Hulu Struggles To Survive The Influence Of Its Parent Companies [Update]

Jason Kilar’s vision for Hulu transformed web video. So why is Hulu in trouble and Kilar rumored to be on his way out? Because his vision transformed web video. [Update: On Jan. 4, Kilar announced he and Hulu SVP and CTO Rich Tom would leave the company in Q1.]

It's an unseasonably warm summer day, and Jason Kilar is "in the zone," as he puts it, buzzing around his Santa Monica, California, headquarters, putting the final touches on a massive redesign of Hulu, the streaming TV and movie service he runs. Despite the heat, and despite a deadline that is only weeks away, the boyish 41-year-old CEO looks calm and collected. (He always looks this way, actually.) He's dressed in his uniform of jeans and a dark blue T-shirt peeking out from under an über-starched button-down, and his thick turf of hair is cut in what looks like a $17 mow from Fantastic Sam's. As he natters on about the new site, walking me through its tray-style layout and a feature that lets you pick up exactly where you last left off watching a show, it's easy to see why people liken him to a grown-up Boy Scout. "This morning we had a 45-minute debate on the amount of gradient on the sticky header!" Kilar boasts, standing in a cluttered warren of darkened offices from which members of the design team periodically emerge, blinking like moles. Kilar's obsession with user experience--one source says it borders on "maniacal"--is a large part of why Hulu has created a service that customers have deemed "brain-spray awesome."

But as Kilar frets about the opacity of a tiny black line and the exact placement of a button, Hulu's corporate parents--News Corp., Disney, and Comcast/NBCUniversal--are fretting about Hulu. The day before Kilar's redesign was finally unveiled, Variety published excerpts from an internal memo that had been circulating among those owners. One of the bullet points: "Outline transition plan for new CEO. Discuss potential candidates and process." Kilar, who just three years ago was the wunderkind of digital media, now appears to be on the verge of being dispatched by his bosses--after which they may dismantle much of what he's created at Hulu.

The prevailing wisdom in business is that it's best to disrupt yourself before someone else comes along to do it for you. News Corp. and NBCUniversal had the foresight to start Hulu as Internet video was taking off in 2007. Thanks to Kilar's vision and leadership, the service has grown from a single website serving up last night's episode of The Simpsons to a service featuring content from more than 400 partners as well as original series from filmmakers Richard Linklater, Morgan Spurlock, and Kevin Smith. Revenue soared 60% last year, to $420 million, and is on pace to exceed $600 million this year. And despite broad consumer resistance to paying for digital content, especially when it's available elsewhere for free, Kilar has attracted more than 2 million people to Hulu Plus, a $7.99-a-month subscription service that offers full access to Hulu's library on an array of devices such as mobile phones, game consoles, tablets, and, most recently, Apple TV. Even more remarkable: He's serving ads to both free and paying customers, an industry-leading 46.4 ads per viewer per month, according to comScore's July 2012 online video rankings. Hulu's own stats suggest that 96% of those ads are watched in full.

Despite all that brain-sprayingly awesome news, the lords of television are having second thoughts about this whole disruption thing. The loudly noted woes of the entertainment industry aside, TV still generates more than $70 billion in advertising revenue annually. Cable companies still pay content providers like Disney (ABC's parent) and News Corp. (Fox's parent) tens of billions of dollars in licensing and subscription fees. Hulu's revenues are but a speck by comparison; but its audience, which now totals around 25 million unique visitors a month, according to comScore, is threatening. Network television viewership is down 12.5% since Hulu's launch in 2008, while approximately 3.6 million U.S. residents have abandoned pay-TV for Internet video over the same period. These metrics make studio and network people shiver, and Hulu bears the brunt of their alarm. "Half the people at those companies wish [Hulu] would go away," says one source who, like many of the dozens of studio execs, agents, producers, and Kilar's colleagues I interviewed for this story, asked not to be identified for fear of alienating any of the parties involved.

