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As Seen on TVFrom 30 Rock to Barney Miller, your favorite shows are now online, free and legal. Why Hulu is the new way to watch.
Wired 16.10, October 2008 WHAT'S A HULU? In August 2007, this question ricocheted through the blogosphere to a chorus of derisive laughter. Fox and NBC were going to make the Internet safe for television! They were building a "YouTube killer"! And they were calling it Hulu! It was almost too perfect—an absurdist topper to the idea that two major broadcast networks could devise an Internet video service people would actually use. The name was even more delicious than the venture's placeholder moniker, NewCo., which the online world had changed to Clown Co. And now Hulu? It means "snoring" in Chinese, one blogger declared. "'Cease' and 'desist' in Swahili," Michael Arrington reported on TechCrunch. "Perhaps they should have just stuck with Clown Co.," he added. Jason Kilar read these posts and winced. A 36-year-old ex-Amazon.com executive newly relocated to Los Angeles, Kilar had followed—even admired—many of these bloggers for years. Now he was Hulu's CEO, and their ridicule wasn't so funny. What's a Hulu? Kilar had gotten the same question from Jeff Zucker, chief of NBC Universal, and Peter Chernin, president of News Corporation, Fox's corporate parent. In English it means nothing. In Mandarin, when pronounced another way, it means not snoring but "bottle gourd," which, in an old Chinese proverb, stands for a "holder of precious things." If you say so, they responded. Even Kilar was starting to wonder whether he could make this thing work. Along with the new name, he had just announced that Hulu, which he had been running for only seven weeks, would launch in beta in two months—much later than expected but far too soon for a team that had barely gotten started. He was heading an operation of 20 people holed up in an office suite in West LA. To meet the deadline, he had turned the place into a bunker: Newspapers covered every window. People were sleeping on air mattresses on the floor. Half-eaten pizzas littered the empty cubicles. Fruit flies were the only visitors. But Kilar would make it work. He and his crew would emerge from their dismal cave with the sleekest, easiest-to-use, most professional video site on the Internet. Not only would it deliver shows and movies from Fox and NBC Universal, it would take you to programs from every other major network and studio. Full-length episodes. Entire seasons. For free. Within months of that late-August announcement, Hulu would be among the top 10 US video sites in number of clips streamed. Om Malik, one of the bloggers who had ridiculed it from the start, would pronounce it "brilliant." TechCrunch readers would vote it best video startup of 2007. "Game Over. Hulu Wins," Arrington would declare in a conciliatory post. How did that happen? ON A SUMMER EVENING in Santa Monica, Kilar is sitting in a café near his house, reminiscing about the vintage anime series Speed Racer. Growing up in Pittsburgh, where his dad was a Westinghouse engineer, he was one of millions of kids who raced home from school to watch it. Since the story line was carried over from one episode to the next, if he missed a day he was out of luck. Most days he got home in time. Some days he didn’t.
Tall and loose-limbed, with rosy cheeks and an eager smile, Kilar looks more like an oversize Boy Scout than the man who would finally usher the television networks into the Internet age. But his earnestness and enthusiasm have served him well among entertainment execs. He has won their support by explaining the obvious: In a world of limitless choice, 10-year-olds are no longer going to race home to catch a TV show. Admitting that fact means surrendering the scheduling power the networks have always enjoyed and putting a lot of their profits at risk. But Kilar focuses on the opportunity. If you were a network exec, he says, playing with his cheese-and-veggie scramble, "and I told you here was a tool that enabled your content to be shared, to be forwarded, to make your audience your most powerful marketing vehicle—it would be music to your ears, right? This is a tectonic shift, and what it does is allow network heads to find the audience they always should have had but couldn't reach." Like a lot of other people, Kilar read about the News Corp.-NBC Universal venture when it was announced in March 2007 and thought, "Huh—I wonder how this will turn out." Not well, if earlier digital efforts by media giants were any indication. The classic example was Movielink, a Hollywood download service that never took off because the studios loaded it with restrictions. And on the music side there was Sony Connect, a stillborn Web store that had the same problem. At the time, the business that Fox and NBC Universal had in mind was still poorly defined. "It started out of frustration that other people were using our video online and creating a business," Zucker says. A year earlier, NBC had forced YouTube to pull clips of Saturday Night Live's "Lazy Sunday" skit, even though it was sparking new interest in the show. YouTube complied; pirate sites didn't bother. The networks needed to find some way to keep others from grabbing their shows—and their profits. But the companies were too accustomed to competing with one another to form a common strategy. Disney, corporate parent of ABC, joined talks for a while but opted to focus on its own Web business rather