Stifel Nicolas Analyst Has It Wrong, Hulu Is Not A Threat To Netflix

This morning, Barron's published a post about Stifel Nicolas analyst George Askew who cut his rating on Netflix's stock to hold from buy, saying that Hulu could be a serious rival to Netflix. When it comes to stock prices, I'll be the first one to say I don't know anything about them. I could care less about stocks as I have never bough, sold or traded a single share in any public company ever.

But when it comes to the reason why the stock was cut, that's where the logic is bad. Of course anyone can say that someone "could" become a competitor to another company, but instead of speculating, lets look at the facts as to why Hulu won't be a competitor to Netflix anytime soon.

For over a year we've been hearing about a premium based subscription service for Hulu. Yet in that time, Hulu has yet to roll out a pay service for any device. While Hulu has said from day one that a subscription service was always part of their plan, there is still no offering in the market. At the same time, by the end of this year, Netflix says they will be on over 100 different devices in the market and quality wise, they have one of the best streaming offerings on the industry today.

Of course, none of that happened over night. It's taken Netflix three years and hundreds of millions of dollars to make this happen. Since Netflix does not rely on their streaming service to generate direct revenue, they can afford to spend the money and invest the resources to make their streaming offering as good as it is. Hulu on the other hand doesn't even encode their videos on the web for 720p and are still doing 480p with some really low quality bitrates. That's not to say Hulu could not increase the quality of their videos, but considering the company only just turned a profit for the last two quarters, simply moving from 480p to 720p streaming, or even to 1080p like Netflix has, would put Hulu back in the red overnight.

Hulu did just over $100M in revenue in 2009 and half of that money went back to the content owners. Compared to Netflix, Hulu has very little money to spend on R&D and can't dedicate the resources needed to work with dozens of consumer electronic manufactures to get their platform embedded into devices. Even Blockbuster, who is much larger than Hulu admitted they don't have the resources to work with all the hardware providers that they want to. Not to mention, Hulu would have to design apps for all these devices and none of that happens overnight. Just look at the amount of resources Netflix has put into this and it's still taken Netflix three years to get to the point they are at today. Hulu simply doesn't have the money or resources to replicate what Netflix has done anytime soon.

The other big differences between the companies is the rate at which they move. Even though Netflix is much larger than Hulu, Netflix is very nimble. Talk to any of their hardware partners and they will tell you how easy it is to work with Netflix, how fast they get things done and how well their service works. Compare that to Hulu who is smaller than Netflix, yet moves at a snails pace. Ask any syndication partner of Hulu's how easy it is to work with them and you'll see them roll their eyes or tell you in detail just how hard it is to get things done. One content owner even forwarded to me a document that outlines how Hulu works with content owners and it's was 25 pages in length. And that was just the overview document, nothing to do with any technical implementation. Could Hulu be a competitor to Netflix further down the road? Sure. But they won't be any real competitor over the next 18 months.

Another point mentioned in the note talked to the number of videos that the analyst estimates Hulu would have with a subscription based service. He writes, "we estimate that  the Hulu service will feature a total of 24,472 streaming movies and television episodes - including 20,125 available only through Hulu Plus - compared with an estimated 18,522 titles in the Netflix streaming library." Where on earth does he come up with those numbers? By their own omission, not even Netflix knows exactly how many pieces of content they will have available for streaming in any given week. As Netflix has explained, the licenses to a portion of their inventory for streaming constantly changes with some titles dropping out, others getting added after licensing renewals as well as new content coming online. For anyone to suggest they can predict how many pieces of content Hulu may or may not have, for a service that is not even out in the market, is just ridiculous. Anyone can pull numbers out of the year.

If anyone is a possible threat to Netflix, it's not Hulu or Blockbuster but rather Apple. If Apple came out with a subscription based service for iTunes, then Netflix would have to be worried. Apple not only has the eyeballs to iTunes, but it already has great relationships with the studios and owns the hardware. Of course they would still need to go out and get the iTunes platform embedded into a lot of non-Apple devices, but Apple could make that happen. I don't believe Apple will come out with such a service anytime soon, but it would be a natural progression for iTunes and they have everything Hulu doesn't have including money, resources, content relationships and hardware. While some have suggested that Redbox may also compete with Netflix for streaming, Redbox has not yet finalized their digital media strategy.

I'm all for other opinions being presented by analysts, but those opinions should be formulated based on the data and facts in the market. I don't personally know the analyst who wrote this note, but one thing I tend to find with analysts who cover Netflix in particular is that they know very little about the actual service. Many of them have never even used the streaming service, don't own a Xbox 360 or PS3, don't know how the the videos are encoded, what the settings are and haven't used other services by Apple, VUDU or others in the market to compare Netflix to. There are dozens of devices in the market that can stream Netflix content, how many of them have these analysts actually gotten hands on with?