Kilar handpicked his team via "a bit of an Ocean's Eleven strategy," he says. Content chief Andy Forssell, left, and ad chief J.P. Colaco, right, were friends from Harvard Business School; CTO Rich Tom, center, knew Kilar through Hulu's original CTO, Eric Feng, a colleague from Microsoft. | Photo by Joe Pugliese

Hulu's owners and Kilar find themselves at this crossroad after years of long-simmering tensions and occasional battles. In the past few years, Hulu has shelved IPO plans, backed out of a sale, lost its key corporate supporters, and seen its partners sell rights to its rivals. The leaked memo was the third rumor of the summer that Kilar was on his way out. First, he was reportedly a finalist to be Yahoo's CEO; he killed that buzz by issuing a head-scratching statement that he "graciously declined to be considered" for the job. After that, he was going to work for Facebook. Press Kilar about all this Sturm und Drang, however, and all you get is his game face: "We've never grown so much in an absolute way as we have in the last couple of years."

Kilar will admit that his five-year journey at Hulu has "not been for the faint of heart." More palpitations are in store. This fall, Providence Equity Partners, the private-equity firm that has a 10% stake in Hulu and has generally backed Kilar, plans to sell its stake back to Big Media, leaving Kilar more exposed than ever. (Of course, he might also become richer than ever, given that he'll be able to liquidate stock options worth a reported $100 million.)

When I ask Kilar if Hulu is simply too successful for its owners' tastes, he throws his head back and laughs. "I don't know! You should ask them!"

I'd like to. No one at News Corp., Disney, or Comcast would comment for this story.

Hulu's saga, which has only been told in broad strokes and not since its honeymoon days of 2009, is one that Hollywood trucks in all the time. Kilar is the willful maverick who rides into town with fresh ideas and no interest in playing by the rules. On-screen, Hollywood loves this tale. In real life, it's a different story.

When Jason Kilar left Amazon in 2006, he was unsure of what to tackle next. So he rented office space in Fremont that became his own personal Fortress of Solitude to think big ideas. Over time, he developed ideas that would contribute to what became his "vision" at Hulu--of an elegant, clutter-free, easy-to-use video hub for all the TV and movies anyone could ever want, available whenever and wherever they wished. This vision is what drives him still; it's the one thing he talks about with a sincerity and genuineness that is not guided by MBA bullet points he picked up at Harvard Business School or by overcooked PR savvy. After Kilar got hired to run Hulu in 2007, he made it L.A.'s incubator for the future of video, a place where crazy ideas were not only scrawled on whiteboards but implemented.

He needed every bold idea he could get. Television studios detested the nascent world of online video. They saw YouTube as a haven for piracy. And while they had the sense that technology might force them to put content online, they shuddered at the thought of their high-production shows sitting next to short, clumsy low-tech vids of "cats on skateboards," as J.P. Colaco, Hulu's head of advertising, jokes about that era. A-list advertisers wanted nothing to do with such an environment, and the thought that anyone would ever pay to watch web video was laughable. Before Hulu even had a name, observers dubbed it Clown Co. The idea that two old-school media rivals, Fox and NBC, could collaborate on a startup and make sense of all this seemed insane.

But the observers hadn't reckoned on Kilar. His attention to detail made Hulu a success from the get-go. He made Hulu's video player larger than usual. He led the move to put content in HD. He let viewers watch fewer ads than they would on TV, and he let them swap out spots to watch others they preferred. "We wanted to draw an emotional reaction," says current CTO Rich Tom. It was all so risky, and it turned out to be all so smart.

"When we started, we had nine brave-soul advertisers who were willing to test it," Colaco says one day over lunch at Stefan's at L.A. Farm, a sleek restaurant within walking distance of Hulu's offices. ("Stefan" is Stefan Richter, the cocky Finnish-born finalist from season five of Top Chef--clips of which are available on Hulu.)

Now Hulu has served more than 1,000 advertisers, including top brands such as Geico, Johnson & Johnson, and Toyota. It delivers a very attractive demo of young, tech-savvy viewers with an average annual income of $75,000. (On Hulu Plus, it's $100,000.) And it commands a premium price for those spots, typically $30 to $35 per thousand views but even up to $50--close to 10 times what YouTube can charge.

"We've introduced a number of practices that have since become industry standards," Kilar says. "The Hulu team takes pride in exploring uncharted territory. It is who we are."

Few of those breakthroughs came without a fight. At his first meeting with senior Fox executives in July 2007, Kilar got an early taste of what he was up against. Instead of Kilar and his team getting an opportunity to talk about what Hulu might be, the meeting began with the network executives--a species famous for neither humility nor technological foresight--pontificating about the Internet "in animated ways," Kilar says. "After about 20 minutes, the head of the network waved his team to quiet down for 15 seconds so that at least I could introduce myself."

