Even as FX acknowledged Hulu brought it new viewers, the cable network nonetheless demanded that the video site drop three seasons from its free online offerings over fears it would undercut the show's ratings and hamper lucrative DVD sales.
"We are not going to take steps that ignore the needs of our partners," explained Hulu Chief Executive Jason Kilar.
In the summer of 2006, Hulu partners Fox and NBC were thinking primarily of their own needs. YouTube, the video site that Google Inc. would later buy for $1.65 billion, was beginning to look like the future of television. Initially designed as a platform to share homemade videos, it was quickly appropriated by users sharing TV highlights.
That terrified media executives, who feared they were about to lose control of their shows. They had cause for alarm: Consumers were gravitating toward online video at a faster clip than they had with cellphones, DVDs and even high-speed Internet service. With the lessons of music piracy and Napster freshly in mind, Hulu was launched in March 2008 as a way of keeping TV programming safely in the hands of its creators and distributors. And by making it free, it could short-circuit piracy.
It worked. Perhaps too well.
"The appetite for full-length TV shows online was larger than anyone thought or expected," said Bobby Tulsiani, Forrester Research media analyst. "And now people are starting to wonder, do we even need the cable connections?"
The country's largest cable operators aren't waiting around to find out the answer. In recent months, the operators have taken a hard line against cable networks for funneling their shows to Hulu. Some have gone so far as to stipulate that cable networks limit the number of episodes they make available online. Others have imposed an outright ban. The strictures buy time for cable operators until they can develop their own response to Hulu.
That strategy puts cable networks in a corner. They don't want to jeopardize the multimillion-dollar payments they receive from cable and satellite operators, so they are approaching the website cautiously. For example, Turner Broadcasting System Inc. refuses to give popular shows like TNT's "The Closer" to Hulu, preferring to keep a handful of episodes on its own site.
"We have to be mindful of the fact that we have a good business that works for all the players," said Andrew Heller, domestic distribution president for Turner Broadcasting. "We have to find ways to advance the business rather than cannibalize it."