than join forces. CBS and Viacom (which owns MTV and Comedy Central) decided to invest in Joost, an online-TV startup from the Net-savvy guys behind Skype and Kazaa, and Viacom hit Google, which had just bought YouTube, with a $1 billion lawsuit for good measure. That left Fox and NBC Universal to team up on some sort of Web video service. Chernin and Zucker were still trying to figure out what it would be when news of their plans leaked out, forcing them to make a hasty announcement. Jonathan Nelson, CEO of Providence Equity Partners, read the same story as Kilar. Head of a $21 billion private-equity fund focused on media and telecommunications, Nelson was set to go heli-skiing in Greenland with Chernin. Now he called his buddy and offered to invest in the startup. We don't need any money, Chernin replied. Maybe not, Nelson countered, but you do need validation. Bringing in an outside partner would make the thing look less like a Fox-NBC Universal promo vehicle and perhaps make competing networks more interested in joining. Nelson had a point, and as the two sides hammered out the terms of the investment, he and Al Dobron, head of Providence's Internet practice, joined the discussions about what the new company would become. As Dobron describes it, the initial business plan was all too predictable: "It was like, you're watching TV, you turn to the left and look at a computer screen, and you watch the same thing you were watching on TV in the same way." AOL, MSN, Yahoo, and MySpace had been enlisted as distribution partners, but at first, Fox and NBC Universal were planning to contribute just a few shows each and, in most cases, only recent episodes at that. Anything more would jeopardize the networks' existing businesses—especially syndication and DVD sales. If they were going to make this thing work, Nelson and Dobron realized, they needed somebody with no TV experience—"somebody who was going to say, 'This is not television on the Internet; this is the Internet.'" Chernin was thinking the same thing. Kilar quickly surfaced as a likely candidate. At Amazon, he had helped expand the company beyond books and into home video; then he had led the teams that built such apps as 1-Click checkout and the Amazon Prime premium shipping service. Kilar was understandably skeptical when the headhunter approached him. Were Fox and NBC really ready to entrust their most valuable assets, their programming, to an outsider? But the more he thought about it, the more he was drawn to what Chernin and Zucker were proposing. He had always loved TV and movies. And though the music industry had blown its chance to stay ahead of digital culture, he saw a brief window of opportunity for Hollywood. More than 60 million Americans now had broadband, but most hadn't yet gotten into the habit of using BitTorrent to download sitcoms. What if he could help show business make the transition that the music industry had flubbed? In late June, Kilar agreed to take the job. He already had his pick for CTO: Eric Feng, a 28-year-old engineer he had known in Seattle. Feng had gone to Beijing for Microsoft and ended up launching his own company there. His startup, Mojiti, was one of the first sites to enable users to put text comments on a Web video, but what had been leading-edge a year earlier was quickly becoming commonplace. Feng had seven young developers who knew a great deal about Web video—even if most of them spoke only Mandarin. So eight days after accepting the position, Kilar flew to China and persuaded the entire team to join him. Feng would return to the US; the others would stay in Beijing and build the service. The following Monday morning, Kilar showed up for work in LA to find his offices already teeming with people. Fox and NBC Universal had provided a couple of dozen employees on loan and brought in 40-odd consultants from PricewaterhouseCoopers and Avenue A/ The top Internet services—Google, Flickr, YouTube—thrive because they are simple. Kilar wanted a clean, uncluttered look. He wanted a service that worked inside your browser, not one that required you to download a player—an obstacle that has kept Joost from taking off. And he wanted it to be so easy to use that his 62-year-old mom could have it working within 15 seconds. Plus, of course, he wanted a lot of shows. Shortly before he arrived, Kilar had gotten a list of all the programs the new service would have. "It was one piece of paper," he says. "I wished it was a phone book." He went to Dan Fawcett, head of digital media at Fox, and to J. B. Perrette, head of digital distribution at NBC Universal, and told them this wouldn't work. To compete with BitTorrent sites, Hulu needed every movie they had ever made and every TV show they had ever aired—and not just four or five episodes but all of them. Fawcett and Perrette were taken aback. Not only was the task of clearing the legal rights daunting, but Fox and NBC Universal, like all entertainment conglomerates, make millions selling their movies and television shows to cable channels and other outlets in a series of distribution windows. "We have to respect those windows," Fawcett says. Yet he and Perrette worked overtime to clear everything that wasn't already spoken for. Kilar's next test came in New York on August 15, at the new company's first board meeting. The Providence Equity investment hadn't closed yet, so the board consisted of just Kilar and six network people—three each from Fox and NBC Universal, led by Chernin and