Hollywood's inability to have its cake and eat it too

Now that it’s been successful (at least by Web 2.0 standards), the studio owners of Hulu have put it on the block. Various companies have expressed interest, led by Apple.

The problem is that after years of running an oligopoly in which they dictated terms, the Hollywood studios are hoping they will be able to have their cake and eat it too. As their record label siblings and cousins have already learned, it’s not possible in this brave new digital world.

As USA Today points out, the studios want to extract more onerous terms from Hulu to make more money off of online distribution. Examples include putting new TV episodes under a paywall, or delaying their free availability.

However, by doing so they may kill the market value for the Hulu joint venture they have been trying to spin off. Who wants to buy a distribution service whose business model only works because the studios have been pulling their punches — when they have made clear that they plan to start punching hard real soon now?

As the LA Times noted earlier this year, Hulu has been much more successful than anticipated — great for Hulu, but bad for the network parent:

In a short time, Hulu has exploded into one of the top Internet video destinations, defying skeptics who predicted that a service backed by such an unwieldy joint venture would never work. It now attracts some 27 million users every month, according to ComScore Video Metrix.
…
As a result, Hulu's media owners — the corporate parents of ABC, Fox and NBC — are tussling with the site's entrepreneurial managers over opposing visions for the venture. The companies originally crafted the service as a way to control online distribution of their content. But by offering popular shows such as "Glee" and "Modern Family" online at no charge, the media companies fear they may be encouraging consumers to drop cable and satellite TV services, one of their chief sources of revenue.

In other words, the network-studios created to Hulu to profit from the brave new world, but had no intention of speeding the transition.

The LAT points out (as others do occasionally) that the rapid growth of Hulu’s revenues is still a drop in the bucket compared to the revenues of the traditional TV network business model — more than 50:1. (The Hulu platform could equally be used for 2 hour movies rather than 22 minute TV shows, but that hasn’t been a priority of the network-owners.)

The problem with this thinking is that the original vision of Hulu was spot on: the new world is coming, whether the studios do anything or not. So if they don’t want to be a leader in the transition and proactively shape where it’s going, they can be a follower and be whipsawed as they react to the implosion of their long-cherished business models. (NB: Record labels in the 1990s).

Perhaps the behavior of the network executives is selfishly rational — like that of a Eastern European or third world despot. The dictators know they’re going to (at best) flee into exile or (at worst) join Cesusescu in hell — so the longer they hold onto the power, the longer they postpone the day of reckoning. Similarly, a TV exec in his 60s or even early 50s might hope to collect bonuses for a few more years while kicking the can far enough so it blows up on someone else’s watch.

Still, the slow-motion collapse of the broadcast-cable monopoly over pricing and distribution is utterly predictable and inevitable. So if the studios are rejecting a viable Hulu as their future distribution strategy, what’s Plan B (or Plan C or D)?