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Perspectives on building technology businesses and AcceleratorIndia from Cartezia

Disney's partnership with Hulu will change the rules in online video distribution

Saturday, May 2, 2009

Disney’s investment and joint-venture partnership with ad-supported streaming video site Hulu, will seriously impact the prospects of existing players like Google’s YouTube by limiting the amount of professional content available to them. Further impact will also be felt byApple’s iTunes service that currently sells or rents high quality professional content from studios like Disney.

Walt Disney Co. joined News Corp., NBC Universal and Providence Equity as a joint venture partner of online video site Hulu and also took an undisclosed stake in the company, rumoured to be 30%.  According to the terms of the deal, Disney will offer full-length episodes of its most popular prime-time shows from its ABC network, including "Lost," "Grey's Anatomy" and"Desperate Housewives," as well as cable offerings and older episodes from ABC’s library.

As a result of the Disney deal, Hulu now has access to content from three of the six largest film studios. Of the remaining three, Sony Pictures already provides a small amount of long-form, ad-supported content to both Hulu and YouTube. Warner Bros. has largely kept long-form content offline and Paramount, which provides Hulu with some TV shows and a small number of films, is unlikely to join Google-owned YouTube anytime soon due to its parent company, Viacom’s $1 billion copyright suit pending against YouTube.

These developments mean that there just aren't that many other places for YouTube to acquire full-length professional content. Although Disney signed a content deal with YouTube recently, it only includes clips from ESPN, ABC and other Disney assets, with control of the ad inventory firmly with Disney.

The Disney-Hulu deal is likely to impact on the business models that monetise online video content. Disney’s partnership will strengthen the position of the ad-supported revenue model for online video also followed by YouTube. This will affect Apple’s iTunes service that either sells or rents some of the same video content that Hulu is streaming for free, albeit interspersed with advertisements. Apple could offer online video streaming by enhancing the current iPod app for video viewing.

However, Hulu might gain a first mover-advantage by developing a new iPhone app for its streaming service according to some reports. Through its deal with Disney and other initiatives to access customers through other channels like the iPhone apps store, Hulu looks set to be in pole position to benefit from the explosion in online video consumption. It's key challenge will be to monetise its content libraries through an ad-supported business model which is sustainable in the longer term.