Zucker. Kilar announced a couple of jaw-droppers: His team was going to provide embed codes so users could post Hulu's programming on their own Web sites, and they were building a search engine that would direct people to every movie and TV show online, even if it was on a competitor's site. The normal response would have been "Is this guy nuts?" But as Kilar made his case, first Chernin and then Zucker swung to his side. The embed codes would enable their videos to go viral, and the search function solved the problem of how to provide a full offering with only two networks. The plans were approved. For the next 10 weeks, as Feng and his team raced to build the service, Kilar focused on getting more shows. He kept a color-coded spreadsheet—green for yes, yellow for maybe, red for no—that listed every property Fox and NBC Universal controlled, with details about every remaining legal hurdle: Are the rights owned by the network, the producer, or a third party? Can we clear all the music? Each new green was celebrated. One by one, they picked up cult favorites like 30 Rock, Buffy the Vampire Slayer, and Battlestar Galactica. Almost the last to go green before Hulu's beta launch at the end of October was one of the shows they had focused on most: Arrested Development, which Fox had canceled due to poor ratings despite multiple Emmys and heaps of critical acclaim. In March 2008, Hulu officially opened for business with more than 250 TV shows and 100 movies—not only from Fox, NBC, Universal, and their affiliated cable channels, but from new partners like the indie film studio Lionsgate and the television arm of Warner Bros., which makes shows for all the networks. Visitors were delighted to discover that they could quickly find and watch full-length programs and movies, even ones that weren't hosted by Hulu. Two months later, Hulu edged ahead of ESPN.com to become one of comScore's top 10 US video sites. Its growing popularity led Viacom to offer recent episodes of The Colbert Report and The Daily Show With Jon Stewart, two of Comedy Central's most popular programs. Meanwhile, the accolades were pouring in. Users and critics alike praised its straightforward design and even the way it implemented ads. Entertainment Weekly called it "some kind of TV addict's fever dream." "This is the entertainment we've all been looking for," one user wrote in to the company. Another declared simply, "You have done something great." Hulu had gotten online TV right.  Two million people went to the Hulu site in July. These are the shows they streamed most. The big question now is, can Hulu turn a profit? Hulu isn't releasing any numbers, though Dobron says its revenue will "dramatically exceed initial forecasts." The only credible outside guess seems to come from Michael Learmonth at Silicon Alley Insider, who estimates that Hulu will generate between $45 million and $90 million in advertising in the year following its launch. Since he estimates that 70 percent of that money goes to content providers, this doesn't leave much for operating costs. And while Hulu gets two to three times the ad rate that the broadcast networks command, that's on a cost-per-thousand-viewers basis. Hulu says its highest-rated shows get "millions of streams" per month, but a popular show like CSI will draw 16 million viewers on TV in a single night. Worse yet, from a financial perspective, part of Hulu's bargain with users is fewer ads: While broadcasters cram eight minutes of advertising into a half-hour show, Hulu sells only two. "So what?" Chernin says. "You can't protect old business models artificially." This is a truth the tech community knows well, but it's not what you expect to hear from a media baron like Chernin. What he and Zucker have come to understand is that the media companies no longer have a choice: If they don't put their shows online, someone else will. "The best way to combat piracy is to make your content available," Zucker says. "We don't know for sure what the impact is going to be on our established businesses. But we want to make sure consumers know they don't need to steal our content. That's really what Hulu is about." In the meantime, Hulu provides a tantalizing glimpse of the future of television. Unlike the networks, which have always been carefully programmed by their executives, Hulu is programmed by user choices and recommendation software. Schedules don't matter; popularity alone will bubble a show to the top. The results can be startling. One of Hulu's top five shows is It's Always Sunny in Philadelphia, an FX series starring Danny DeVito that has never gotten much attention on TV. Another is Arrested Development. Hulu isn't saying exactly how many people watch a given show, but the numbers are high enough that Kilar is becoming a must-see guy for producers. Joss Whedon, who created such shows as Buffy the Vampire Slayer and Angel, popped in to talk about Dr. Horrible's Sing-Along Blog, his three-part video—which Hulu got as a Web exclusive. Family Guy creator Seth MacFarlane met with Kilar over the summer to chat about how well his show has been doing. As usage grows, Kilar can expect many more such tęte-ŕ-tętes. "The world has turned completely upside down," Kilar says, mopping up the last of his scramble as dusk settles outside the little Santa Monica restaurant. "I find that very inspiring. Others might be scared out of their wits. But to me, this is the way media always should have been." He allows himself a slight chuckle. As he speaks, Hulu is weeks away from unveiling a tool that lets users embed the Hulu service itself into their Web site. Soon you'd be able to stick all of online television into your blog. Finally, after decades of dictating what we can watch and when, the networks would be reduced to a Web widget, functioning at the user's whim. Just as it should be.  