News Corp., Disney Risk Audience by Restricting New TV on Hulu

by Anthony John Agnello | August 18, 2011 11:33 am

News Corp., Disney Risk Audience by Restricting New TV on Hulu

Hulu had a good second quarter. The streaming video website, co-owned by Comcast (NASDAQ:CMCSA[1]), Disney (NYSE:DIS[2]) and News Corp. (NASDAQ:NWS[3]), had 875,000 paying subscribers for its premium service Hulu Plus. It isn’t exactly nipping at Netflix‘s (NASDAQ:NFLX[4]) heels, but it’s still not a bad showing after nine months of being open to the public.

As for the broader free streaming service Hulu provides, the company claimed in a post on its official blog that, as of the second quarter, Hulu “remained the leader in U.S. online video advertising[5] with the largest market share (revenue) of a rapidly growing market.” Short version: People are watching streaming television online. This is good news for a rapidly changing business.

However, if content providers have their way, Hulu and other streaming television services might see their viewership growth slow to a crawl.

A Wednesday report at The New York Times highlighted the growing trend amongst television networks, those same companies that own Hulu, to restrict web access to new programming[6]. Hulu and Dish Network (NASDAQ:DISH[7]) users previously have been able to access a new television show the day after it is broadcast. An episode of Viacom‘s (NYSE:VIA[8]) Comedy Central show The Daily Show runs at 11 p.m., and Hulu will host it by 11 a.m. the next day. Now networks are pushing that window back.

News Corp.’s Fox is pushing that window far back, restricting access to new shows until eight days after they’ve aired for the first time. Paying subscribers to Hulu Plus and Dish Network will be able to get access within one day, provided they log in through Fox.com to authenticate their subscriptions with those services. Free users who watch the purely advertising-supported content on Hulu are out of luck. ABC likely will follow Fox in using this model. Robert Iger, CEO of ABC owner Disney, said his company’s plan is to “make access to the programming more difficult” except in cases of paying subscribers.

On the one hand, the networks’ logic is perfectly sound. Traditional cable airings of television shows still are the most profitable and command the largest viewership. If that’s where the greatest money can be made, it only makes sense for the networks to serve that audience first and the smaller, less profitable streaming audience second. If the revenue opportunities aren’t equal, why should those outlets see (nearly) equal service?

While that might be a valid perspective in 2011, it will be less and less valid as time goes on and audiences increasingly move to Web-based television-viewing models like Hulu. That Hulu’s audience has grown so steadily is precisely because it offers new television content quickly after it’s aired.

By restricting access to new content by a week or more, Fox, ABC and any other network that follows suit runs the risk of driving their audience toward other, less legitimate Web outlets to see the shows they want. A Google search is going to lead audiences to a new episode of Modern Family on open video hosting websites like Megavideo just as easily as it will to an advertising supported, legal version on Hulu.

The genie is out of the bottle when it comes to hosting new shows online. Rather than make access to these shows more difficult, something these networks ultimately can’t fully control, Disney, News Corp. and the rest should instead focus on selling advertising space that will reach its new, still-growing audience.

As of this writing, Anthony John Agnello did not own a position in any of the stocks named here. Follow him on Twitter at @ajohnagnello[9] and become a fan of InvestorPlace on Facebook.[10]

Endnotes:
  1. CMCSA: http://studio-5.financialcontent.com/investplace/quote?Symbol=CMCSA
  2. DIS: http://studio-5.financialcontent.com/investplace/quote?Symbol=DIS
  3. NWS: http://studio-5.financialcontent.com/investplace/quote?Symbol=NWS
  4. NFLX: http://studio-5.financialcontent.com/investplace/quote?Symbol=NFLX
  5. remained the leader in U.S. online video advertising: http://blog.hulu.com/2011/07/06/q2/
  6. restrict web access to new programming: http://www.nytimes.com/external/readwriteweb/2011/08/17/17readwriteweb-tv-networks-begin-to-rethink-free-immediate-92704.html?ref=technology
  7. DISH: http://studio-5.financialcontent.com/investplace/quote?Symbol=DISH
  8. VIA: http://studio-5.financialcontent.com/investplace/quote?Symbol=VIA
  9. @ajohnagnello: http://twitter.com/#%21/ajohnagnello
  10. InvestorPlace on Facebook.: http://www.facebook.com/pages/InvestorPlace/178906405484848

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