Hulu Scores Huge Win with Disney/ABC Deal

Hulu takes down another big elephant with the announcement of its new deal with The Walt Disney Co., which will take an undisclosed stake in Hulu and board seats.

Hulu now adds Disney and ABC content to the existing line-up of NBC Universal and Fox content. Huge news. This pretty much solidifies Hulu’s position as the online video content kingmaker and further erodes rival Google’s plan to expand its long-form content offerings in addition to its regular “video snacking” fare.

I am a bit surprised by this news since ABC had carved out a nice niche for itself, with a great player and good long-form HD content like “Lost” and many of the shows my wife is addicted to like “The Bachelor” and “SuperNanny.”

This move is further evidence that the over the top (OTT) video market has legs and is not going away any time soon. It further gives impetus to folks who wish to “cut the cord” from $100 cable TV bills.

There has been a lot of talk about the trade-offs of trading “digital dollars for Internet pennies” when it comes to online video advertising, but the on-demand nature of the Internet is just too compelling for consumers, and therefore the advertisers must follow. Hulu has found a model that is imminently more trackable than Nielson ratings when it comes to advertising, one that leverages more of a “lean forward” experience where viewers can click their preferences for watching ads, thereby also ensuring advertisers they are actually watching. Online ads are also clickable and have the ability to more directly convert to sales, versus the broad based “brand building” that traditional TV offers.

This all leaves the traditional pay TV cable and satellite companies much chagrined. Increasingly they are losing more and more exclusive content libraries to “free” online portals, with Hulu being the giant of them all. Cable still has the advantage of loyal followings for independent channels like the Discovery channel and ESPN (a Disney property that is carved out from the Hulu deal), HD content, and distribution to all the home's HDTVs, but it is increasingly in a coopetition battle with the very same content partners that make up the majority of its content library. And each new device that helps to bridge the gap between the Internet/PC and the home’s HDTVs further erodes their unique differentiation.

Unless.

Unless this is all building up to a secret plan by Hulu’s backers to build up enough loyal eyeballs and enough of a content library to—gasp!—eventually charge a monthly subscription fee for Hulu. Maybe even collaborating and integrating with the cable plant and set-top boxes to offer a broader range of content to consumers with increased quality of service controls and bandwidth optimization. The joint cable/Hulu deal could have shared revenues and a tiered scheme where folks get more content options (including HD and 3D channels) depending on what they pay. This might also help more Hollywood studios overcome their fear of “Internet pennies” versus the dollars they make today through cable partnerships and DVD sales.

But that is just speculation at this point. Either way, Hulu would be in the driver’s seat in these negotiations. After many years of often being the short seat at the table in content negotiations with the cable giants, Hollywood and the big broadcasting houses might finally be getting their revenge.