If Netflix Mattered, Hulu Would Put It Out of Business

NEW YORK ( TheStreet) -- As I read reaction to the dead-again Hulu deal, practically every point that gets made misses the larger, more meaningful one.

For instance, it strikes me kinda funny -- and should strike you the same -- when Peter Kafka at All Things D contends that Hulu's "new plan" is to compete with Netflix ( NFLX) and Amazon.com ( AMZN) before asking, with a sort of blissful ignorance, how the company plans to pay for it. Kafka claims to have a source -- he defines it as "someone who knows" -- but this person absolutely cannot be high-level. If they are, he's only getting the basic information he reports, but, clearly, very little to inform his understanding of the situation.

There's a major misconception about how big media television executives view Netflix. They do not view it as a threat. Because, if they did, they would turn Hulu into the ideal one-stop shop for all content -- nostalgia, catch-up programming and first-run/live television -- tomorrow. Such a move, even if only slightly less halfhearted than it already is, would put an almost-instant kibosh on Netflix.

Recall who owns and controls Hulu: A consortium of Twenty-First Century Fox ( FOX), Disney ( DIS) and NBC Universal, a division of Comcast ( CMCSA).

These guys could unleash an all-out assault that would put Netflix out of business in an instant. But that would be a kamikaze move that should not happen and does not have to happen anytime soon. There's no need, given the reality that Netflix has little, if any, material impact on the big media establishment, particularly the major content producers. These guys continue to deliver numbers -- ratings and revenue -- hand over fist.

Tech guys like Kafka and media critics such as Bryan Stelter at The New York Times eat up talking points such as Hulu will invest to compete with Netflix or Disney CEO Robert Iger's quotable: The future of Hulu is bright, and if the future of Hulu is bright, then we should hold onto it.

We should stop calling folks who produce this type of story "reporters"; they're "regurgitators."

There's only a shred of truth at the surface of the Hulu will compete with Netflix and Hulu has a bright future talking points.

At this stage, Hulu only competes with Netflix insofar as the "competition" helps Reed Hastings and Ted Sarandos dig their own graves. Until Netflix can secure a meaningful amount of first-run programming, live events and original programming on par with what AMC Networks ( AMCX) puts out (forget comparisons to Time Warner's ( TWX) HBO as they're patently absurd), they're not even competition. Hulu's owners can toy with Netflix by inflating the market price of programming and making other similar strategic moves.

And, let's face it, if that scrap-heap programming Netflix and Amazon bid on had any value the original rights holders would keep it for themselves (see, e.g., HBO's smart insistence on true exclusivity) or license it to their friends. Call it collusion but, if a piece of programming really matters and, for some reason, a big media entity doesn't want to keep it in-house, it's selling to friendly combatants. Keeping it in the clique. Deals like the one Netflix cut with Disney -- which are likely not as good as advertised -- are few and far between.

At this point, the old guard media has no reason to blow up its cush model of collecting fees from cable and satellite companies for subscribers. They control the pace of the metamorphosis to a world where we consume all of our content via an Internet connection and without the need for a traditional subscription. Because of big media's foothold on the most prime programming (live events, first-run TV, appointment viewing, etc.), it has no reason or incentive to blow up its own model before it feels the need. A gradual transition works much better. And it's exactly what we'll see.

Hulu could "unfragment" disparate TV Everywhere offerings in a heartbeat. All it would take are the nation's biggest media executives flipping enough switches to make it happen at a meaningful scale. But they will not. Right now, they'll stick with what's safe -- collecting Netflix's checks (the revenue has become a drug to guys like Les Moonves at CBS ( CBS)) and sending authenticated feeds to any platform viewers wish to use from mobile devices to a Roku Player or Apple ( AAPL) TV.

There's just no reason to do anything with Hulu right now other than keep it on the periphery and let the media perpetuate the dual myths that it's competing with a relevant Netflix.

-- Written by Rocco Pendola in Santa Monica, Calif.
Rocco Pendola is TheStreet's Director of Social Media. Pendola's daily contributions to TheStreet frequently appear on CNBC and at various top online properties, such as Forbes.