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Monster mash

by Richard Morgan | Published May 23, 2012 at 3:19 PM

An Internet search of Hulu and Frankenstein elicits page after page of online video featuring the monster made infamous by Boris Karloff. Yet it fails to deliver a single reference to Hulu as its own kind of Frankenstein. This oversight is about to remedied, however, as Providence Equity Partners LLC seeks an escape from its joint venture with NBCUniversal LLC, News Corp.'s Fox and Walt Disney Co.'s ABC.

Just as an obsession over the secret of life drove Victor Frankenstein to assemble a creature out of old body parts, the promise of online distribution enticed the content providers behind the JV officially named Hulu LLC. Instead of old body parts, though, Hulu's network partners had old television programs whose potential on being streamed directly to consumers could not be ignored.

Better for them to realize this potential themselves, their reasoning went, than rely on cablelike gatekeepers to exact consumer tolls for serving as no-longer-necessary middlemen. And so their online alliance began, in 2007, with Providence joining as a financial sponsor for $100 million and Disney coming aboard two years after Hulu's inception.

Much has happened since then, not least of which are inroads by so-called over-the-top media, or OTT, against America's increasingly vulnerable video distribution ecosystem. Those doubting such inroads need only be reminded of Hulu's participation last month in network TV's up-front season.

The video streamer, no longer content to be an online distributor for its network owners, used the up-front to introduce four shows to its already existing lineup of originals. Hulu is aiming to become its own must-see TV, in other words, and by doing so is competing for the same advertising dollars once exclusive to broadcast networks as we know them.

Hulu isn't the only upstart to take on traditional TV. Netflix Inc. began its foray into original programming in February. And just last week, in its initial up-front presentation to advertisers, Google Inc. committed its video-sharing website, YouTube LLC, to 25 hours of original content a day.

The presentation by cash-rich Google included highlights from a study of consumer video trends. Therein, amid data points about the erosion of traditional broadcast media, the search giant reported that the elusive 18-to-34 male now spends more time streaming video than he does watching live TV.

Conventional wisdom used to hold the emergence of OTT would be at the expense of cable companies and satellite broadcasters. Media so distributed would, after all, supplant the video offerings of those multisystem operators, or MSOs. It was also widely believed that content created for network TV could even benefit by having a competing means of distribution.

But with so many original programs coming online, stealing viewers and advertisers alike, that's no longer the case. Today's revised thinking goes so far as to credit cable for at least having a fallback as a "dumb pipe" distributor of OTT should the current ecosystem undergo radical change. By comparison, content created for network TV -- even for Hulu owners ABC and Fox (NBC has since been acquired by Comcast Corp.) -- is no longer assured a fallback of any sort.

It's hardly a surprise, then, that traditional networks and the cable companies that carry them are rethinking their positions. For the networks, the focus is on the fees they receive from MSOs for the retransmission of their broadcast signals. Might it be better to forgo revenue from such OTT services as Hulu, while simultaneously marginalizing their consumer utility, in exchange for increased retrans fees?

As for cable companies, the issue is authentication: allowing consumers to watch video over broadband after establishing they're bona fide cable customers. The idea here, referred to as TV Everywhere, is to preserve the ecosystem while at the same time quiet the clamoring of consumers for on-demand, multidevice and real-time viewing choices.

It doesn't hurt, of course, that TV Everywhere undermines OTT as no other video proposition can. And now that OTT and traditional broadcast media are nearing their flash point, there's very little time for cable companies and traditional TV to make their stand.

This also explains the timing of Providence's anticipated exit. Hulu's financial sponsor must sense its strategic partners are preparing to slay the monster they so innocently created before its destructive powers lead to an end even more aligned with Frankenstein.

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