Seth Shapiro's Business Innovation Blog

So far, we’ve taken a deep dive on Netflix, looking at its rise to become the largest subscription service in America… followed by a loss of 800K subs and a massive decline in value  (a trend that continued this week with  the company’s announcement of a $400M cash raise).

As Netflix began to soar in 2007, another online video service was announced. As with Netflix’ launch, the venture was greeted with both enthusiasm and cynicism.  But unlike Netflix, the newco was a joint venture – of NBC, News Corp and Prividence Equity. It was a widely perceived as a defense play, and one that the ostrich-like TV networks were not qualified to build.  It didn’t have a name at first. Eventually, a press release mentioned that it would be called Hulu.

The original public mission of Hulu –as many forget – was to create a legal online destination for the “professional”online video of studios and networks.

To understand this, it’s essential to remember what was up at the time.  Business news was full of squabbles between the TV networks and a different startup. This one was called YouTube.

YouTube had been founded in early 2005, one of a slew of online video sites that cropped up as, after a decade of false starts, video technology finally matured and bandwidth improved.  YouTube had a better brand (“Broadcast Yourself”), a clean UI, and a relatively painless upload process. It took the lead in the UGC space, moving from a novelty to an astonishing #5 Alexa rank by 2006.

It also became a great place to post video that you liked, but hadn’t created. Things like the ten good minutes from a Saturday Night Live episode.  More importantly, it turned out to be a fantastic place to watch the ten good minutes from this week’s Saturday Night Live: someone else did the dirty job of wading through 60 minutes of meh for the good stuff, then came back with the jewels – the TV equivalent of a great DJ pulling breaks and beats.

This was the beginning (or the tipping point, depending on your seat) of something extremely big: the extension of the massive editorial value that the internet already brought to millions, now employed to reshape big media, to make its product more relevant, more useful and more entertaining. It was also the moment when it was became obvious tthat the audience was now smarter than the networks.

There was also a counter-argument: if YouTube uploaded clips of SNL, didn’t that really amount to a free commercial for SNL? Weren’t uploaders who promoted good shows doing those shows a favor? This argument got much more consideration than networks admitted at the time, as they grappled with the fact that YouTube undercut the advertising model that paid for both these shows and their salaries.

Then, in October of 2006, something happened that transformed the argument forever: Google purchased YouTube.  For $1.65 billion.

After this, in the minds of big media, YouTube went from being an annoyance to a terror, from the big weird home of cat videos to a well-funded threat to traditional television – financed by those two geeks with billions to play with.

More than anything, I’d argue that this was the moment that risk-averse Big Six Media had been dreading for fifteen years.  Even the laziest suits could see that the video business could indeed go the way of the music business. The assassin would be Google, and the bullet would be YouTube.

So at long last, the old guys started working on a way to play the new game. It would be a rocky road, but it would pay off.  Hulu would do its best to walk the tightrope between user experience (where its parents were horrible failures), and content strategy (where the tech cos it emulated were horrible failures).

Meanwhile, YouTube would embark a parallel tortured journey, to create a viable home for quality creative content. The challenge would be to do it, not as Chad Hurley and Steve Chen’s startup, but as part of a Google engineering culture with less expertise in content culture.

Next time, we’ll look at YouTube’s brand new channel strategy, the strengths of Hulu today, and where they’ll both go from here.  Then we’ll devote some time to discussing the pros and cons of dumping cable, and the best ways to do it.



Posted in Blog by Seth Shapiro.

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