From the vantage point of the executives, it is Kilar who is the demanding and overbearing partner. Upon realizing that NBC and Fox were not going to allot him enough new episodes to create a meaningful warehouse of content, Kilar made a wish list of back episodes. When the networks told him that many of those programs either hadn't been digitized or had digital rights that were still frozen, Kilar continued to press. "There were some very uncomfortable phone calls," says one former Fox executive. "There was a lot of 'Jason, that's just not reasonable.'"

When thwarted, Kilar didn't think twice about vaulting up the ladder to make his case to the two men who hired him--Peter Chernin at News Corp. and Jeff Zucker at NBCUniversal. He usually got more, if not all, of what he'd asked for. Kilar has a talent for managing up. At Amazon, he was "kind of special," according to Jason Child, a former Kilar peer at the online superstore who is now Groupon's CFO. "Jeff Bezos loved him. He was one of the youngest people to be promoted to senior vice president."

Chernin and Zucker were protective godfathers. "I'm not sure everybody who worked at Fox necessarily agreed with me or loved what I was saying," Chernin remembers. "But ultimately, I was in a position to make the final decision. I just said, 'We're doing it.' " When ad sales executives at Fox and NBC complained that suddenly they were competing with Hulu for advertisers on fox.com and nbc.com, Chernin and Zucker batted them down. Ditto when competing network executives moaned that Hulu was yet another drain on TV ratings.

Not surprisingly, Kilar's relationship with Chernin and Zucker bred resentment. "Jason knew how to play Peter and Jeff off of each other like nobody's business," says a former NBCUniversal executive. "It's like he was going to his parents and saying, 'I got this from my other dad. You've got to give me that.'" A Fox source denies this, saying Chernin was always "very balanced" about the interests of Hulu and those of Fox.

Kilar was the "golden-haired boy getting all our content for free," says one former NBCUniversal executive, referring to the fact that Hulu did not pay NBC or Fox licensing fees for its shows. Instead, it gave them a share of ad revenue with no minimum guarantees.

Kilar further rankled the industry when he rejected older shows from the studio's libraries, because they did not meet his quality standards. In doing so, he ultimately forced the networks and producers to improve the way they encoded content. "Sometimes it takes a fresh point of view to realize these things," he says. But the us-against-them dynamic played into something that really grated on the network guys. "They were the cool, new thing and the internal businesses were seen as stodgy and traditional," says one source. So when the techie violated some of Hollywood's myriad unwritten rules, they let him have it. For example, when Kilar reached out directly to showrunners like Joss Whedon (Buffy the Vampire Slayer) and Seth MacFarlane (Family Guy), network executives let him know that they didn't want him treading on their turf. But Kilar, as he so often did, wound up with the cool stuff. Whedon and John Cassaday released their graphic novel, Astonishing X-Men, as a "motion comic" on Hulu. MacFarlane created and starred in an ad for the service.

Kilar admits that "anytime you move away from the traditional norm in the media industry, there's going to be ruffled feathers, and I know that was the case in the summer of 2007." But he insists that he "spent a great deal of time listening to his new colleagues. "We would go visit everybody we could possibly meet, just to make sure people understood why we thought this was good for them as networks and as content creators," he says. Zucker, a renowned corporate politician, puts it this way: "I always thought Jason was very even-keeled about the fact that he had to deal with three media companies and one private-equity firm. I think he learned a lot of diplomacy in the process."

And he was successful. A clever Super Bowl ad in February 2009 that featured 30 Rock's Alec Baldwin as an alien who reveals that Hulu is actually a plot to turn humans' brains into mush sent Hulu's traffic soaring 42%. A couple of months later, Hulu added Disney as a stakeholder. Kilar lured hundreds of content partners and grew Hulu's library to 870 different TV shows and close to 500 movies. By the fall of 2009, Hulu had become the second-most-popular video hub online and the only one with a clear business model. Clown Co.? Not so much.

Hulu's swift rise minted Kilar as a superstar. His all-American looks and aw-shucks charm only cemented his status as a mogul on the make. He was not just a tech guy but a tech-media guy--a rare and very valuable commodity, then and now. He may have hailed from Amazon, but Walt Disney was his inspiration.

