Here's why Netflix CEO Reed Hastings is completely wrong about Hulu
Getty/Scott OlsonNetflix CEO Reed Hastings.For a long time now, Netflix CEO Reed Hastings has told anyone who will listen that Hulu is a bigger threat to traditional TV than Netflix.
Why? Because with Hulu people can watch shows the day after they air, making it a "cord-cutter's dream" and "much more disruptive" to traditional TV, according to Hastings.
This is just plain wrong for two reasons (and Hastings almost certainly knows this).
The most obvious is that the legacy TV giants own Hulu. On Thursday, The Wall Street Journal reported that Hulu was in talks to sell a piece of itself to Time Warner in a deal that would value the company between $5 and $6 billion. If this deal goes through, it would make Time Warner an equal stakeholder to Hulu's current owners, and would mean that Disney, Comcast, Fox, and newcomer Time Warner would each own 25% of Hulu.
Since they own Hulu, its rise wouldn't be be a threat unless what came with it was the destruction of their general business model. Basically Hulu has to, eventually, make up for whatever revenue it takes away from its owners.
Which brings us to the second reason why Hastings is wrong. He implies that Hulu is more likely to poach traditional cable's customers because its business model is closer to theirs. This makes sense. Getting a new episode of your favorite shows every week, right after they air, is essentially what happens right now with most cable packages (that include on-demand functionality). But because Hulu is making a product similar to cable, it is actually preserving the mode of doing business to a large extent.
Netflix, on the other hand, is blowing it up.
Netflix releases an entire season of its original shows at once, and Netflix has no ads ever (Hulu does have a new "ad-free" option, but even that isn't completely ad free). The reason why Netflix is more disruptive to the industry than Hulu is because it threatens to actually change user behavior.
Netflix customers get used to getting an entire season at once, and seeing zero ads. And it's annoying for them when traditional TV makes them watch ads and wait a week for new episodes. There is already evidence that the influence of Netflix might be starting to force cable networks to cut back on the amount of ads they are showing.
This is what is really scary for the traditional cable industry - that Netflix will turn their own subscribers against them, and force them to make radical concessions to stop people from cutting the cord.
Reed Hastings undoubtedly knows this. And when he says Hulu is a bigger threat to the established players in the industry than Netflix, it is almost assuredly smoke and mirrors. It's a performance. He knows better than anyone that Netflix is trying to dismantle the linear TV model piece by piece.