Hulu, Netflix Take Cable Bypass

By Todd Spangler -- Multichannel News, 7/12/2010 12:01:00 AM

The Internet is fueling a spate of new entertainment options, delivered directly to the TV — without the need for a traditional cable or satellite-TV subscription. But according to industry analysts, pay TV providers shouldn’t panic yet.

Hulu, the startup owned by three of the four major broadcast networks, is launching a multiscreen subscription service with access to the full seasons of more than 30 current TV shows for $9.99 per month. Moreover, the “Hulu Plus” service is offered not only on the Web but also on HDTVs and mobile devices.

Separately, Netflix demonstrated a bit of clout in obtaining “pay TV” rights to movies through a deal with production company Relativity Media. Under that agreement, Netflix will be able to stream 10 to 14 movies per year that otherwise would have been distributed through premium channels like HBO, Showtime or Starz.

On Hulu Plus — given that the content is entirely from broadcast networks and has already been free to access — the disruption to traditional distributors will be minimal, according to David Bank, managing director of global media and Internet research at RBC Capital Markets.

“The participation of cable-network content players [in Hulu Plus] would mark a major shift in the ecosystem that we don’t expect, again, depending on the windowing of content,” Bank wrote in a research note last week.

Hulu Plus also provides access to archive content from hundreds of older shows, and will provide all native HD content in 720p high-definition format. The service will be accessible via the Web, Samsung’s broadband-connected TVs and Blu-ray players, and Apple’s iPad and iPhone devices, with more devices in development. “It’s a treasure chest in the cloud for TV lovers,” Hulu CEO Jason Kilar wrote in a blog posting announcing the service in late June.

Hulu, owned by The Walt Disney Co., NBC Universal and News Corp., will run a closed beta test of Hulu Plus over the next few months .

Meanwhile, Netflix and Relativity touted their deal as “groundbreaking” in marking the first time an alternative distributor has obtained rights to movies in the traditional pay TV window. Films scheduled to be available through Netflix in early 2011 include The Fighter, distributed by Paramount Pictures, and Skyline, released by Rogue Pictures and Universal Studios.

Executives with premium networks privately dismissed the Netflix-Relativity deal as a nonevent. “This isn’t going to touch our product,” said one.

Still, what’s noteworthy is that Relativity believed it will get the best payback through the Netflix partnership. “Netflix has certainly made its mark, with a service that reaches over 13 million people and allows consumers to have what they want, when they want it,” Relativity CEO Ryan Kavanaugh said in announcing the deal.

‘Cord-cutting’ is still a marginal phenomenon:

• Proportion of U.S. consumers with broadband but no cable TV was 3.9% in January 2010, unchanged from the year prior. (Nielsen)
• Less than 1% of cable subscribers likely to drop service mention getting all the programs they want online as a reason for switching. (Leichtman Research Group)
• Online video streaming accounts for less than 2.5% of total video consumption across all demographics. (Nielsen)