‘Binge Times’ Book Excerpt: When Cutthroat Media Rivals Decided To Join Forces To Create Hulu, Streaming’s Unlikely Trailblazer
Streaming today is a free-for-all, with major companies jockeying for position as they try to catch up with Netflix. In the early days of the online video revolution, though, one pioneer was not a solo act but instead a collective: Hulu. In their new book, Binge Times, which will be published Tuesday, Deadline business editor Dade Hayes and Reuters correspondent Dawn Chmielewski explore the current race but they also trace the origins and path of Hulu. The joint venture has many ties to today’s landscape and offers many lessons 15 years after its launch. As the existential threat of YouTube loomed, this was one case when rivals at the box office and in the Nielsen ratings tried to work together to defend their turf against Big Tech. Here is their story.
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When YouTube arrived in 2005 and immediately upended traditional entertainment, media companies responded the best way they knew how: They tried to buy it.
Viacom, News Corp and Time Warner all sought to acquire YouTube, in an effort to bring the unruly site onto the show-business reservation. Along with Yahoo, all of the hopefuls would end up vastly out-bid by the deep-pocketed Silicon Valley company that Hollywood loves to hate: Google. The $1.65 billion acquisition in October 2006 was a wake-up call. “Everyone was worried that we needed to control our own destiny,” says Mike Hopkins, who at the time was president of distribution for Fox Networks Group, “and not just license all of our content to third parties and then let the market develop without any exposure to it.”
Executives at NBCUniversal came to a similar, jarring realization: Suddenly, YouTube co-founders Chad Hurley and Steve Chen had the resources to develop the already fast-growing site, which had amassed some 50 million worldwide users in less than a year, into a significant new entertainment platform. “We were sitting there at NBC going, ‘Holy sh-t, these guys that started this company two minutes ago just got sold for a billion six—on our content,” recalls former NBCU digital executive Jean-Briac Perrette, now at Warner Bros Discovery. “What are we doing?”
Perrette and NBCUniversal’s new media chief at the time, David Zaslav (who is now CEO of Warner Bros Discovery), set out to erect a fortress against the digital insurgent and looked for allies. NBCUniversal and News Corp began formal talks. Executives at Rupert Murdoch’s media company were negotiating from a position of strength. Its Fox broadcast network was at the top of the prime-time heap, thanks to the pop culture phenomenon American Idol, which helped bring audiences to its other shows, including 24 and House. It had outmaneuvered rival Viacom to capture the world’s largest social media network at the time, MySpace. If a new video platform to be built on Hollywood content was going to emerge online, News Corp wanted to own it.
Fox and NBCUniversal were committed, but they struggled to win over any other digital converts. CBS’s Les Moonves politely declined after in-house advisors persuaded him it would dilute the Tiffany Network’s brand. Disney-owned ABC saw it as a threat to the network’s own digital initiatives and demurred, saying joint ventures don’t work. Viacom ultimately got cold feet, choosing instead to fight YouTube in court—a battle it ultimately lost. NBCUniversal struggled over its inability to recruit a third media partner to the venture, known internally as “ScrewTube,” but decided to push forward anyway, with the support of the company’s chief executive at the time, Jeff Zucker.
“We all sat there and said, ‘Shoot, what’s the alternative?’” recalls Perrette. “‘Let’s give it a go.’”
Internal Angst
Like any corporate initiative that shakes up the status quo to position a company for the future, the first iteration of Hulu faced massive internal opposition.
“What was interesting is that almost everybody in the company hated it,” said one former News Corp executive. “The broadcast people, the cable people, the ad-sales people, the syndication people, the home video people, would all come into my office and say, ‘You’re going to destroy my business.’”
Broadcast executives at News Corp’s Fox unit and at NBC worried about kicking the moorings out from under the $68.6 billion pay-TV ecosystem that subsidized the cost of programming (and network profits). Why would viewers pay for a monthly cable or satellite television subscription when they could stream popular prime-time shows like Law & Order: Special Victims Unit and 24 for free? The syndication team worried, presciently, about their ability to license reruns to secondary cable networks in the U.S. or for international distribution, given their broad online availability.
