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Hulu is popular, but that wasn't the goal

Its owners — the parents of ABC, Fox and NBC — fear the TV website may hurt their bottom lines.

April 12, 2011|By Dawn C. Chmielewski and Meg James, Los Angeles Times

"History has shown that incumbents tend to fight trends that challenge established ways and, in the process, lose focus on what matters most: customers," Kilar wrote. "Hulu is not burdened by that legacy."

The memo blindsided Hulu's directors, including Disney CEO Robert Iger and News Corp. President Chase Carey. People close to the executives said they were displeased about being taken to task so publicly.

Kilar, Iger and Carey declined to comment.

Much has changed since Hulu launched in 2008. The two executives who hired Kilar — former News Corp. President Peter Chernin and former NBCUniversal CEO Jeff Zucker — have exited their companies, leaving Kilar without his influential advocates. NBCUniversal has also been sidelined, forced to give up its voting rights in Hulu as a condition imposed by the government when it approved cable giant Comcast's takeover of NBC.

The recession also intervened by forcing advertisers to pull back, sending the networks scurrying to find new sources of revenue. The networks didn't have to go far: They began demanding that cable and satellite TV operators pay fees to carry the broadcast programming they previously were getting for free. Giving away those same shows for free on Hulu created a double standard.

Currently, ABC, Fox and NBC provide their shows to Hulu in exchange for 70% of the advertising, forgoing a cash fee for carriage. The media companies have discussed levying a programming fee on Hulu just as they do with cable operators.

"The rights given to Hulu were intended to be a head start, to get them on their feet," said one executive with knowledge of the situation, who was not authorized to speak on the record. "Now, the content owners feel that it's time to take the training wheels off and start to compete on another level."

The Hulu board has considered raising money to pay for more content, including original productions. But plans for an initial public offering were scuttled last fall because none of the owners were ready to cede control.

The disagreements suggest the site is in limbo.

"Jason Kilar has been trying to telegraph to the investment community that this pause in their business is not going to sink their business," Forrester Research analyst James McQuivey said. "But the delays could become fatal if the owners let things stall for another year or so. You can only keep people motivated for so long. Talented people will find another pasture to graze in."


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