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Journal

Hulu Minus

Moises Chiullan

It’s been a while since I posted here. This isn’t a one-off, but I’ve been gone long enough that I have a couple thousand words of thoughts on the TV industry, and they start and end with Hulu. I’ll be back again soon.

The Wall Street Journal carefully framed this article in a way that makes it look like this hypothetical is way further along than it probably (hopefully?) is in the real world.

Just how much longer should cord-cutters be able to watch episodes from the current seasons of TV shows on Hulu?

That is one question that has emerged in negotiations between media giant Time Warner Inc. and Hulu, which have been heating up lately, according to people familiar with the discussions. The two sides have been in talks since late last year about Time Warner buying into the streaming site as a part-owner.

In the section of the article under a pay gate, the WSJ indicates that “people familiar” say that Time Warner Inc. wants to purchase a 25% stake in Hulu. Time Warner would also love it, pretty please, if Hulu would eliminate next-day streaming of just-broadcast shows, and with cherries on top in the form of no current-season episodes of shows being made available.

Time Warner Inc. (not Time Warner Cable, more on it below) wants to effectively buy enough of Hulu to break Hulu’s core business, which provides people with a pretty solid alternative to the old world of cable bundling (provided Hulu has the shows that you want). It’s one that I’ve been using for years now, and I really would rather it not go out the window.

Maybe the fix is in and the wrong people have had control of Hulu for a while, maybe this is all horseshit, or maybe…this is another indicator of something much more transformative.

Time Warner Inc. (which spun off Time Warner Cable in 2009) can want that all day and night and twice on Sundays, but that doesn’t mean that Hulu has no say in the matter, nor that they are (as far as I know) in such dire straits that they need a pile of money so that they can stay afloat long enough to destroy their core product. Unless the current controlling interests running Hulu want to wreck its core business, this makes no sense to me.

WB Television has produced some of the biggest, long-lasting shows on broadcast TV of late, including The Big Bang Theory. Aside from their partial ownership of The CW (50/50 with CBS), Time Warner doesn’t own a broadcast network like the current Hulu owners do, only “pay-cable”. Disney has ABC, Comcast has NBC, and Fox has Fox. TW owns the HBO and Turner (TBS and TNT and so on) trees of subsidiary pay-cable channels, but no broadcast outside their CW stake. WBTV’s broadcast shows are spread across broadcast networks, but all of the most successful and popular shows that aren’t CW shows tend to be on CBS (Big Bang, Supergirl, Mom, Mike & Molly). It wasn’t long ago that Bloomberg reported on rumors that CW shows would disappear completely from Hulu and Netflix once that five-year deal (which started as Hulu-only) lapses, in favor of a CW-only over-the-top (OTT) streaming service that smells an awful lot like a little sibling to CW co-owner CBS’ ad-drenched CBS All-Access pay service. I’m sure that Les Moonves and CBS will not be sad to see Hulu go.

I can imagine Moonves and Jeff Bewkes meeting on a rooftop like The Joker and The Riddler on the 1960’s Batman TV series: pacing and dancing back and forth while asking each other a series of leading questions that result in them joining forces to take over the world. Maybe the collusion of mega-CEOs is too convenient an assumption to make, in this case. Rather…maybe it makes sense with some re-casting and re-scripting. More on that in a bit.

Hulu has always served multiple masters, and if the multi-studio conglomerate of conglomerates that run the show (Disney, Fox, and NBCUniversal/Comcast) are done with The Hulu Experiment, then they’re done with it. CBS never bought into it, and with their biggest production partner (Time Warner), seem perfectly happy to watch it burn. That is comprehensible. For the current Hulu management to want to rip out Hulu’s primary function and willingly transform it into a cable subscription “locker” plus around ten original shows is just…counter-intuitive.

It’d be counter-intuitive, just like…the cable industry.