Two weeks ago, comScore’s report that Hulu had pulled into the top three streaming-video sites was quickly followed by news that Disney — the corporate parent of ABC and ESPN—was taking a stake in the venture. But in the long run, those two milestones could be overshadowed by a seemingly much smaller bit of news: the decision in January to pull most episodes of It’s Always Sunny in Philadelphia from the site. Instead of carrying every episode of Sunny, a way off-center Danny DeVito comedy that languished on FX until Hulu users made it one of the site’s most popular programs, Hulu limited its offering to the five most recent shows. User reaction to the move was swift and predictable. “Well, off to the torrent sites,” one wrote on Hulu’s Sunny forum. “Hulu blows!” declared another. “Whose retarded idea was that?” Well, not Hulu’s. The move was taken at the network’s request. Powerful forces are working against free, legal online TV — and the decision to pull Sunny may have made that show the canary in the server farm. In theory, at least, the availability of such shows on Hulu threatens two of the key financial underpinnings of cable TV: DVD sales and carriage fees. Comcast and its brethren pay the cable networks to carry their programming, and the idea that Internet users can watch the same shows online for free is not popular in places like, well, Philadelphia — or at least that corner of it where Comcast is headquartered. Stock analysts aren’t exactly thrilled with the concept, either. Shortly after removing the Sunny episodes, Hulu took another unpopular step: It shut off access to its programming from Boxee, the fledgling service that enables you to stream online video to your TV set. In a blog posted titled “Doing Hard Things,” Hulu CEO Jason Kilar apologized to users. “Our content providers requested that we turn off access to our content via the Boxee product,” he wrote, “and we are respecting their wishes.” It’s not hard to see what’s at work here. If cable and satellite operators are threatened by your ability to watch free shows on your computer, imagine how they feel about letting you watch free shows on your TV. What if people decide they can do without those expensive bundles of programming? Of course, companies like Comcast and Time Warner Cable don’t even begin to replicate Hulu’s breadth — its readiness to stream every episode of every series it can get its hands on — or its ease of use. The BitTorrent sites aren’t exactly a breeze, but at least they let you get what you want. Kilar, a longtime Amazon exec, knows what the Internet is teaching audiences to expect: The ability to watch any show, day or night. And he’s adept at explaining this new reality in a way that emphasizes its potential. “This is a tectonic shift,” he told me last year, “and what it does is allow network heads to find the audience they always should have had but couldn’t reach.” But not everybody sees it that way. A story in yesterday’s Los Angeles Times sums up what he’s facing: Fear. It’s certainly understandable. Television networks, and the Hollywood studios that make programming for them, are experiencing declining ad sales, declining DVD sales, and rising panic. “We have to find ways to advance the business rather than cannibalize it,” said the distribution chief at Turner — a network that refuses to make shows like The Closer available on Hulu and keeps only a few episodes on its own site. That would be nice, but the problem is that if you don’t cannibalize yourself, somebody else will do it for you. “You can’t protect old business models artificially,” I was told by Peter Chernin, the outgoing president of Fox’s parent company, News Corporation. Television execs who doubt him might want to check with their friends in the newspaper industry. Or better yet, just look at the paper itself. The same startlingly thin issue of the LA Times that carried the Hulu story featured an article about Craigslist and its policies regarding classifieds, most of which are free. Not so long ago, classified ads were a dependable cash cow for the newspaper business. But yesterday’s Craigslist article was followed, in the print edition, by a mere three pages of classifieds, liberally padded by display ads for the Times itself, with another three pages lurking at the end of the sports section. This for a metropolitan area of nearly 13 million people. That guy on Hulu’s user forum who was turning to the Torrent sites? Kilar reads these forums all the time. The executives who control Hulu’s programming should do the same. |
RELATED ARTICLES:It's early December, and you've been watching DVDs of The Wire, HBO's addictive crime drama, for four hours. Now it's past midnight, and you've just finished season three. You're hooked and ready for more, but season four is nowhere to be found. The DVD set was recently released, but neither Barnes & Noble nor the local video store has it yet, and anyway, they're closed. Netflix offers it, but that would mean a three-day wait for the DVDs to come by mail. Amazon Unbox? iTunes? Netflix Watch Instantly? Not available. Only one place will deliver The Wire right now: BitTorrent.
