Hulu Could Dominate Video Streaming, When Management Wakes Up

NEW YORK ( TheStreet) -- I got a Roku player last month. For want of a better phrase, it's a poor man's Apple ( AAPL) TV. You hook it up to your television. Then, instantly, you can stream all sorts of programming, sourced from apps I have never heard of to Pandora ( P), Netflix ( NFLX), Amazon ( AMZN) instant video. Not to mention the offerings from all of the major professional sports leagues and most of the major cable networks. It's really an excellent device.

Because I like old sitcoms, I immediately hit up the apps that I know have them. As a Prime member, I can catch practically every episode of Cheers via Amazon for free. Amazon also has The Three Stooges, but they charge $1.99 per episode. My wife would kill me if I dropped hundreds to watch the entire catalog. Sony's ( SNE) Crackle delivers the Stooges for free. My experience with Crackle, however, was short-lived.

I have always wondered why the free service has not been more of a challenger to Netflix and Hulu. Now, I know why. It's just not very good.

While I do not mind the ads that run during programming, I am not a fan of how they randomly appear during the middle of a poke in the eye from Moe or a nyuk, nyuk, nyuk from Curly. I can't seem to put my figure on it, but Crackle feels clunkly; it's just not as sharp and seamless as Netflix, Amazon and Hulu. I guess you get what you pay for.

I have never wondered why Amazon does not provide serious competition to Netflix. As I have noted earlier on TheStreet , it's not Jeff Bezos' intention to compete with the big dogs in any space, be it Apple in gadgets or Netflix in streaming.

All Bezos aims to do is find as many ways as possible to extract money from your pocket and make you succumb to Amazon's ecosystem.

Hulu, however, operates from a different strategically competitive position, as I see the landscape. In case you did not know, Hulu ownership splits between its employees, Providence Equity Partners and old guard media members Disney ( DIS), News Corp. ( NWSA) and Comcast's ( CMCSA) NBC Universal. Bloomberg reports that Providence Equity is selling it's 10% stake to the big three.

Hulu appeared to take my advice last year. In September, I suggested the company take down the "For Sale" sign and put Netflix out of business:

Hulu should become the one-stop shop for online (and mobile) viewing of all video content, just like cable and satellite have become, as traditional delivery methods. It would benefit every programmer under the sun to become part owner of Hulu and provide its content to what would be a greatly enhanced joint effort. And the cable/satellite operators could join on in a cross-promotional effort to keep both traditional and new content delivery systems alive while providing the opportunity to sell prolific advertising packages across platforms.

One month later, Hulu took itself off of the market. The company has yet to really make any serious moves to do away with Netflix and dominate video streaming once and for all.

The primary explanation for the inaction might just be the stark reality that Netflix is so weak it will, sooner rather than later, do away with itself. As I have argued , that's probably one reason why Time Warner ( TWX) does not squash them. There's no need to make the effort.

I also have to assume that the old guard members have a difficult time getting on the same page. They likely have differing opinions on exactly how much streaming content they should offer, when and at what price. Companies like Disney and News Corp. probably diverge on the issue of how to best protect cable and satellite television franchises. So while the situation is not without issues, for the sake of their respective futures, the old guards need to move more aggressively.

Netflix's Reed Hastings is correct -- streaming is the future. However, I have seen the future of streaming and it's name is not Netflix. Things will shake out one of two ways:
  • A fast-growing collection of the disparate TV Everywhere efforts we have now; or
  • A one-stop shop for streaming video.

I favor the second scenario.

I am not sure why the old guards do not seem to agree. They could just be waiting for the right time. I recognize that. Why not pillage Netflix and Amazon for millions a little bit longer by licensing the two companies your content scraps? Makes sense. But, while a nice boost to revenues today, that's a short-sighted approach.

The present owners should contact fellow old guard members as well as the cable and satellite providers and offer an interest in Hulu. In exchange, they make Hulu the one-stop shop for streaming.

Ideally, Hulu would offer tiered packages just like cable and satellite with the least expensive options requiring a cable or satellite subscription. If you pony up bigger dollars, you can cut the cord with no problem. All of the players would share subscription and massive advertising revenue.

All of these worlds are changing -- content delivery, advertising, etc. The old guard has done a nice job moving with the times, evidenced by Disney allowing franchises like ESPN to go multi-platform and Time Warner's excellent HBO GO. They need to make even more aggressive moves to the future, though.

Old guard media business models are going through rapid change. Old guard members need to be ahead of this change or risk being swallowed up by it. They have the platform from which to act sitting right in front of them. Now, they just have to do more with it.

At the time of publication, Pendola was long P and TWX

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