Why Hulu will never outbid TV networks for original shows

Josh Wein

Netflix (Nasdaq: NFLX) blazed a trail in online video this year with its aggressive original programming strategy. Its shows "House of Cards," "Arrested Development" and "Orange is the New Black" could probably qualify as hits, although Netflix won't say how many people have watched them.

It's a strategy others will probably adopt. But I wonder how free Hulu will be to bid on new shows.

Hulu is owned by Disney (NYSE: DIS), Fox and Comcast (Nasdaq: CMCSA). Taken together, those companies own three of the four major broadcast networks and a significant share of pay-TV networks, including FX and USA. They have also pledged to put $750 million into Hulu to help the the online video site thrive after turning down offers from DirecTV (Nasdaq: DTV), AT&T (NYSE: T), Time Warner Cable (NYSE: TWC) and others to take Hulu off their hands.

That recapitalization apparently has caught the attention of TV show producers, who hope the cash is burning a hole in Hulu's pocket. Hulu made a splash last week touting a recent series of deals it reached for third-party programming.

But Hulu's acting CEO Andy Forssell threw some cold water on the idea that the company would spend big on original programming at the IAB MIXX conference in New York this week. He said originals account for just 5 percent of total viewing on Hulu today. While that number will grow, Forssell said he doesn't expect it to exceed 15 percent any time soon.

Moreover, Hulu appears to be most interested in a certain kind of show--one that wouldn't otherwise get made. In other words, Hulu is not in the business of bidding on original programming its corporate parents may want for their own networks.

It makes sense for Hulu to stay away from the kind of high-profile, expensive series Netflix is increasingly going after. Those same series might otherwise find their way onto a cable network and Hulu corporate sibling. Imagine the conversation between Forssell, who also runs content acquisition for Hulu, and the programming chief at a network like FX if word leaked (and it always leaks) that the two companies were interested in buying the same show.

It also makes sense that Hulu will primarily remain a place where TV viewers can get caught up on the major broadcast network shows they've missed each week. Keeping that option open for all TV viewers seemed like a major factor behind the decision not to sell Hulu to a pay-TV distributor. Had a company like DirecTV or Time Warner Cable acquired it, the presumption was Hulu would have served mostly as a backbone to a single distributor's TV Everywhere strategy.

And not all of that new cash will likely go to content acquisition. Though that's arguably the most important part of an online video aggregator's business, Hulu has other costs it can't ignore as well, such as technology development and improving its ad targeting system.

Forssell said Hulu has been on the receiving end of pitches for many different original projects. If it commissions any, they will probably be smaller, lower-budget projects than the typical network-backed or even Netflix-backed show. --Josh | +Josh Wein | @JoshWein

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