Disney's Hulu Deal Raises Questions About YouTube Model
April 30 2009 - 8:14PM
Dow Jones News
Walt Disney Co.'s (DIS) deal to put ABC TV shows on Internet
video site Hulu suggests Google Inc.'s (GOOG) YouTube may have to
rethink its revenue-sharing business model.
Google is under increasing pressure to add more premium content
to YouTube in order to attract advertisers - and revenue - from the
site. But on Thursday, rival Hulu scored a big victory when Disney
agreed to take a nearly 30% stake in Hulu and put full episodes of
its ABC TV shows on the site.
With the deal, Hulu will be able to distribute content from
three of the top four U.S. television broadcasters, giving it a
commanding lead in the online premium content market. Hulu is a
joint venture of General Electric Co.'s (GE) NBC Universal and News
Corp. (NWS). News Corp. owns Fox Broadcasting, The Wall Street
Journal and this newswire.
Neither video site provides financial details. Some analysts
have estimated Hulu could have revenues of about $120 million this
year, while YouTube may top $200 million. But CreditSuisse analyst
Spencer Wang sparked controversy earlier this month when he said he
expects YouTube to incur a $470 million loss this year.
The structure of Disney's deal with Hulu, particularly the
equity stake, suggests content creators want more involvement in
online distribution businesses than Google has offered them with
YouTube. Some observers say the Internet giant may be forced to
offer more than just a share of the advertising revenue to attract
more premium content, like television programs, to YouTube.
"Content providers don't want to give (YouTube) content because
the advertisers aren't there yet," said Edward Jones analyst Andy
Miedler. "To get someone to jump, it may take some payments from
Google."
Forrester Research analyst Bobby Tulsiani noted that online
video rental service Netflix Inc. (NFLX) recently made an
undisclosed cash payment in exchange for the rights to stream
Viacom Inc.'s (VIA) irreverent "South Park." He said the recent
deals suggest Google might have to tweak its business model in
order to get the content it needs to monetize YouTube.
"I don't think (YouTube) can get into the premium space with
revenue-share only," said Tulsiani. "They are going to have to make
upfront payments or equity deals."
YouTube, which Google bought for $1.6 billion in 2006, has
recently added content from Sony Pictures Entertainment (SNE), MGM
Studios Inc. and others. It also struck a less-comprehensive pact
with ABC for clips of sports highlights and other content, and a
person familiar with the situation said Google and Disney had also
been in talks to put long-form content on YouTube.
It wasn't immediately clear why Disney opted for Hulu, but the
person noted Google would not be willing to offer any content
provider an equity stake in YouTube.
Google said Disney's deal with Hulu brings more content online
in more places, which is a win for consumers and provides further
validation of the growth of the online video market.
"The average YouTube viewer spends nearly 150 minutes a month
watching videos on YouTube. We expect numbers like this to grow on
our site and across the Web as more niche and mainstream video
content continues to be uploaded and enjoyed," Google said in a
statement.
YouTube attracted more than 100 million viewers in March, but
advertisers have remained wary about putting up their ads next to
YouTube's unpredictable user-generated videos.
Hulu had only 41 million unique viewers in March, but its
library of premium content is particularly attractive to
advertisers, and the site can thus charge much higher ad rates than
YouTube.
On Thursday, Google shares rose 1.1% to $395.97.
-By Scott Morrison, Dow Jones Newswires; 415-765-6118;
scott.morrison@dowjones.com