"I tried to do everything I could to study Walt Disney," Kilar says. "I would read every book I could on the company, and then I found out more about him as a person, as an entrepreneur, and it was just fascinating to me that this guy was able to live a great life with his family but also do these amazing things at work."

When he was 9, Kilar's dream came true. He and his family--he has five siblings--hopped in a "12-passenger cargo van" and drove from Pittsburgh to Orlando for a Disney World summer vacation. His memory of the trip is not of cool rides like Space Mountain, or what it felt like to be hugged by a larger-than-life Pluto, but, he says, of "the forced perspective of the architecture, how it all naturally led to Cinderella's Castle." In college at the University of North Carolina at Chapel Hill, according to his roommate Akbar Sharfi, Kilar threw himself most intensely into lining up an internship--and then a job--at Disney. In lieu of a cover letter, he created a comic strip starring himself.

This kind of deep passion makes Kilar a "product guy," a CEO who gets his hands dirty. It's an uncommon quality that he shares with people like Steve Jobs, Jack Dorsey, and Marissa Mayer, the executive who did become Yahoo's CEO. But Kilar's microfocus is both his greatest strength and weakness. According to one Hulu source, "Steve Jobs could obsess about 200 of 400 details, and they'd be the exact right 200. Jason's more about two, and sometimes they are arbitrary. Like fonts. There are bigger issues to worry about."

When I ask Kilar about his granular focus, he grins, sensing an opportunity for a show. "Hey! Makiko!" he barks into one of the dark offices in the design area.

A petite Asian woman pops out, her eyes wide as saucers. "I have a question for you," Kilar says. "She asked"--he jabs his finger toward me--"if I spend any time on design and product at Hulu. You know, product details."

Makiko's face remains frozen. She seems to be considering whether she's about to get Punk'd. Then a big smile breaks out and she nods her head frantically up and down. "Oh, yeah! Yes! Yes! He's different from any other. He sees a change I've made and gets so excited. He's the first one to say, 'That's cool!'" Kilar beams. The grown-up Boy Scout just earned a merit badge.

At moments like this, Kilar truly lives up to his persona. As any Kilarite is more than happy to broadcast, he is the too-good-to-be-true boy next door, the kid from Pittsburgh who made it big out West, the family man who makes a point of going home to tuck his four kids into bed every night, and who wakes up at 5 a.m. to go running. He's so squeaky clean, he doesn't even drink coffee! "He basically has no vices," says Child.

There are no tales of Kilar delivering the kind of humiliating brow-beatings that make other CEOs infamous. "Jason is always in complete control of his emotions," says another former colleague. At Amazon, "Jeff [Bezos] would say things like, 'Okay, I just read this document, and it's pretty clear we're meeting with the B team. Is there an A team around here we can talk to?' That's not Jason's style. Jason's very direct, but he has a gift in that he can tell you that you suck, but he won't say it as crudely as 'You suck.' He's really got textbook management down."

Not surprisingly, Hulu employees truly do seem like happy campers, insulated from corporate warfare by their boss. The offices are stocked with every startup cliche in the book. Foosball table? Check. Beer tap? Check. This is a place where an Experience Team is dedicated to celebrating employees with Mylar balloons, cakes, and Hulu-branded onesies. As Laura Goldman, a member of the team, explains, "I do birthdays, babies, and anniversaries!"

To Hulu's media company partners, this approximation of startup life is an eye-rolling affront that has no place in Hollywood. "They had computers set up on cardboard boxes!" scoffs one source. And Kilar wasn't seen as a visionary but as a noodge with endless, perfectionist demands. "Things would escalate over small [stuff], like the placement of a logo on publicity materials," says one. "It was like, There he goes again."

Just about every person I spoke with for this article cites one day as the moment when the Hulu rocket ship changed course: June 30, 2009, when Chernin left News Corp. after failing to reach a contract agreement with Rupert Murdoch. "It was a seminal moment when Peter left," says one. "Not only was he a champion of Jason, he was a champion of the concept and the idea that Hulu could both have stand-alone value and help drive value for the content over time." Kilar acts upbeat when I bring up Chernin leaving. Even this, apparently, is an opportunity to make lemonade. "It was a big moment in our history," he acknowledges, "but we've gotten past it and our growth has accelerated since that time."

