Reed Hastings has a surprise blog post up this morning announcing that, after all the sturm und drang, Netflix won’t be splitting its business in two after all.
The announcement comes just as all the major players have submitted their bids to purchase Hulu, the web TV platform created by the big TV networks, which no longer appeals to them as a business.
Taking a look at two of the biggest names in the web TV space, it’s becoming clear that the internal battle between analog and digital television is creating real problems for companies hoping to straddle both worlds.
From the beginning it was obvious that Qwikster was an ill-considered stopgap measure. Netflix tried to pivot away from its original DVD-by-mail business and focus on streaming video only. But they did so by raising prices, which infuriated subscribers and hurt their quarterly numbers.
Long suffering Hulu CEO Jason Kilar published another “look at me guys” blog post, noting that Hulu now has over a million paying subscribers and that it anticipated subscription revenue would account for more than half its overall revenue in the next twelve months.
Unfortunately for Mr. Kilar, the issue isn’t the health of Hulu’s business. By owning a web TV platform, the big companies that back Hulu–News Corp, Disney and Comcast–are essentially cannibalizing their core revenue stream from the big cable companies.
It’s the same dilemma that has plagued Netflix, forcing what had long been a consumer favorite to commit public sentiment suicide. By raising its prices for DVDs and then spinning that business off into a separate entity, Netflix hoped to free itself to succeed as a streaming video company.
In the case of Hulu, the big networks would rather not have to explain to their partners on the pay television side why they are building great web TV. That can be somebody else’s battle, and the networks can just collect hefty licensing fees.
Dish Network, Amazon and Google are the final three bidders for Hulu, which leaves three very distinct possibilities for this unwanted child of the major TV networks. Dish Network would be the simplest choice for the owners, because it wouldn’t fundamentally disrupt any of what Hulu is already doing online. Amazon and Google, by contrast, both have big platforms for delivering streaming video over the web, and would likely be keen to integrate Hulu with their current offerings.
The big difference between Amazon and Google is that the search giant has never been able to build a good reputation as a platform for selling content. Amazon, by contrast, can position itself closer to Apple, a premium storefront for moving digital goods.
It was only a short while ago that Dish executives were complaining in public about the negative effects of Hulu on the TV industry. But it seems they have come around and are keen to own one of web TV’s best brands, or at least its backend technology.
