How Hulu Might Change and How It Probably Won’t

Rumors of major shifts at the streaming video service abound

It's been a busy Monday for Hulu—the company has been dogged for months by rumors that CEO Jason Kilar is eyeing an exit, and that its days of distributing exclusive day-after content from the major broadcast networks are numbered. Today, a memo obtained by Variety's Andrew Wallenstein seemed to confirm the latter rumor, and while Kilar's exit is by no means assured, the soon-to-close buyout of equity fund Providence's 10 percent stake in the company (a stake valued at $200 million, putting the whole company at about $2 billion) would reportedly leave execs like Kilar in, at the very least, a good bargaining position.

And it would leave the streaming service in what some have characterized as a much weaker state: when Disney and News Corp. buy out Providence (the deal is set to close in September), some of the principles that have made Hulu competitive will be altered. Hulu could lose exclusivity on its third-party content from broadcasters Disney and News Corp. (NBCU lost its ability to influence Hulu's decisions when it merged with Comcast, though its content is still broadcast on the service), meaning that Disney, for example, could air ABC shows first on another third-party's application.

The door would be open to more competitors, and rights to syndicate the content beyond Hulu's own service (to other providers like AOL and Yahoo) would revert to the content owners. Fox also would be able to insert a fourth commercial per pod.

Yes, those are sweeping changes. But they do not materially affect Hulu's market advantages, at least not in the current market, and not if everyone involved has his head screwed on right.

Hulu has a huge advantage over every other over-the-top distributor: it provides programming within, at most, a few days of the original over-the-air broadcast from three of the four biggest broadcast networks and several cable nets. An extra ad or two on the Fox programs won't change that, nor will non-exclusivity. The latter might mean that Disney, News Corp. and Comcast could drive a harder bargain when it comes to the percentage of ad inventory, for example, that Hulu's allowed to sell. But Hulu has been the only ad-supported streaming video service to aggressively court TV advertisers with ratings they can understand and purchase confidently. That strategy has paid off in spades. Advertisers love the service and are willing to pay high CPMs, which is its entire point.

And even if Hulu's shows become available on third-party services, it's unclear who those would be. YouTube's TV app just rolled out on PS3 last week, and advertisers are loathe to jump head-first into the new YouTube system, in which Google both sells ads and measures delivery (which determines price). And Disney, News Corp. and Comcast would still own Hulu.

That's not to say that Kilar won't negotiate a bit more confidently when the time comes to sign a new contract, or that he won't eventually move on from the company he created, but right now he's in the catbird seat. Authentication-only services are seen by a wide range of techies and consumers as squelching innovation and punishing people for not buying expensive cable packages. As DVD sales fade and content providers cast about for a viable alternative that maintains the dual revenue stream model that makes linear TV so profitable, Hulu is still an extremely attractive option.