It's hard to find anyone else with that rosy view. One former Hulu board member describes the first post-Chernin board meeting as nothing short of a disaster. The gathering took place at ABC's headquarters in Manhattan, since it was also the first meeting since Disney had signed on. In lieu of the soft-spoken Chernin was Chase Carey, News Corp.'s new president and COO. A burly ex-rugby player (on the Harvard Business School team) with a handlebar mustache, Carey dominated the conversation. According to two sources, one Carey lieutenant, Jonathan Miller, News Corp.'s then-chief digital officer, leaned back in his chair and appeared to snooze. Disney chairman and CEO Bob Iger, who has generally been favorably inclined toward Kilar and Hulu, seemed visibly frustrated as the conversation grew more prickly. And Zucker's influence was on the wane due to the upcoming acquisition of NBCUniversal by Comcast. (As part of the deal, the FCC ordered Comcast to give up any management say in Hulu to avoid a conflict of interest.)

"We were not in Kansas anymore," the former board member recalls. "It was a whole new [Fox] team, and it was not clear that they had any interest in supporting Hulu. It was more about protecting their own core businesses."

Carey's main point that day was that Hulu could no longer exist solely as an ad-supported business. It needed a dual-revenue stream, just like a cable or satellite TV network, a model Carey knew well from his six years as CEO of DirecTV. Cable companies like Comcast were paying content providers billions of dollars to retransmit TV shows, a shift that had occurred since Hulu was formed. Why, the cable companies wanted to know, should they pay so much if the shows were available on Hulu for free?

"Chase Carey was not supportive" of Hulu, says yet another former Hulu board member. "He put up a lot of roadblocks to progress." Soon after Carey's arrival, Kilar hammered out plans for a fee-based subscription service that would offer more content than was on regular, or "free," Hulu, and be available on more devices. Older episodes of shows would only be streamed on the pay service, called Hulu Plus.

Next, tensions flared over what the pricing of Hulu Plus should be, though Kilar denies that he threatened to quit over the issue, as was reported by The Wall Street Journal. "It's fair to say that there were disagreements about whether to go higher priced, in the teens, or at $10 or lower," he says. Kilar believed that Plus should be cheaper than Netflix's streaming service ($7.99 a month), but the media companies felt that such a measly price tag devalued their content. In the end, a compromise was reached at $7.99, but the battle gave Kilar a sense of what life would be like without his corporate benefactors.

In August 2010, Steve Levitan, the showrunner of the hit ABC sitcom Modern Family, let loose with an angry tweet. "Some estimate Hulu IPO could bring in $2Bil," he wrote. "What will the content providers get? Zero. What is Hulu without content? An empty jukebox."

Rumors had heated up that Hulu was headed for the public markets. The scenario was seen as a way to (a) turn a nice profit for Hulu's owners (the site was indeed valued at $2 billion) and (b) raise capital so that Kilar could go license and create more content. A public offering was also seen as a way to end the political infighting and provide a happy ending to a narrative that was getting more gnarly by the day.

To Levitan, though, the news was outrageous. Hulu cannibalized the TV audience for shows like Modern Family, he felt, and neither he nor the networks were being adequately compensated. Levitan even asked ABC executives to remove Modern Family from the Internet.

But if Kilar was frustrated by Levitan's outburst (the two men later reconciled over breakfast), he was more upset--disappointed is the word he uses--when plans for the IPO fell through that December. After months of discussions with investment banks, the media companies (News Corp., in particular, according to several sources) were uncomfortable signing long-term licensing agreements for their content. Before Hulu tabled the IPO, in fact, both ABC and NBC made deals with Netflix, giving Hulu's rival access to Lost, Saturday Night Live, and much more.

The IPO reversal was the first public sign that things might be in disarray. The second came a couple of months later, in February 2011, when Kilar took to Hulu's blog to write a 2,000-word state of the union titled "Stewart, Colbert, and Hulu's Thoughts on the Future of TV."

The post began by explaining how The Daily Show and The Colbert Report were now back on Hulu after a nearly yearlong hiatus that had resulted from a contract dispute with Viacom (which has no equity stake in Hulu). But Kilar was burying the lede. The essence of the treatise was to summarize what he saw happening in the new media space in Hollywood, including some harsh observations about his partners. Included in the post were pronouncements such as "Traditional TV has too many ads" and "History has shown that incumbents tend to fight trends that challenge established ways and, in the process, lose focus on what matters most: customers."

