABC and Disney brands would be enough to attract online viewers, and so it chose not to participate in Hulu during its launch. ABC shows, including "Lost" and "Desperate Housewives," have generated plenty of viewers on ABC.com, but it now trails other network sites, including Hulu and CBS, according to ComScore.
