Competing With Hulu a Bad Move for Comcast
Comcast sees the writing on the wall: cable-based TV will not survive the next decade. Its value is fast eroding because it can't compete with on-demand, Internet-delivered TV across all screens. Unlike their music counterparts, TV executives have pulled their heads out of the sand in time and are working hard to survive this monumental shift. To do so, however, they need to choose the right battles to fight.
Comcast CEO Brian Roberts spoke at the Web 2.0 conference in San Francisco yesterday afternoon. He was interviewed by Federated Media CEO John Battelle.
I discerned three important nuggets from Roberts:
- Comcast will continue to invest in higher-bandwidth connections into homes.
- Comcast will invest in content more aggressively.
- Comcast will officially launch Hulu-competing Fancast.com by the year's end.
The first two points make a ton a sense. The third point is... well, miscalculated.
I am convinced Brian Roberts understands the challenges ahead. This is why Comcast and Time Warner (which also clearly "gets" it) have been aggressively pursuing a "TV Everywhere" model, which promises to give their subscribers exactly what they want: anytime, anywhere access to any TV content. They have to do this to keep their customer bases.
But in a TV Everywhere world, the role of the multi-system operator is diminished. Your cable or satellite TV provider will no longer be your only (legal) means of watching the current episode of HBO's Entourage. In a TV Everywhere world, Entourage will be available on literally thousands of websites and mobile apps, as long as you can authenticate yourself as a paying cable or satellite subscriber with the HBO package.
In this world, the value of Comcast as a content distributor is eroded. Comcast risks becoming a "dumb pipe," providing little more than bandwidth. To avoid that fate, Comcast recognizes that it needs to move upstream and own or control the content itself. This is why it will buy NBC in the next few months.
Moving upstream and investing in content is a smart move for Comcast.
Moving downstream and competing with Hulu via Fancast.com is a bad move. Here's why:
- Hulu already has a huge lead, having aggressively grown its audience for more than a year now.
- Hulu would be the ideal launching pad for TV Everywhere, because of its mega-loyal and passionate audience.
- Comcast is about to own a third of Hulu. Ad revenue from Hulu will ultimately end up back in Comcast's coffers.
- In a TV Everywhere world, thousands of websites will likely present the same TV content as Fancast.com. It will be a terribly crowded space, with a ton of noise. The sites that perform best will be the ones that create the best user experience for viewing TV content.
- Comcast has a poor track record with UI and user experience design. Need I compare more than Comcast DVR's UI to TiVo's UI?
- Strong consumer brands drive website traffic. Comcast has a horrendous consumer brand. Comcast users generally do not like being Comcast users.
- Comcast's interest is in the broadest distribution of TV content, not exclusive distribution. Locking up certain content for Fancast.com alone would be a mistake. Consumers would see it as a violation of their rights, akin to the Net Neutrality debate.
Comcast can survive (and perhaps prosper) through the death of cable-based TV, if it makes smart strategic decisions. That means focusing on where it provides the most value in the TV supply chain: Internet connectivity and content investment. Creating a content website that competes with its distributors is not a smart move.
Comcast should pull the plug on Fancast.com or simply use it as a TV Everywhere authentication testing site.
Guest author: Mike Berkley served as CEO of SplashCast Media from 2006 to 2009, pioneering the concept of social TV in partnership with Hulu. Berkley is currently involved in the TV Everywhere initiative, consults on product strategy for online media companies, and maintains the TV News Stream blog covering all things related to online premium video.
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Nice article but there are some flaws: "Comcast has a poor track record with UI and user experience design. Need I compare more than Comcast DVR's UI to TiVo's UI?"
Fair enough, but which company's UI is seen by more people? I'd be surprised if Comcast's DVR didn't have more than 5X the amount of Tivo subs.
OhhJohnny -- Thanks. Comcast has 5x more DVR users than TiVO because Comcast strong-armed TiVO out of the market via pricing pressure (Comcast basically gives their DVR away for free; TiVO can't compete).
Comcast will not be able to exercise that type of leverage against Hulu. They can't force their subscribers to only use Fancast.com and not Hulu.com. If they tried, it would be a monumental mistake.
Minimally, the threat of Fancast is a good bargaining chip in Comcast's potential acquisition of NBC. A "we don't need you, we'll go up against you" move. Small, but, still, in chess, sometimes you win with small moves.
Regardless, Hulu and Fancast are different "channels" and Brands. Hulu is a bit upmarket. And, delivered online, it's good, but, not great. Watch 24 on Hulu or on a Comcast HD channel? It's a no brainer. Cable wins. And, I get a second rate experience when I watch "on my own time" on Hulu.