Never mind that these are, well, truisms. Hollywood took the public airing as a giant middle finger to Hulu's owners. And those owners were, predictably, furious. "The response was terrible. Terrible, terrible, terrible," says one former Hulu board member. "Everyone thought, This guy's a wild card." Both inside Hulu and in the media gossip blogs, speculation sparked that Kilar was begging to be fired.

When I ask Kilar if he in any way regrets writing the missive, he insists his intent was not to offend. "Of course, in hitting 'publish,' I anticipated that there was going to be a lot of talk about it," he says. "But that blog post holds up really well. When you read it, it's very obvious that it was a document that had been thought about for a long period of time. Nobody truly appreciated where we saw this world going, and what we were hearing from customers."

So was he surprised by the reaction of Hulu's owners? "Not in the precise, no," he says, before muddying his answer. "Because, I think, in the aggregate, based on conversations I had, frankly, there were a lot of people who said, 'That makes sense. That's a great summary of the landscape and where you're going.'"

An unlikely opportunity for all parties to save face emerged in June 2011, when Yahoo reportedly made an unsolicited bid to buy Hulu. Hulu's board opened up the sale process to any company that wanted to make a bid, and Google, DirecTV, Verizon, Microsoft, Apple, and Kilar's alma mater, Amazon, all were rumored to have at least considered an offer. But the talks collapsed for the same old reason: Hulu's owners refused to commit to long-term licensing agreements. The company was taken off the market in October, and a happy ending seemed ever less likely.

It's 9 p.m. on a Friday night, and Kevin Smith is lecturing a group of young men and women who have volunteered to participate in Spoilers With Kevin Smith, the movie-review show that the Clerks director hosts for Hulu. The group has just seen a screening of The Bourne Legacy at Universal CityWalk and they're about to be shepherded into the Spoilers studio, where they'll discuss the movie with Smith as cameras roll.

But Smith needs to clarify a few things first. "The likelihood of you saying, 'This movie's for cocksuckers' and getting that on the air isn't good,'" he says, dressed in baggy jean shorts that fall well past his knees and an orange-and-blue hockey jersey. "What are we? PG-13 or something?" he calls out to a huddle of Hulu executives off to the side of the room.

He goes through a few more rules (smile like crazy during his opening monologue) and scolds an audience member. "Sunglasses," he barks, "you can rock those in your pockets," before sauntering off stage. "Now I'm going to go upstairs and make myself pretty. Have more hairs put in my head."

Spoilers, which debuted in June, is part of Hulu's ambitious foray into original programming, Kilar's plan at forging a new identity for the streaming service. By investing $500 million into content, which includes coproducing new episodes of British cult favorite The Thick of It, and licensing foreign programs such as the Israeli drama Prisoners of War (the forerunner of Showtime's acclaimed Homeland), Kilar is hoping to follow in the footsteps of HBO, or, for that matter, AMC. "Four or five years ago, AMC was known for just showing The Last Starfighter over and over again, or Some Like It Hot," says J.D. Walsh, the writer-director of Hulu's first scripted original show, Battleground, a mockumentary about political campaign staffers in Wisconsin. "Then they started making TV shows, and with Mad Men and Breaking Bad, now they're legit."

The strategy is anything but a sure thing. For one, Amazon, Netflix, and YouTube are pursuing the same path, armed with far more cash. Netflix, for instance, is spending $100 million alone on 26 episodes of House of Cards, a remake of the British miniseries directed by David Fincher and starring Kevin Spacey. YouTube, which has poured several hundred million dollars into seeding scores of original channels and is sharing advertising revenue with its partners, has lined up a roster that includes Ashton Kutcher, Amy Poehler, and Madonna.

Kilar describes Hulu's initiative as more of an indie thing, akin to Robert Redford's creation of the Sundance Film Festival, a place to "house storytellers and incubate their stories." And he has attracted idiosyncratic talent, like Richard Linklater and Armando Iannucci, the acclaimed writer-director of The Thick of It, by giving them great creative independence. But both he and his company have strong techie DNA and lots to learn about dealing with the egos and protocol involved in making, and not just distributing, a Hollywood production. (This is true for Hulu's rivals as well: Netflix and Fincher have reportedly been feuding about the budget for House of Cards.)