Apple & Time Warner versus Apple & Time Warner Cable

In initially tweeting about this, I repeated what I’d seen reported (and invisibly corrected) by an outlet that was re-reporting the WSJ. They’d mistakenly said that it was Time Warner Cable who was buying into Hulu, and I assumed the same primary motivation: spend money to destroy Hulu. This isn’t a new confusion point.

In mid-January, the New York Post ran a rumor that Apple was keeping their eye on Time Warner Inc. as a way to buy their way into the TV service industry by buying in on the content side. HBO and offshoots, CNN, and the other Turner “products” would give them a big pile of things to build into an exclusive streaming service.

Then, a ton of people mis-reported that Apple wanted to buy Time Warner Cable, which started a merger with Charter Cable back in September. That deal is currently going through the regulation process with the FCC. Whether it ultimately succeeds or fails, my knee-jerk feeling for some time has been that pursuing the combined #2 cable provider makes more conventional strategic sense if what Apple wants to do is transform TV as a service provider.

Apple released a new Apple TV last year that reputable people with reputable sources said was held for release until it could launch alongside a TV streaming service. It hasn’t materialized since, and may not for a long while, according to Les Moonves, who is probably in a good position to know.

Buying one of the biggest cable providers in the US would immediately provide Apple with a large, pre-existing customer base. To upend the TV industry in the way they’ve wanted to for a while, they would need that much leverage in one form or another. They have the money and the reason to do so, but only if they really want to go all-in on TV. The TWC/Charter deal cost $56 billion. As of the most recent earnings call, Apple has $178 billion in cash on-hand. They could afford double the TWC price…but would it be worth it, or could they spend less and get more? More importantly, do they have the time, attention, and interest needed to take over TWC or especially Time Warner?

Bolting onto a Spaceship

Apple keeping their eye on Time Warner Inc. is one thing. Actually pushing into being on the content side of things (rather than services) and building a service around the content portfolio of Time Warner (possibly repackaging/rebranding HBO) seems like an odd, uphill climb to me at first glance. I’ve always gathered that Apple wants a customer base to “re-sell” content to, not to become one of the major studios or labels creating the content. Becoming one of the big studios means that yes, they have a big stack of content to build into a service, but it also immediately makes them a huge competitor to the other content-producing studios out there and gives them (Fox, Disney, Universal) an incentive to not deal with Apple.

Time Warner Inc. is something that Rupert Murdoch wanted to buy in 2014, and eventually gave up on…for the moment. He made an offer of $80 billion, and Time Warner Inc. refused to so much as meet with him. The thing about Murdoch is that once he starts pursuing something, he keeps going after it, even if over a protracted period of time. Time Warner may need to find someone that they would rather sell to as a means of insulating against Murdoch’s second pass.

If Fox were the buyer, they would want all of Time Warner, period. If it’s just about any other buyer (including Apple), all bets are off, especially if Time Warner Inc. splits themselves up for sale, as various activist investors want done. Chunks of it could end up all over the place. Apple for example could, in theory, only buy the WBTV assets of Time Warner. They could also buy that and buy Charter/Time Warner Cable (or just TWC if the merger fails). In theory, anything could happen, but if they did that combo and also hang onto the WB movie studio, they’d effectively create a company in the shape of Comcast/NBCUniversal that’s bolted onto the side of everything Apple already does.

For Apple to take on only the WBTV/HBO/Turner assets is them buying into one additional huge industry. To take on any more than than that, at a time when Apple is suffering from a major “focus” problem in software, seems downright bizarre. If Apple were to buy the entirety of Warner, including the music label, theme parks, DC Comics, all of that, then 2016 is going to be a the year in which Apple fundamentally and permanently transforms out of being “just” a technology company. Could they “get away with” just buying the TV arm? Warner TV is of comparatively little value if you don’t also control the franchise IP that drive the DC, Hanna-Barbera, and other live action and cartoon series, too. The chunk of the pie most useful to Apple is useless without all the other interconnected ingredients that make up WB.

At an $80 billion price tag (or even a bit higher), they could afford it on the money end of things without breaking a sweat. Money isn’t the problem with this working in my head.