Network advertising executives sweated meeting their sales targets as a separate digital sales team hawked ads for online distribution of the same shows. The home entertainment crew fretted about online availability’s gutting the lucrative market for digital downloads and DVD releases.
Then-president of News Corp Peter Chernin’s “inspiration and strategy was, ‘It’s gonna happen anyway, right? We can’t stop this train. We need to get it out there, we need to learn, we need to be where consumers are,’” recalls Hopkins, who later would be tapped to run Hulu and now leads Amazon’s Prime Video and Amazon Studios. “He just really pushed it through the organization and just said, ‘Okay. Everybody be quiet. We’re gonna do this and get on board.’”
‘Enough Is Too Much’
The CEO chosen to lead Hulu, Jason Kilar, came with the enthusiastic support of Amazon CEO Jeff Bezos, who’d met Kilar in a professor’s office after a Harvard Business School class on “managing the marketplace” in which classmates predicted the online bookseller was destined for failure. He remained with Amazon for nine years, working alongside Bezos. It took plenty of cajoling to win over the Harvard MBA, who knew the disastrous history of joint ventures, a third of which fail within the first five years. Kilar, who as a child idolized Walt Disney and harbored ambitions to one day run a media company, agreed to take the job on one condition: that Chernin and Zucker would serve on the board of directors.
“He was smart. He knew he needed them directly involved to cut through the inevitable amount of bullsh-t and organ rejection that was bound to happen at each of the shareholder companies,” says Perrette, who counts himself among Kilar’s friends.
Kilar, who just wrapped a two-year run as WarnerMedia’s CEO before the company merged with Discovery, projects a Boy Scout persona. One early Fast Company profile burnished the wholesome image of an executive who rouses at 5 a.m. to go running, returns home every night to tuck the four kids into bed, and eschews such mood-altering substances as coffee. He was born in Pittsburgh to an electrical engineer father who worked for Westinghouse and a journalist mother who wrote a humor column for the local paper, “Enough Is Too Much.” Kilar remembered his mother “was trying to kill ’em in the aisles with jokes about our lives.” One of her columns described school bus stops as “one of America’s fastest-growing trauma centers,” recounting the day when 7-year-old Jason missed the bus. “Seems like Jeff (an 11-year-old) devastated him at the bus stop by shouting the name of Jason’s alleged girlfriend,” Maureen Kilar wrote. “(Jason denies the existence of girls.) So, home he came in tears.” The bully, she revealed, was actually Jason’s older brother.
Decades after those childhood brushes with unwanted media attention, the executive brought a singular vision to the Hulu venture, which had been derisively branded “ClownCo” by media and internet critics. Wary of having his futuristic vision squelched, Kilar’s first act was to change the locks at the company’s offices in Santa Monica, CA. That barred entry to the one hundred traditional media types who’d been hastily assembled from NBC and News Corp to start work on the project.
AP
He set out to build a team with a tech pedigree, starting with a friend and former Microsoft engineer, Eric Feng, who’d founded a video startup in Beijing, China. Together, they assembled two technical teams, one in California and the other in Beijing, to accelerate the development process. The U.S. team would send specs to China, which would turn around the code in time for the SoCal team the next morning. All around were the trappings of startup culture: foosball table, beer tap, an “Experience Team” that celebrated employees with cakes and Mylar balloons.
The site, dubbed Hulu (literally “gourd” in Mandarin, or, according to one Chinese proverb, the holder of precious things), launched in March 2008. Its swift success silenced skeptics.
Within two months, Hulu cracked Comscore’s top ten sites for video streams, with eighty-eight million. By March 2009, Hulu pulled into the top three video streaming sites, and it enlisted another major network participant, Disney’s ABC, which joined in April 2009. Hulu quickly became a victim of its own success, however. Content began disappearing from the site when networks and cable TV providers balked at the notion of viewers’ watching shows for free outside of the traditional bundle.
Palace Intrigue
Tensions mounted within Hulu, hardly a surprise for a consortium of companies that compete with each other at the movie box office and in the Nielsen ratings. Studio executives grumbled about being forced to surrender their prime-time shows to Hulu while carrying losses that affected year-end bonuses. “As one studio executive said to me, ‘I’m the dumbest f-cker in town, because I’m losing money on my books plus I’m paying my competitors,’” recalled the former Hulu board member.