"I think Jason has to green-light shows, but he's not a development exec, so that's new territory for them," says one agent who was still waiting to hear on a project he pitched. "Things are just dragging. I'm told, 'We want to present it to Jason and Andy [Forssell, Hulu's SVP of content] in the right way, but they're not so great at reading scripts.' These are things you don't hear out of network TV."

So far, Hulu lacks the kind of breakout hit that defines a network. Forssell says that this will take time, since, unlike the networks, Hulu isn't papering Sunset Boulevard with publicity billboards. The idea is to spend less money more efficiently, and mostly online, and to patiently develop a larger audience. And to use the new Hulu redesign to expose viewers to its originals. "I want to look at these shows on a two-year basis," he says. But that assumes Hulu still has a couple of years ahead of it.

"Hulu is everything we hoped it would be but were never really sure it could be," says Zucker, who now produces Katie Couric's daytime talk show. "It's almost shocking how successful the company has been." Chernin, Hulu's other founding father, is less bullish. "The world changes so fast," he says, pointing to the fact that at the outset he didn't have to worry about Hulu paying content creators exorbitant retransmission fees. While he still praises Kilar and still believes the entertainment business must invest to avoid the path of the music industry, he admits to a certain sympathy for the worries of old-line media companies. These business-model debates, he says, "are age-old and appropriate questions, which the media business should grapple with."

The leaked "transition plan" suggests that Hulu's current owners are doing a lot more than grappling. After Providence sells its stake, the media companies will supposedly revamp Hulu in a way that could prove intolerable for Kilar. The proposed changes include doubling the number of ads that run on Fox shows streamed on Hulu (not Hulu Plus) and letting competitors like YouTube have equal access to current-season shows. It's deeply ironic that the networks would now turn to YouTube, given that they created Hulu to fend it off. But YouTube is believed to generate six times more revenue than Hulu and remains the most popular hub for online video. Hulu regularly falls out of the top 10 list of most-visited Internet video sites, as ranked by comScore. No wonder the studios won't prize Hulu at the expense of their bread and butter--cable subscription fees and advertising.

Ultimately, Hulu might well get diminished to a site that's the equivalent of fox.com, which only makes episodes available for a limited time. Hulu Plus, with its dual revenue stream, might be protected. But while the subscription service could reach 3 million subscribers by the end of the year, "that's just not that impressive," says Dan Rayburn, principal analyst at Frost & Sullivan. As ratings dip, TV production costs soar, and video-streaming competition increases, the networks may well wind up having less command of the digital future of content than they did when they launched Hulu in 2007. And while Kilar still believes, deeply, in the future of a digital content warehouse that satiates millions of customers, much of his vision has been co-opted by others who are doing things bigger--if not necessarily better--than Hulu.

In the wake of all this drama, assessing Kilar's future has become one of Hollywood's favorite parlor games. "I don't think he has any intention of leaving until this plays out more," says a former Fox executive, "unless he gets forced out--though I very much doubt that, because it would look real bad."

But another source who knows Kilar says, "It's just a matter of time" until he decides his job has become too compromised. The consensus seems to be that Kilar and team will hang on until his network partners make things truly untenable. And with Providence gone, that time could come very soon. Still, Kilar's professional future remains bright: He's a star CEO in his early forties with five years' experience in one of the most challenging jobs on earth.

When I press Kilar on all this, he'll only say that he is not a "dabbler." The ruthless world of entertainment hasn't smothered his optimism. "So much ground has been covered since those first days when most everyone had a fear of the unknown," he says. "We're not yet at the stage where all content producers and executives think of online video distribution as naturally and obviously as they think of traditional television distribution, but we're certainly getting closer. If history is any guide, we'll get there."

For now, Kilar still seems to be enjoying the ride. At Hulu's Friday afternoon "wind down," he plops onto the floor amid a roomful of Hulugans as Lonn Lee, Hulu's director of product development and this week's wind-down host, welcomes the crowd. Goofily dressed in a Canadian Olympics hat with furry earflaps
and a Team U.S.A. jersey, Lee gets the "Intern Olympics" started, joking that, "The most interesting thing about speed-walking is that it's a real sport."