If this sounds familiar, it's because we've already suffered through the same frustration with the music industry. Nine years ago, MP3s were opening up entirely new possibilities for sharing, discovering, and listening to music. But instead of capitalizing on the advantages of digital files, the major labels (fatter than ever from CD sales) started suing. When they grudgingly agreed to Apple's plan for the iTunes music store, it was only under the condition that tracks come burdened with digital rights management software. Of all the possibilities the Net had to offer, music executives were obsessed only with online theft. That meant people couldn't get the songs they wanted the way they wanted unless they turned to peer-to-peer services — which they did by the millions. And while DRM did not stop pirating, it did, in tandem with the incredible popularity of the iPod, give Apple a lock on legal downloads. Today, their industry in shambles, music execs are trying to turn back the clock, remove DRM, and finally give us what we should have had in 1999. Now the home-video industry is going online. Apple has brought movie rentals to iTunes, Amazon is selling and renting movies online, Netflix has started digital downloads, and Comcast has promised almost everything-on-demand eventually. We have the bandwidth, the compression algorithms, and the Ethernet connections — not to mention TiVos, Apple TVs, and Vudus — for downloading movies directly to the TV. We should no longer have to drive to the video store or wait for the mail carrier. But that's not the case. Once again, the entertainment industry seems determined to blow it. To succeed in the digital realm, Hollywood needs to offer total convenience, almost infinite choice, and the freedom to watch any way we want. Instead, we have iTunes, which delivers video you can't watch on any portable device that wasn't made by Apple, and Amazon Unbox and Netflix's Watch Instantly, which provide downloads you can't watch on any device that was made by Apple. And with a mere 1,000 downloadable movies for rent on iTunes, fewer than 5,000 on Amazon, and around 6,000 on Netflix, none of them offers anything close to the 90,000 DVDs available by mail. They can't, because Hollywood is hoping to protect DVD sales at the expense of electronic downloads. It won't succeed, any more than the music industry could keep Tower Records afloat — but if people don't find what they want at online storefronts, pirate copies are just a click away. The lessons from the music fiasco are clear: Trying to limit the inherent advantages of digital files is a losing strategy. The way to stop piracy is to make everything available — easily, legally, and at a fair price. But it's a lot of work to secure Internet rights to old films and TV series from writers, directors, composers, and the like, and the studios show little inclination to monkey around with their lucrative sales to premium channels like HBO — deals that don't affect DVD sales but are written in a way that can keep electronic distribution rights locked up for years. "There would be a lot fewer Mercedes pulling up to the Palm every day without those pay-TV deals," one exec quips. Right — but how many music moguls have you seen pulling up to the Palm lately? Entertainment executives tend to find what they expect to find. If they fear theft, they'll see piracy; if they're looking for opportunity, they'll discover ways to profit. The music labels ignored the opportunity for so long that it has all but evaporated. The television and film industries still have a shot, but they need to move fast. Instead of hiring lawyers to lobby Congress and sue their customers, they need to set their legal minds to untangling messy rights issues and rethinking those profitable yet restrictive pay-TV deals. That way everyone would win: Customers would get what they want, the industry would make more money, and consumer electronics companies could innovate without fear of attack. Instead we have Rick Cotton, general counsel of NBC Universal, railing in a recent online debate against the "tidal wave" of illegally duplicated content that "simply must be reduced in any kind of law-abiding society." How to accomplish that? With digital locks, of course. Cotton is right on one point: A tidal wave is just what digital delivery brings — a tsunami of content, illegal and otherwise. But he needs to heed his own analogy. Locks can make you feel safer, but they won't keep you from drowning in a tidal wave. Leslie Moonves: The president of CBS isn't worried about the Internet—"as long as we get paid."
