When Hulu first launched, it was supposed to be the media industry’s answer to YouTube: a place where shows and movies from TV would find an audience online and make advertising money directly for the media companies backing it instead of sharing any of that video ad money with YouTube. All that professional quality video from NBC, Fox, and Comedy Central brought in a huge audience, helping Hulu grow into the second largest video site online with more than 1 billion video views a month.
Well, that formula is great for Hulu, but it isn’t working for one of its biggest media partners. Yesterday, Viacom decided to pull two of the top shows from Hulu: Comedy Central’s The Colbert Report and The Daily Show With Jon Stewart. Both were regularly among the most popular shows on Hulu, which is a joint venture between NBC Universal and News Corp.(NASDAQ:NWS) When Hulu first convinced Viacom (NYSE:VIA) to allow it to distribute Colbert and The Daily Show back in June, 2008, it was seen as a major milestone for the young video service.
Just like on TV, the majority of video viewership on the Web is driven by hits. The Comedy Central shows were big hits for Hulu, as evidenced by Hulu’s blog post practically begging Viacom not to leave. But Viacom decided that Hulu needed Colbert and Jon Stewart more than they needed Hulu. Clips from the shows will still be available for free online on TheDailyShow.com and ColbertNation, where Viacom controls and sells all the video ad inventory through its own sales force.
The Comedy Central shows are not going behind some sort of Murdochian paywall. They are still embeddable and shareable across the Web, but with Comedy Central’s garish video player and its ads. When you have hit shows, people will find them even if they are not on Hulu or YouTube. Viacom made the calculation that it can make more money by recentralizing distribution of its hit shows on its own sites than allowing them to be streamed on Hulu. Why should they split video ad revenues with Hulu when they can have it all themselves. As Andrew Barron in an insightful post:
In other words, whatever they get for ad sales over there at Hulu is going to be split up between Hulu and Comedy Central. Why should Comedy Central cut in Hulu on their ad money? They can sell their own ads for a premium and make 100% of the share if they do it themselves. Some shows may be glad to give Hulu 50% or even more of the rev share because Hulu brings an audience they dont already have. But eventually, for any top show, the leverage tide will turn and the middle person will be the first to go.
Hulu is good for shows that can’t attract a big enough audience to their own sites, but there is too much money left on the table by splitting ad revenues for the hits. If this trend continues, with media partners pulling their best content from Hulu once it becomes self-sustaining, that could turn into a long-term problem for Hulu. It’s also bad for consumers, who don’t want to have all of their videos in one or two places rather than have to jump from ColbertNation to TheDailyShow.com to HBO.com to CBS.com and so on.
The economic incentive is too great for media properties to centralize their videos on their own sites. But to consumers, this recentralization looks more like fragmentation and opens up the opportunity for someone else (Steve Jobs, Brian Roberts?) to once again bring it all together in one place. It is clear that consumers don’t want to hunt across the Web for all their shows, but the economics of video advertising are dictating otherwise.