Time and Attention

Apple’s attention is spread in a lot of directions at the moment, including the car they pretend they are not actively developing but that Elon Musk won’t shut up about on The Late Show. I’ll ask again: does it make sense for Apple to invest a lot of capital (money, humanpower, and especially focus) on getting into an entirely new industry, let alone multiple new industries?

Sticking with TV for the moment, I’ve swiped to delete so many podcasts and closed so many tabs when I hear or read tech pundits say that Apple is “effectively” already in the “content delivery” industry, as if Beats/Apple Music and music streaming were the same as TV. There are comparisons to be drawn between the two, but they are not interchangeable.

Apple Music having a really terrible first year has no direct correlation to how Apple would run a TV streaming service, for good or ill. Many of the reasons why Apple Music flopped (and flopped hard) could, however, be full of teaching moments for mistakes Apple would like to avoid in an albeit similar (but not directly 1:1 comparable) industry.

Just as music and TV are similar but different, TV delivery and TV production are different, symbiotic worlds. Yes, conglomerates can, are, and have simultaneously owned both kinds of operations. NBCUniversal/Comcast is the most multi-committed in this manner at present, but that isn’t to say another provider-plus-producer won’t start merging together this year, and it might (might) very well be Apple, if they’r really intent on taking over TV.

Apple has shown a great deal of interest in entering one (delivery), but for a long while they showed almost zero interest with the other (content production). Variety gets plenty of things wrong, but last August, they ran something about Apple seriously feeling-out getting into the original programming world following a failed bid at snagging the talent behind Top Gear. You could build original production from scratch…or you could buy your way into one of the biggest, most fleshed-out existing libraries and production infrastructures in the studio system.

The Big Theoretical

Let’s assume for a moment that the buyout deal Jeff Bewkes would prefer to make were with Apple (over Fox and others). Even if you doubt the NY Post’s sources, Apple worked with Time Warner to launch the OTT version of HBO as an Apple TV timed exclusive last year. It isn’t a big leap to assume that Apple’s greatest interest in Time Warner comes in the form of getting into the streaming content industry. CW shows, which are made by WBTV and air on a network co-owned by Time Warner and Les Moonves’ CBS, are already getting yanked from Hulu…news that broke right around the same time as “Apple watching Time Warner” dropped. A month before that, Les Moonves was running his mouth about how Apple had put their plans “on hold”, almost outright bragging that he shut them out of what they’d originally planned to do, mentioning price points between $30-40.

It wouldn’t be uncharacteristic of Apple to leave those negotiations looking for additional leverage and “buying power” to get themselves what they want. Time Warner’s assets are a pretty big stack of chips to come back to the table with, if you ask me.

This brings me back around to Hulu, and the reason I drifted to Apple in the first place. If Apple is indeed still planning to pursue a primarily TV-based service, priced at a multiple of Hulu’s $7.99 and $12.99 tiers, the #1 competitor I assume that they’d want killed off or made an afterthought is Hulu.

Even if Apple isn’t the most-favored contender to buy Time Warner, whoever it is would get more value with Hulu effectively dead.

The timing of things I noticed while thinking this through either makes me paranoid or prescient (or both), and it makes me think that talks between Apple and Time Warner may be further along than anyone expects, due to the sheer scale of what that merger would mean on both ends.

There are some loose threads though: are we getting “micro channels” like the CW one as piecemeal a la carte OTT options plus a bundled service in any case? I’d prefer both to one or the other.

I just hope this doesn’t fuck up the enormous amount of Criterion content I get from Hulu.

Well…that, and how incredibly useful and affordable Hulu has been for years in general. It’d be bad for that level of affordability to disappear in favor of squeezing more money out of working-class people who just want to catch up on The Flash and Fresh Off the Boat and The Nightly Show without it costing $20 a month.

Side note: my Criterion Collected podcast is back sometime in the next 24 hours, after a long hiatus. I wasn’t planning this as a long-way-round plug, but I’d remiss not to mention that.