Netflix Search Coming To Xbox 360, Computer No Longer Needed For Queue

While not announced during Microsoft's E3 keynote, the company did mention in a press release that come November, users of Netflix's streaming service on the Xbox 360 will now be able to search and add movies to their queue without having to use a computer.

This is the same functionality that Roku rolled out about two weeks ago and works really, really well. I started using this new feature in the new Netflix channel on Roku at the end of May and it makes using Netflix even easier. Not having to be tethered to the computer to find and select Netflix movies to add to your queue for playback on the Roku and Xbox 360 is a much better Netflix experience.

No Premium Hulu Service Announced For The Xbox Platform

For all the rumors that speculated that Microsoft would announce at their E3 keynote today that Hulu would be coming to the Xbox platform, that does not appear to be happening. While Microsoft did announce a deal with ESPN to bring over 3,500 live events in HD to the Xbox, there was no mention at all of Hulu. Considering how difficult it is to work with Hulu and get their content owners to agree to syndicate their content, I'm not surprised we didn't see a deal announced. Maybe further down the line something can take place and as Microsoft does more deals with the likes of ESPN, that's going to force Hulu to have to do syndication deals with CE manufactures at some point, whether they really want to or not.

ESPN Coming To Xbox: Will Offer Over 3,500 Live Events, Free For Gold Members

Microsoft has just announced an exclusive deal with ESPN which will bring over 3,500 live events a year to Xbox 360 users in HD. Content includes college basketball, college football, soccer, MLB, NBA, all four Grand Slam tennis tournaments and golf majors amongst others. ESPN just did a live demo from the E3 show using voice commands to rewind and replay ESPN video using Microsoft's Kinect technology. Very cool. Xbox LIVE gold members will have access to all of this content for free when it launches. Still waiting on Microsoft to release the date it goes live. Kinect launches in North America on November 4th.

For all of Microsoft's announcements from E3, check our engadget's live blog feed.

Update: Microsoft has confirmed that ESPN will work for Xbox 360 customers even if they don't purchase Kinect, but they obviously won't have any of the voice or motion controls.

Update 2: While not mentioned by Microsoft, (the release only uses the phrase "affiliated service provider") I have confirmed with them that ESPN will only be available to those Xbox LIVE members if their ISP has paid ESPN a license to get ESPN content. Of course ESPN thinks this is only going to force more ISPs to want to license their content, but I don't expect it will. Dumb move by ESPN. At a time when they should be introducing the ESPN to the young up and coming gamers who don't watch a lot of TV, all they are doing is limiting the reach and exposure of their content.

Update 3: Here is a list of all the current ISPs that have a license deal with ESPN for access to their content.

Videos From Streaming Media East and CDN Summit, Now Online

All of the sessions and keynotes from the Streaming Media East and Content Delivery Summit shows are now online and available for viewing for free at streamingmedia.com/videos. All of the content is available for embedding on your own blog or website and you're welcome to syndicate the videos any way you like. Thanks to all of the 150 speakers who made the shows such a success.

HBO Shows Coming To PlayStation 3, But With An Eleven Month Window

Last week Sony and Time Warner reached a deal to make a limited number of HBO programs available to PlayStation 3 users at a cost of $2.99 per download. Full details of the service have not been disclosed but not surprisingly, HBO said that their shows won't be available for download until eleven months after the program first airs on TV and that the digital downloads will coincide with the release their DVDs.

Reading many of the quotes on this deal from executives at both HBO and Sony and it's very clear which side each company is taking. Jack Tretton, chief executive of Sony PlayStation is quoted as saying that, "networks like HBO can be beholden to the cable and satellite companies, or they can play wherever the consumers play." That's true, except for the fact that HBO makes the vast majority of their money from the cable and satellite companies and has no problem with this model. Sony is making it sound like HBO is trying to steer clear of the cable providers, by using new distribution channels like the PlayStation 3, when that's not HBO's intention at all.

In fact, HBO said the opposite when HBO Home Entertainment President Henry McGee said that the eleven month window will help preserve the pay TV model and won't give customers an incentive to drop their HBO TV service. No surprise there. HBO is a premium TV service which is the whole reason why they don't even make HBOGO.com (hands-on review of HBOGO.com) available to anyone who is not a pay TV subscriber.

It's also interesting to note that most TV shows that I have purchased via the PlayStation Network are priced at $0.99 yet HBO's shows are going to be priced at 3x that. Seems expensive for a show that is nearly a year old. Almost makes you wonder if HBO really doesn't want that many consumers to actually buy the content so as not to take away from their image of being a premium TV service offering.