Fancast delivered over IPTV, with the ability to push a higher quality image and frame rate? Technically, Comcast could bury Hulu by making Fancast the BEST on-demand experience in the market. They have the pipe, they could do it. And, playing a bit down-market means they aim for a larger piece of the pie.
Finally, Consumers don't give a hoot about Net Neutrality, Rights or this argument at all. If it's a channel, it's free, the quality is really good on their Big Screens with some passable Content -- and they can quickly source it DURING their typical TV viewing position, they'll use it. Consumers (as a whole) really don't care about "TV everywhere." They have TV sets.
Hulu was a created as move against Piracy, not a solution for making revenue or pleasing consumers. Fancast doesn't have the same mandate or focus.
Seems to me that Comcast is both an internet and cable provider, they win, no matter what...
Nice post. However, I think that going after Hulu is a reasonable move.
Hulu is more vulnerable than you assume:
1. Traffic has been relatively flat since February if Compete.com is to be believed. It does not hold a dominant position;
2. Hulu receives a lot of praise for its UI (rightfully so). However, it can be easily copied (Comcast can pull that off...)
3. Hulu is missing a lot of content that Comcast has the rights to (e.g., HBO).
4. Should Comcast purchase NBC, it can cripple Hulu (e.g., removing NBC content after expiration of the initial term).
Hulu is built on fragile content deals and some funny Alex Baldwin commercials.
So, why not go after Hulu? Comcast has a reasonable shot at making Fancast.com the iTunes of online TV. Why not control more of the advertising pie?
It's reasonable for Comcast to believe that it can pull it off.
that boxee vs hulu thing will go on and on and on. Hulu will block it, boxee will find a way, hulu will block it etc .. it will be too undependable to work.
Mike...
Your graphic explains it all. Because of the distribution power of the web any media related company that doesn't produce it's own high quality content will perish.
The big losers in this evolution of TV though will be the local TV stations. They are already in survivor mode, struggling to keep what little audience they still have.
I would think network executives have a plan to stream their own high quality content directly to viewers as soon as it's more profitable than dealing with their affiliates.
Here's the problem. First, Cable TV users don't want to watch TV shows on their computers. That's why they subscribe to cable, so that they can watch them on their TVs. Hulu's popularity, on the other hand, is largely because of a growing segment of the population that have gotten sick and tired of paying $100+ per month for cable TV, only to have 500+ channels of pure garbage and maybe 10-20 that they actually watch and have good content. These people might be fans of 2-3 shows, mostly on the major (big 4) networks, and as long as they can watch those, they're happy. There's ZERO value in having 500+ channels they'll never watch. And having access to them on "TV Everywhere" provides ZERO value as well, because they won't go there. There's one fact that WILL happen if NBC is bought by Comcast and they turn Hulu into a pay model -- Bittorrents for TV shows will rise again and piracy will go up.
Who will deliver the internet to people's homes that watch shows via Hulu instead of cable? In 60% of the country, cable companies are the only viable high speed pipe.
Interesting article. I am a customer of Rogers Cable in Canada, and a lot of the article and comments resonate with me. Rogers High-Speed internet is fantastic. It just works. The cable service is horrible. I can't keep track of 500 channels. I can never remember which ones are HD and which ones are regular. I can only remember a handful of channels that have shows that I like. There is no easy way to search for shows that I like.
I think that with the advent of IPTV, there are four separate businesses. The first business is content production. Rogers does a bit of this with local cable channels. However, companies such as NBC, ABC, CBS, HBO, Fox, etc do pretty good work here. Getting into this business has a low entry barrier with cheap new video technologies, but getting into the top 20 is very hard because you need continuous access to the talent that drives the value.
The second business is content distribution. Rogers and Comcast have virtual monopolies or duopolies in this business because they own the physical distribution infrastructure. There is no easy way to compete with them here because any competitor must invest in physical infrastructure.
The third business is content aggregation. These folks bundle content together under various genres to appeal to different market segments, and then they monetize it with ads and/or subscription fees. Historically, content aggregators were primarily geographic and strongly tied to the content distributors, but with the internet, they don't need to be geographically based. In the current environment, content aggregators (a.k.a. channels) are also often either the content producers (e.g. NBC) or the content distributors (e.g. Rogers). However with the internet, and user interfaces with graphical input, anybody can be a content aggregator.
The fourth business is customer service management. This business manages billing, service provisioning, authentication, and support. Today, this business is usually owned by the incumbent content distributor such as Rogers or Comcast, but with the internet, it could be owned by the content aggregator as well.
