THE COLLEGE HILL INDEPENDENT


DIGITAL LOCKDOWN

by by Jeffrey Martin

illustration by by Rebecca Levinson

Welcome to the world of tomorrow, where all your
media dreams come true. Allow me to catch
you up: Americans left behind rosy domestic
gatherings before that boxy antennaed contraption decades
ago. The country entered a centrifugal swirl, and increasingly
frenetic lives clashed against static television programming
schedules. The advent of a wired world that circulated media
gratis exacerbated the situation, causing viewers to shy away
from cable’s cost. Speed up the reel, and we arrive home.
Today, TV teeters on the brink of uncertainty. Profitable?
Yes, still. Precarious? Absolutely.
Then in walks a bombshell: 50-plus broadcast networks
offering 665 programs, browseable by season and episode;
586 full-length movies; personal recommendations based on
one’s viewing history; and all of it, free. The collective jaw
drops, horny-cartoon-wolf style. America, meet Hulu.
Yet trouble brews in this perfect romance. Antsy inves-
tors and jealous competitors, wring their hands in disbelief
at Hulu’s lack of fees. Soon, they may strike; Hulu lies prone
to the dreaded paywall.
tv on the interwebs
Hulu, an extensive Internet media library, uproots the do-
mesticity of the small screen by putting broadcast television
programming on every computer. Since March 2008, when
Hulu’s substantial resources opened to the public, the bed-
room, office, library, or coffee shop has replaced the living
room as a viewing auditorium. Claustrophobic media ad-
dicts breathe easier.
The site has occupied a significant corner of the Web’s vast
domains since its launch. By September 2009, media ratings
agency Nielsen placed Hulu second only to Youtube among
online video sites based on views. Hulu also ably cultivates
relationships with advertisers. Their website currently lists
companies from State Farm to Wal-Mart as sponsors. Arash
Amel, an analyst for the marketing research firm Screen Di-
gest, told newsweek that Hulu earned $12 million in gross
profit last year. (Youtube brought in none.) This year, Amel
expects Hulu’s revenues to jump from $65 million to $175
million. The funding that their pristine broadcast content
precipitated has guaranteed viewers universal Hulu access
within the United States. All one needs is an internet con-
nection—not a bank account—to watch television.
Yet the swarms of viewers that Hulu’s free content attracts
has aroused unease in the traditional purveyors of broadcast
programs—cable providers such as Comcast—who collec-
tively pay $22 billion a year for the content the site offers for
free. We should recognize this anxiety by now: it provoked
a litigative fury from the Recording Industry Association of
America earlier this decade; it unsettled the Newspaper As-
sociation of America to the point of calling an industry-wide
conference that reeked of price fixing this past May.
Comcast, fearing subscriber flight, has decided to stop
the deluge at the source. Negotiations are under way for
Comcast to buy a 51 percent share in NBC Universal, one
of Hulu’s four principle owners, from a beleaguered General
Electric. Following this transfer, Comcast will likely push
Hulu to adopt business policies that put less pressure on their
own revenues. One such policy, the TV Everywhere initia-
tive, would bar Hulu access to consumers who do not already
pay for cable. This parasitic relationship would steady a cable
industry whose future has become uncertain in a payment-
averse Internet age.
priMe tiMe price tags
If Comcast does pursue the TV Everywhere initiative, it
may face an uphill battle in the Hulu boardroom. Two of
Hulu’s other three owners—News Corp. (Rupert Murdoch’s
omnibus media monstrosity) and the Walt Disney Corpora-
tion—have no hand in the cable provisioning business. Their
emphasis on content production, not distribution, means
that the TV Everywhere initiative would cut them out of an
augmented revenue flow.
Perhaps, then, a spirit of compromise, a desire to accom-
modate the newest member at the Hulu table while also
enriching himself, elicited Murdoch’s recent suggestion of
a more direct method of monetization. In September, he
floated the idea “of adding subscription services in there and
pay-per-view movies.” Though Murdoch assured anxious
Hulu viewers that matters remained up in the air, News
Corp. Deputy Chairman Chase Carey reiterated his boss’s
musings more definitively at the On Screen Media Summit