Disagreements over Hulu’s future spilled out into the open when Kilar published an essay called “The Future of TV.” Indulging in some classic tech-exec sloganeering, he alluded to “thoughtful stubbornness” and the “relentless pursuit of better ways.” Without quite naming names, he effectively called out the joint venture owners for their short-sightedness, declaring that consumers had demonstrated they wanted fewer ads and greater control over their viewing experience.
“History has shown that incumbents tend to fight trends that challenge established ways and, in the process, lose focus on what matters most: customers,” Kilar wrote. “Hulu is not burdened by that legacy.” His team, he vowed, would continue its against-the-odds quest to “reinvent television.”
The memo did not go over well. Fox’s **first ref here?**Carey was none too pleased. Disney CEO Bob Iger, who considered himself to be digitally savvy, felt personally impugned, and Hulu board members discussed firing Kilar. The provocative change agent left of his own accord in 2013, pocketing a reported $40 million when one of Hulu’s owners, Providence Equity Partners, sold its 10 percent stake in the joint venture.
Other executives would follow the charismatic leader out the door, leaving its fate up in the air. Disney and News Corp considered selling its migraine-inducing streaming service and received offers approaching $1 billion. But as prospective buyers, including Chernin, laid out plans for revitalizing Hulu, the owners began to reconsider.
“Internally at Fox and at Disney, everybody was starting to go, ‘Hmm. Maybe instead, we should just really go for it,’” recalls Hopkins, who spoke with his Disney counterpart, chief strategist Kevin Mayer, about more seriously competing with Netflix.
The owners announced in July 2013 that they would not only retain ownership in Hulu but recapitalize it with a $750 million investment. The message from the board was clear: “You’re not going to be a hedge anymore, go out and do things,” said one former insider. The pivotal decision would return Hulu to a growth trajectory, after years of virtual suspended animation.
The Field Gets Crowded
Subscriptions rose to 30 million by January 2020, up 20 percent from the previous January, thanks to the lure of original programs like the Emmy Award–winning dystopian series The Handmaid’s Tale, which Hopkins acquired from MGM Television. Blame lingering resentment or simple aversion: the parent companies’ studios resisted selling shows to Hulu, says former CEO Randy Freer, forcing it to look elsewhere to buy content.
Hulu eventually found itself bidding against deep-pocketed rivals like Netflix and Amazon to win rights to distribute original series. But the competition among streaming services was driving up the price for coveted shows, a pace of check-writing that Hulu would not be able to maintain.
“In the world we live in today, you can’t exist that way, because if you’re at Hulu, at least, you’re not going to win every auction,” said Freer in a 2019 interview. He was speaking shortly after losing out to Netflix in a bidding war for a screen adaptation of Neil Gaiman’s The Sandman comic book series in a pricey deal with Warner Bros, with a budget as much as $15 million per episode.
Robert Milazzo/Walt Disney Television
Disney’s $71.3 billion acquisition of 20th Century Fox’s entertainment assets in March 2019 gave the Burbank entertainment conglomerate a controlling interest in Hulu. Disney quickly consolidated its control, striking deals to buy out the other equity partners, Comcast and AT&T’s WarnerMedia.
Hulu has emerged as the critical component of Disney’s launch strategy, with its sizable installed base providing a springboard from which to launch the newer streaming services, Disney+ and ESPN+. Hulu also gained access to in-house development, with ABC Signature developing an adaptation of the sci-fi classic The Hitchhiker’s Guide to the Galaxy with showrunner Carlton Cuse (Lost, Tom Clancy’s Jack Ryan). In March 2020, it became the official home of FX’s prestigious titles, like American Crime Story, Pose, Fargo, and The Americans.
But after the successful launch of Disney+, and its galloping global popularity, industry observers wondered how long Hulu would remain a stand-alone service. Just as many of Hulu’s business operations have been absorbed by its Burbank parent, Hulu seems destined to become a programming tile on Disney+.
From the book, Binge Times: Inside Hollywood’s Furious Billion-Dollar Battle to Take Down Netflix. Copyright ©2022 by Dade Hayes and Dawn Chmielewski. Reprinted by permission of William Morrow, an imprint of HarperCollins Publishers.
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