PrintOnline video site Hulu trumpeted its ascension to the media big time a few months back with a dash of sardonic humor. In its debut TV commercial, in which Alec Baldwin mocks the audience's addiction to the very shows he creates as a fictional network executive, the site calls itself "an evil plot to destroy the world."
The joke is uneasily close to the truth for some in the television business.
Once dismissed as "Clown Co." by Silicon Valley critics who scoffed that old-media giants could ever harness the Internet, the Web site with a name that sounds like a Hawaiian dance has quickly upset the status quo.
Hulu's traction with users has entrenched entertainment companies worried the video site's success could undercut the financial underpinnings of the industry.
Those companies are fighting back, and the result could mean no more free passes for signature cable programs that appear on Hulu.
NBC Universal and News Corp. launched Hulu a little more than a year ago as a gamble on television's digital future.
The Web site allows viewers to watch thousands of episodes of TV shows for free, from current hits such as "Family Guy" and "The Office" to old favorites such as "WKRP in Cincinnati" and "I Dream of Jeannie." Hulu's simple design, expansive catalog and no cover charge has elevated it to one of the most popular Web sites for watching video.
With 42 million viewers in March, Hulu whizzed past Yahoo and Microsoft's MSN, and is now nipping at the heels of Google's YouTube.
Last month, Walt Disney Co. overcame its initial skepticism and signed on as an equity owner of Hulu, which has nearly 150 content partners. That gives the video site even more star power with the addition of ABC's "Desperate Housewives" and "Lost," and cable hits such as ABC Family's "The Secret Life of the American Teenager."
"Our feeling is that and some of this is instinct, by the way media consumption online is growing and will continue to grow," Disney Chief Executive Robert Iger said in a call last week with analysts who grilled him about Hulu. "It is really important for us to establish ourselves there."
But in making a bid for the next generation of Internet-attuned viewers, Hulu's owners have strained their lucrative ties with cable and satellite operators.
Companies such as Time Warner Cable and DirecTV pay cable networks billions of dollars each year to carry programming. Believing that they should have exclusivity because their payments support the enormous cost of producing TV shows, such companies have been pushing back against the Hulu freebies.
Investors wary
Investors also are wary because the media companies' embrace of the Internet-content-should-be-free philosophy threatens one of Hollywood's biggest profit centers: cable programming.
"If you give away your premium content for free, you are basically hastening your own demise, signing your own death warrant," said Laura Martin, a media analyst with Soleil-Media Metrics.
Hulu illustrates the quandary that media executives face as they weigh the potential of the Internet against their dependable, old-line businesses. If the television industry does not find a way to preserve its two pillars of revenue advertising and subscription fees the consequences could be dire.
The conflict has forced Hulu to make concessions that have hurt users who have come to expect a rich menu on the video site. In recent months, entire seasons of cable channel FX's "It's Always Sunny in Philadelphia" were abruptly taken off the site, along with episodes of other cable TV shows such as "In Plain Sight" and "Psych."
Even as FX acknowledged Hulu brought it new viewers, the cable network nonetheless demanded that the video site drop three seasons from its free offerings over fears it would undercut the show's ratings and hamper lucrative DVD sales.
"We are not going to take steps that ignore the needs of our partners," explained Hulu CEO Jason Kilar.
In summer 2006, Hulu partners Fox and NBC were thinking primarily of their own needs. YouTube was beginning to look like the future of television. Initially designed as a platform to share homemade videos, users quickly appropriated it to share TV highlights.
Media executives had cause for alarm: Consumers were gravitating toward online video at a faster clip than they had with cellphones, DVDs and even high-speed Internet service.
Hulu worked. Perhaps too well.
"The appetite for full-length TV shows online was larger than anyone thought or expected," said Bobby Tulsiani, Forrester Research media analyst. "And now people are starting to wonder, do we even need the cable connections?"
The country's largest cable operators are not waiting to find out the answer. In recent months, the operators have taken a hard line against cable networks for funneling shows to Hulu.
That strategy puts cable networks in a corner they don't want to jeopardize the multimillion-dollar payments they receive from cable and satellite operators, and so they are approaching the Web site cautiously.
"We have to be mindful of the fact that we have a good business that works for all the players," said Andrew Heller, domestic distribution president for Turner Broadcasting. "We have to find ways to advance the business rather than cannibalize it."
What's Hulu?HULU IS AN ONLINE VIDEO service that allows viewers to watch television shows on their computers free of charge.
Owners: NBC Universal, News Corp., Providence Equity Partners and soon, Walt Disney Co.
Launched: March 2008
Number of shows: 800
Number of advertisers: 200
Number of users: 42 million in March
Distribution: On Hulu.com and 35 other Web sites, including AOL, IMDb, MSN, MySpace, and Yahoo.
Availability: Broadcast television shows can be watched a day after airing; cable TV shows usually appear a week later.
Source: Los Angeles Times research