a month later. “A network like Fox sits there with truly the
best programming in sports and entertainment,” he said.
“We need to move that business to a place where we are
getting fair value.” Carey postulated that fees could come as
soon as 2010. The coercion of payment for Hulu’s immense,
underexploited resources must appear attractive to those at
News Corp. who meticulously watch the bottom line. In-
deed, a pay-wall separating consumers from the expansive
media library would placate the disgruntled Comcast while
fattening Murdoch’s own pocketbook.
But the profit-maximizing ways of Murdoch and Co. may
end up rubbing Hulu’s directors the wrong way. Provoked by
Carey’s announcement, a source at Hulu told entertainment
Weekly that no such timeline for charges exists. 2010 will
not necessarily bring with it the death of free, legal broadcast
programming online. Moreover, the Hulu source empha-
sized that any hypothetical subscription service would add to
the site’s current offerings. Whatever form this service might
take, it would entice viewers to pay, not compel them. By
and large, content would remain free.
This anti-payment ethic, so characteristic of the Internet
today, has kindled the ire of more traditional money-minded
individuals. Laura Martin, an analyst with growth-oriented
investment bank Needham & Co., recently ranted to an
OMMA Video audience about how little Hulu viewers pay
for professionally produced programs. She grumbled that
“the 27-year-old geniuses” that pioneered the Web’s current
outpouring of free sites such as Hulu “have run amuck in
these companies.” Invoking the gargantuan sums that net-
work studios lavish on their shows, she charged that Hulu’s
directors “steal from the guys spending the $3 billion dollars
and they don’t do anything about it.” Though her diction
ignores Hulu’s legality, it does foreground the fact that the
website does not generate enough revenue to grease the palms
of everyone in the television chain. By sapping much of tele-
vision’s storied profitability, Hulu imperils the paychecks of
everyone from the besuited executive to the boom operator
and casting director.
between apple and apathy
Yet a straight monetization policy would lead Hulu into dan-
gerous territory. The anti-payment ethic does not emanate
from “the 27-year-old geniuses” alone, but rather from the
millions of Internet users who have refined the process of
extracting free content over the past decade. Hulu fees would
simply redirect viewers to one of the Hydra’s many other
heads. Though these sites frequently operate on the shadier
side of Internet legality, they would nevertheless siphon
viewers off of a paywalled Hulu.
The prospect of Apple jumping into the Internet televi-
sion fray undoubtedly poses a much greater threat to Hulu
than does piracy. Reports circulated early this month that
the iTunes Store may soon offer a $30-a-month subscription
service for unlimited access to network broadcasts. Apple can
count on a large customer base, given the loyalty its clientele
exhibit and the adeptness with which it conquers markets.
If Hulu erects any sort of paywall, it would venture into the
ring with this over-muscled Ivan Drago of digital innovation.
Hulu, then, must tiptoe carefully towards any possible
payment scheme. On one side lie the sleeping, petulant
Internet masses, endowed with a sense of entitlement and
innumerable options for skirting payment. On the other
side resides a colossus of Internet profitability, eager to en-
gage young Hulu on monetized ground. The hybrid model,
combining vast amounts of free content with attractive pay
features, will likely prove the most viable means of navigating
these narrow straits.
Yet to what extent that will compromise Hulu’s position
as the epitome of Internet accessibility, of Internet promise,
remains unclear. Hulu seems to reside at the end of digital
history. Media devices have grown smaller, interfaces have
become more user-friendly, and minimal distribution costs
have rendered content all but free. Hulu emerged from this
perfect storm, delivering old media’s most precious gems
through new channels free of charge. Murduch’s machina-
tions, though, may effect yet another paradigm shift. We
may soon awake from our decade-long dream—the first stir-
rings of which appeared with Napster—and find reality, now
displaced to the Web, with the familiar price tags attached to
the margins.
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Jeffrey Martin B’10 puts the blame on VCRs.