Is Hulu rethinking its distribution strategy?

Hulu CEO Jason Kilar has a tough job ahead, if cable companies are pushing content providers to scale back Web distribution.

(Credit: Greg Sandoval/CNET Networks)

There's nothing connecting Hulu's decisions to pull out of TV.com and Boxee on the same day, according to sources close to the company.

Hulu's managers were motivated by very different reasons in each case, said the sources (TV.com is owned by CBS, parent company of CNET News). Nonetheless, the decision to dump Boxee is bad for the start-up, for Web video fans, and for Hulu.

In a blog post published Wednesday, Hulu executives said they have asked Boxee to remove their content--starting on Friday-- because their content partners don't want their material to appear on the service. Hulu has more than 100 content providers, but my sources say the companies Hulu is referring to are its founders: NBC Universal and News Corp.

A Hulu representative declined to comment.

Boxee's software enables owners to watch Web content on their TVs. The decision to prevent Boxee from delivering Hulu's content appears designed to prevent TV shows and films from "going over the top." That's the term used to describe when cable or broadcast TV shows are made accessible via sources other than cable or broadcast.

Peter Kafka over at the blog All Things Digital suspects the big cable companies of pressuring TV networks and film studios to scale back the content they provide Web services. This makes sense, but why pick on Boxee and Hulu? Netflix or YouTube would be more natural targets, and we haven't seen content being pulled from those services.

Indeed, News Corp. and NBC Universal just handed Netflix an advantage. At the same time Netflix's streaming service is branching out via Xbox, the Roku Player, and LG televisions, Hulu's distribution is shrinking.

I've heard some people in the tech sector speculate that Hulu could be scaling back the number of sites that offer its videos to take more of a "walled-garden approach." At this point, that scenario doesn't seem likely, as dozens of other outlets continue to offer Hulu's movies and shows, including Yahoo and MSN. Kafka's thesis seems more logical.

Earlier this month, Glenn Britt, CEO of Time Warner Cable, was trying to explain how his company lost $8.16 billion in the fourth quarter. He laid much of the blame at the feet of Web video services, which he suggested are starting to lure customers away from cable companies.

"The reality is, we are starting to see the beginning of cord-cutting," Britt said, according to a story published by The Associated Press."People will choose not to buy subscription video if they can get the same stuff for free."

Techies will surely scoff at this. They will say Time Warner Cable and Comcast are not the future. Online video is the future. And they will be right, of course. Consumers want to watch TV shows and feature films when they want, and the Internet gives them the power to do that. Web services also offer content mostly on an ad-supported basis, which is cheaper than paying a monthly cable bill.

But here's the reality. The guys running big entertainment companies won't be around in the future if they don't make their numbers now. Cable companies deliver a huge amount of revenue. The money that the networks and film studios make off Web distribution is a tiny fraction of that.

These executives are thinking about self-preservation, and that's what we all do. They should, however, remember the resourcefulness of the masses, and that if the studios and networks don't enable consumers to acquire content the way they want, they'll obtain the material someplace else. These executives should remember that file compression technologies are improving all the time and that someday--perhaps sooner than later--it will be nearly as easy to share large movie files as it is to share music files.

Already, I've seen anecdotal evidence that mainstream America is catching on to movie-sharing sites like The Pirate Bay. In the past week, a friend and a family member told me that they download films illegally. These are guys who aren't criminals or even necessarily tech-savvy. They can afford to buy DVDs. Both said they do it because it's easy.

The film and TV guys have always snickered at how the music industry misplayed Napster and Internet piracy. In any discussion about the music industry's piracy woes, film and TV executives I know have expressed confidence that their approach of making it easy and affordable for consumers to acquire content online would be the best defense against illegal file sharing. Why steal when it's so simple to acquire shows and films legally?

If they retrench and try to make it harder for people to acquire shows and films online, they are doing something they always said they wouldn't: follow in the music industry's footsteps.