Adobe Releases Flash Player 10.1

Adobe has just made available from their website the long awaited 10.1 version of their Flash player, which is no longer in Release Candidate status. I've only been using it for a few hours now, but so far on my MacBook Pro, it has been very stable and I haven't seen any poor performance issues. Adobe hasn't put out an official release on the news as of yet, but I'm sure that any moment now, we'll see one of the Adobe blogs give us a full rundown of all the improvements in the new player.

Updated: As expected, Adobe's blog now has all the details on the new features of the 10.1 player as well as a post about HTTP dynamic streaming.

Akamai Acquires Velocitude, Mobile Focus Is Enterprise, Not Entertainment

This morning Akamai announced it has acquired privately held Velocitude, which operates a platform for customers using mobile video for commerce and marketing purposes. Terms of the deal were not announced but I would not be surprised if Velocitude's business was valued at under $15M.

While many seem quick to want to compare Akamai's acquisition of Velocitude to Limelight's acquisition of Kiptronic last year, they are two completely different solutions. Kiptronic's platform is focused on helping content owners in the media and entertainment vertical monetize their video content by using amongst other things, campaign managers and ad servers. Velocitude's platform is focused on helping content owners in the retail, government and enterprise sectors display and deliver mobile video for commerce and marketing purposes and is not used today for delivering ads to mobile devices.

Akamai clearly uses the word enterprise in the release, three times in fact, and never once uses the phrase media and entertainment. So why some posts are mentioning Netflix in their coverage of this news makes no sense. If Akamai wins Netflix's business for delivering video to the iPhone when it is released later this summer, that won't be as a result of the Velocitude acquisition. One has nothing to do with the other.

Akamai's acquisition of Velocitude really comes as no surprise since the company continues to forge ahead in the enterprise space developing and deploying more and more services specifically targeted for enterprise and retail customers. Akamai's focus has been and will continue to be on the enterprise vertical and while they aren't giving up on the media and entertainment space, or ceding ground in that market just yet, enterprise services are clearly how Akamai plans to grow the company moving forward. This is quite different from Limelight's focus which while still targeting customers in the enterprise and retails verticals with a limited product set, their main focus is still solutions for content owners in the media and entertainment verticals.

I don't know what the size of the enterprise mobile video space is or what the market opportunity is projected to be, but I would expect that we'll see Akamai give out some details on this segment of the market sometime after their integration of Velocitude's platform is complete.

Free Product Giveaway: Win A Slingbox PRO-HD

Thanks to the very generous folks at Sling Media I have another Slingbox PRO-HD unit to give away to a lucky reader of my blog. To be entered into the drawing, just leave one comment on this post with your full name and a valid email address and I'll pick one lucky winner at random on June 30th. You must have a U.S. postal address as I will not ship these overseas. Congrats to Jim Doyle who won the last drawing. HUGE thanks to Sling Media for the boxes!

Steve Jobs: You Need To Allow The QuickTime Plugin To Support Fullscreen Video

For as far back as I can remember, nearly every video clip on the web has given the viewer the option of deciding if they want to do fullscreen and have the video fill their monitor. This option has been considered the norm in the industry for many, many years, yet for some reason, Apple does not allow videos played back in the browser via the QuickTime plugin to support fullscreen.

When you watch any of the videos on Apple.com that give product demos or visit their popular movie trailer website, there is no option to watch any video in fullscreen unless you first download the video to your hard drive. Why isn't Apple allowing web based videos to go fullscreen? For all the talk Apple keeps doing about "standards", fullscreen playback of videos on the web has been a standard for more than a few years. Maybe not a standard in terms of a programming language like the term is widely used today, but it is a standardized function that's supported by all plugins for video playback, except Apple's.

It's logical to think that Apple was originally doing this simply to force people to pay $29.99 to purchase a QuickTime Pro license, but that only solves the problem for local media. Much of the content on the web can't be downloaded to your hard drive so even if you have a QuickTime Pro license, you still can't make any videos played back in a browser fullscreen. And starting with the QuickTime 7 player, Apple made fullscreen one of the options supported in the free player. So this does not seem to be about pushing people to the pro licenses anymore.

For all the talk Steve Jobs does about the great "experience" you get from Apple products and platforms, that's not the case when it comes to QuickTime videos on the web. Watching videos from the Apple movie trailer page on only a quarter of my 15" screen, when the content is encoded for HD, is not my idea of a great web experience. It's no wonder that content owners don't use the QuickTime plugin for playback of their web based videos. Steve, you need to fix this. We deserve fullscreen video.