IPTV upstarts such as Hulu have a strong interest in grabbing the customer service management business. Whoever owns the customers controls the revenues. If people feel screwed over by their current TV provider, they'll go with customer service providers that treat them better or offer better and/or cheaper service. Even with IPTV, users will happily go with companies such as Rogers and Comcast if the service is simple, flexible, and seems fiscally reasonable. Not so today...
In my opinion, Comcast's (and Rogers) best strategy would be to own physical distribution and customer service management and be the very best at it. It should also open its system to distribute content from any traditional content aggregator (e.g. NBC, CBS, Fox) or internet-based content aggregator (Hulu, Current.tv). It should also beef up its user-interfaces so that users can pick the 20 channels that they like and not have to worry about 500 channels that they don't like. It should also improve user interfaces to enable on-demand TV as easily as traditional TV. If they really want to own content production and they can afford it, they should do it under a separate independent brand.
Great Comments!
@Matt: regarding your point that the content providers will eventually go direct to the consumer seems logical. It is in fact what Disney announced yesterday, with an a la cart pay-per-show model (similar to Apple's iTunes). However, my bet is that consumers will prefer "all you can eat" subscription models (like TV Everywhere) over "a la cart" paid content models. We'll see...
@Dave and @Tom: this is a good debate, Fancast vs Hulu. My point is that Comcast will soon own a chunk of Hulu. Why not leverage the already-popular Hulu as the launch pad for TV Everywhere subscriptions? Roll Fancast into Hulu... combine forces. Comcast is not good at consumer-facing user experiences. Hulu is. Be smart about skillsets.
@Derek: I respectfully disagree. 90% of American households still pay a monthly fee for cable or satellite TV. Consumers hate to pay, but by-in-large they still do. Giving viewers more control over how they consume TV can only be a good thing.
@Jay: excellent comments! Also see "TV Everywhere in Canada w/ Sign in by Cable Modem ID" from yesterday: http://tvnewsstream.com/tv-everywhere-in-canada-w-sign-in-by-cable-mo
Thanks,
Mike Berkley
the massive assumption of your article (the pretty chart) is not realistic in the next 24-36 months. that kind of large scale authentication scheme just won't happen fast enough.
if you watched brian's demo, it seems as if fancast already does the auth part but only for comcast customers. is there ANY evidence of other MSOs having that ability?
hulu won't have the gated content unless the environment changes...
"Telling Comcast to stay out of the portal business is like telling Ford to stay out of the car business. Just because Hulu is the portal De jure right now does not mean... it will last. Ask Netscape, AOL, etc. Operators, providers, producers, etc., etc. are all going to scramble to be the destination for eyeballs.
Why in the world would a major operator such as Comcast not get in the game. They own the pipe, they produce content, they have the funds to build an audience. Are you kidding me! They would be nuts not to give it a shot. Of course they may fail. So could Hulu.
Not a dumb move, they can leverage more income this way and can be done for a fraction of the cost of hulu who has to pay for the bandwidth.
Comcast has an in already with lots major networks and they can deliver it to their customers for a fraction of the cost of bandwidth since they're providing it to their own customers and they only have to worry about "the last mile" so no concerns over bottlenecking and they can even play dirty and deliver it at a faster rate than hulu by using dpi to slow down the speed of videos from youtube, hulu and any other competing service.
They're a slipper bunch at comcast, but believe me it only seems stupid now - soon all major ISPS/Telecos will be doing this.
@George Michael: Hulu is in fact moving to a hybrid free / paid content model. See today's buzz around this subject: http://news.cnet.com/8301-31001_3-10381622-261.html
@Paul: Comcast is in the business of delivering content. It is traditionally a "pipes" company. It has recently moved upstream by acquiring content properties, as it will likely do with NBC. Comcast has never had a strong downstream, home-grown online media presence. I respectfully disagree with your analogy to Ford. My argument is that it is better for Comcast to own the content than the eyeballs, and that is where they ought to focus.
@TVFanatic: Good point regarding bandwidth costs. However, they may not be physically hosting much content. They will not be hosting any of the NBC, Fox, or ABC (Disney) content, as those are exclusively locked up on Hulu's servers for now. Comcast will have to share revenue with Hulu. Tiny margins. Comcast's primary objective with Fancast.com is to launch TV Everywhere -- not to make meaningful ad revenue. I am suggesing that they consider leveraging the strength of Hulu's brand to launch TV Everywhere instead. It's important that Comcast wins the hearts and minds of consumers with this move. Leveraging Hulu's brand and passionate user-base would make it a lot easier for them to succeed.