Wired, June 2007 What happens to network television in the Internet age? As broadcasters confront ever-shrinking audiences and increasingly Net-savvy advertisers, that's a big question in certain quarters of New York and Los Angeles. With hits like CSI and Survivor, CBS president Leslie Moonves is the current ratings champ, but he knows Wall Street is ultimately going to judge him on how he manages the transition to the digital world. Moonves talked to Wired about user-generated video, tiny TVs, and how those clips of his wife made it onto the Internet. Rose: Right now, traditional broadcasting accounts for the bulk of your viewership and income. Will that change? Moonves: I think many years from now, people will still watch television, though it will probably be 150 inches wide. What will change is the ability to get CSI not only on TV but also on the Internet, even watching it in a foreign country as it's playing in the US. Rose: Major advertisers, including Johnson & Johnson and Procter & Gamble, are shifting money from network television to the Internet. How concerned are you? Moonves: We're not. There are plenty of people who are willing to pay $2.6 million for 30 seconds on the Super Bowl and hundreds of thousands of dollars for American Idol. There will be advertising dollars on the Internet. We're there as well. We win either way. Rose: How do you feel about Google trying to get into television advertising? Moonves: Hard to say. Right now we like selling our own inventory. Rose: Does user-generated video pose a threat to traditional television? Moonves: Only when they're taking content without permission. Genuine user-generated content — like the guys from OK Go dancing on the treadmills, which I liked a lot — I don't think poses any threat. A lot of it is garbage; you know, your cousin Fanny sitting outside on a swing. But there's some great amateur stuff coming out. They don't have to steal the professional stuff. Rose: Will professional television change in response? Moonves: It already has. We have a bunch of people coming up with ideas for original shows that are very cheap, very experimental. There isn't a lot of advertising revenue on this, so you need young people who don't want a lot of money yet. They will later. Rose: You were in talks with Fox and NBC to join their partnership to distribute programming on the Internet — the so-called YouTube Killer. Why did you decide not to? Moonves: What was difficult for us was the idea of exclusivity. We would have had to funnel every piece of content through that mechanism. It didn't give us the freedom we wanted to make partnerships all over the place. We're so much in the infancy of the Internet; three years from now, this is going to seem like the dinosaur age. We've got to learn about users — how much they're using, why they're using it, when they're using it — and we have to connect with them. We think we can accomplish as much alone as they're doing together. Rose: There's a lot of CBS material on YouTube. How does that work? Moonves: You have to look at it in two different ways. One is content that you will get paid for directly, and the other is promotional content. Our attitude is, either pay us for it or give us promotional value that will eventually lead to our getting paid for it. Rose: How do you tell the difference? Moonves: If there's a one-minute clip of CSI, or user-generated clips like different shots of David Caruso taking off his glasses, that's great promotion. If they were showing a whole episode of CSI and we weren't getting paid, we'd object. Rose: Do you have your own favorite YouTube video? Moonves: My wife is the host of Big Brother. Her name is Julie Chen, and she'll say, "Da da da, but first we do this." So they mashed together her saying "but first" a couple dozen times. Literally. In different outfits. And when you cut it together like that, it appears very robotlike. They called her the Chenbot. Rose: Recently, you made a deal with Verizon Wireless. Do you think mobile TV is going to work? Moonves: We think wireless is going to grow tremendously. Do I think people are going to watch an episode of Survivor on a 2-inch television set? I doubt it. But I do think somebody's going to go to a grocery store in the middle of a football game and watch that game. Rose: Of all these new distribution channels, what's the most valuable? Moonves: They're all good. We don't care how you get our content — over the air, over cable, satellite, the Internet, or on your cell phone — as long as we get paid for it. |
