Hulu and MediaFLO - visions of a world restored

Posted on

We often talk about disruptive technology, emergent phenomena, and the collapse of old business models and power relationships. In our forthcoming Online Video Distribution report, that's precisely what we're going to be doing. Perhaps we should look at some of the ways the old established forces -- Hollywood, TV networks, cable MSOs -- are trying to respond?

Because although their problems are serious, some of their newer ideas are far from weak. We studied two in detail as part of the project: Hulu and MediaFLO.

Essentially, these represent two different but complementary approaches to video. Hulu's competitive position is based on its owners' content stash, with a further twist in its user interface design. MediaFLO is based on its potential as an aggregation and distribution medium, essentially indifferent to content. Both of them, however, are strongly coupled with the existing content economy: Hulu is owned by content rights holders, and MediaFLO is owned by a vendor, with a role for TV networks as "programming partners". Although one is a broadcast system and one a CDN-driven Web site, the most important similarity is that content "ingestion" - or aggregation, as we would usually say - is tightly controlled in both.

Hulu: the Web like Dad would have wanted

If it wasn't for its ownership and the content on offer, you might think this was just another Web video streaming site like all the others that boomed in the adult business, and then outside it, after the success of YouTube. But it's not. The difference is that the owners are NBC-Universal and News Corp, who are making their mountainous back catalogue available through it. For a start, this is an example of content owners developing their own distribution.

It's also an example of a sort of implicit bargain with the user. It's harder to pirate streamed, rather than downloaded, video -- but it's far from impossible. Instead, Hulu content is free to the user, and unlimited, so presumably the owners are hoping their users will not have much of an incentive to steal. Comparing it with, say, BitTorrent shows another way in which it is meant to dodge the piracy problem: the so-called 'activation energy' of browsing over to Hulu and watching is very low compared to using a BitTorrent client.

The money comes from advertising. Essentially, it's a content honeypot intended to generate huge volumes of Web traffic, which can then be sold to advertisers. In this sense, it's something like a re-implementation of traditional commercial TV -- free to air, uninterested in DRM, supported by content owners, funded by advertising.

As a delivery system, Hulu only provides content and a front-end; the actual video delivery relies on Akamai's CDN infrastructure. We can therefore conclude that its business model is reliant on the ratio between the ad rate per-click and Akamai's pricing per byte. However, we suspect that so long as this is OK, it should be highly profitable as it has practically no other costs.

MediaFLO: a new distributor for old rightsholders

MediaFLO would seem wildly different to Hulu. It's a distribution technology, it's based on radio, it's mobile, and it's broadcast (although, as we've already seen, this isn't all that different). But it shares more things with Hulu than you might think.

MediaFLO is a Qualcomm OFDMA-based broadcast system designed to deliver mobile TV. That isn't quite what we're interested in here. What's much more interesting is the business model under which it's being deployed in the United States. MediaFLO, Inc, owns the network, and is itself owned by Qualcomm. At the other end of the pipe, mobile operators are paying MediaFLO to take part in this by including mobile TV services on their handsets. And existing TV networks are also participating as "programming partners" who provide content in bulk to MediaFLO Inc.

Yes, it might be a two-sided business model, just with a different actor in the centre, depending on the terms of the relationship between MediaFLO and the programming partners. (If they are paying to distribute their stuff, it's two-sided; if Qualcomm is wholesaling the content with the distribution service, it's less so.) Despite the emergence of this new distribution system, though, it's still a force for the defence of the powers that be. Existing cablecos control what content goes into the system, and perform the aggregation function. At the moment, existing mobile operators control who gets to see it and, to a large extent, what kind of a user experience they have. Further, being a streaming, broadcast only system, you don't get to keep the content, and there are fundamental limits to how on-demand it can be.

It's possible that someone might integrate a Web-based UGC service with MediaFLO - pushing the top 50 YouTube channels over the TV link, and tying it all together in a client on the device, rather as Virgin Media does with the BBC iPlayer and its cable TV network. But as it stands, it's an example, like Hulu, of technological change being used to defend the traditional video value chain, re-implementing its business model in new ways. The empire can still strike back.

Correction: An earlier version of this post described MediaFLO as a CDMA technology and stated that the TV programming partners funded the deployment; the original text has been corrected.