Fox lifts curtain on sham Hulu sale

Online Video With Fox’s announcement yesterday that it will put new episodes of current-season shows behind an authentication wall I think we can fairly assume the sale of Hulu is now off, assuming it was ever really on. Whatever valuation a prospective buyer might have assigned to Hulu a week ago just went down significantly. Most of Hulu’s revenue comes from the sale of advertising in the shows it streams and the new authentication wall will have an immediate negative impact on viewership. And fewer viewers means fewer ad dollars

The only question now is whether Hulu can continue as a going concern. Given the recent rumblings that Hulu’s other network partners were mulling a move to an authentication window Fox’s announcement is likely just the first. ABC will probably be next to go; NBC is somewhat constrained by the merger conditions of the Comcast deal to following the lead of the other networks in matters related to Hulu. When all three go, and Hulu no longer has next-day access to its most popular content (save for subscribers to Hulu Plus) the jig will be up.

While the content will still be available for free online — albeit a week or more after its broadcast premiere — there won’t be enough viewership to support the sort of independent advertising revenue stream needed to sustain a dedicated operation such as Hulu, whether owned by its current parents or someone else.

It now seems pretty clear that the supposed auction of Hulu was a pro forma exercise. The networks clearly have decided that protecting the retransmission fees they earn from cable and satellite providers is a higher priority than the incremental advertising revenue they earn from online viewing, whether through Hulu or directly through their own sites. Continuing to make their content available for free online would only undermine the case for ever-higher retrans fees.

“We’re concerned that cord-cutting is going to be a problem,” Fox’s president of affiliate sales, Mike Hopkins, told the Wall Street Journal. “The more you enable it by putting content out there for free without any tether to a pay-TV subscription, the bigger that danger becomes.”

The point of the Hulu auction was to see whether anyone might give the networks a reason to reconsider the decision to prioritize retransmission fees over nurturing the online distribution business, like writing a big, fat check for dubious and contingent online rights. Clearly, Fox heard nothing from any of the prospective buyers that would lead it to reconsider, and it’s unlikely ABC or NBC would have heard things differently.