Kilar claps his hands in applause and laughs. Here in the thick of what he's created, he seems genuinely happy, not to mention relaxed and unscripted. His vision may be battered, but it's not dead yet.

Correction: An earlier version of this story did not clearly enough reflect that original content is only one part of Hulu's $500 million investment in programming. It also incorrectly identified Andy Forssell as Hulu's VP of content, he is Hulu's Senior VP of content.

[Photo by Joe Pugliese]

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21 Comments

  • Andrew Murtland

    I hope, no, I EXPECT Hulu to go under. These guys are fuckwads. Consuming every show I've ever loved and making me pay to watch it. They just engulfed the entirety of South Park. Trey and Matt you have lost my business and Hulu you and every one of your employees can eat shit and die.

  • Perry

    The mindset of these companies is simply mind-boggling. In an age when piracy is a big problem, their solution is to make the legal content more difficult to acquire than the illegal content. 

    NBC has now pulled 30 Rock from Hulu Plus streaming. The current episode is available on Hulu's website, but who knows for how long? But if I go to a torrent site, I can have the latest episode of 30 Rock downloaded in about fifteen minutes and NBC doesn't get a single cent from me. 

    Sorry, you greedy bastards, but I'm not going to spend $50+ a month for only a few select shows. If you're not going to embrace something like Hulu, then you aren't going to get my money. It's as simple as that. You need to wake up and realize that your outdated distribution model is broken.

  • Abekah Def

    Got tired of playing let's-suck-off-the-CEO by the end, but an interesting article. If Hulu goes down, do the TV people really think all those viewers will start paying for cable again...or just find another way to watch online...most likely a way that makes them ZERO money instead of LITTLE money? Starting to look awfully similar to the music industry post-Napster.

  • Sunshine

    That was a good, well-researched article.  I left cable over a year ago and will never go back, no matter what.  I use Netflix and Hulu, and very occasionally Amazon to get my TV.  I resisted Hulu + but succumbed because I wanted to watch it on my TV through my Wii.  (Although, I will say, the streaming through my gaming system isn't nearly as good as Netflix's.  Looks like they have some bugs to work out.

  • Missy

    Somehow, this story never changes, and of course for this installment: "No one at News Corp., Disney, or Comcast would comment for this story." Makes me sick that they talley all those freaking commercials I PAY FOR, and somehow don't value me as a suscriber. Good news, I can easily unsubscribe. Just waiting for the death-match with Netflix, which seems to have woken from its drunk-with-power hangover, and is getting on track with lining up better content. Note to Hulu's jackass corp. owners: people like and deserve getting good content for their hard-earned $$$. I personally love the new email program with stuff like, "Hey, we thought you'd like to know that the latest season of The League is now available." Thanks NF! Sorry, Jason, I love your vision but bean-counters will always be bean counters. Maybe you'll get a new champion on board ...

  • Ben-Thayer Dundat

    whatever jason kilar paid you to write this piece was too little. but dont worry - i'm fedexing over plenty of dental floss so you can get all mr kilar's butt hairs from between your teeth

  • Somasaint

    personally the issue has always been that of quality and control. if your locked dvd forces me to watch previews, that will be the first and last time for that disc/company/producer. if the show i want to watch is only available in something less than 1080p, why bother? those versed in pulling torrents know that the control and access to the "quality of investment" is the real key. maybe you want to watch a show, but dont care about its quality. 480p. maybe you own a large home theater. 1080p. once Hulu can garner that level of control and options, they are still years behind what torrents already offer. you already pay for broadband. why pay hulu to give you what you want half the time?

    the solution for the consumer is broadband + redbox + torrents. done.

  • tiramisu

    The problem is that Americans/English speakers throughout the world can't see his product (unviewable in Italy anyway) and pretty much stymies the idea of a WWWeb... and I resent that Yahoo uses so much Hulu. The fact is, you force us to go through more steps to get to Youtube for a lot of the same material.

  • Cawnov

    My wife and I will NEVER go back to Direct TV, Dish, or Cable. We dropped our contract with Direct TV two months ago. We were tired of paying $84 a month for only a few channels that we liked and hundreds of pay-per-view or AS Seen on TV garbage. 
    All that these cable and dish companies have to offer is access to sports channels. However , since dropping Direct Garbage, I simply watch sporting events online for free (and have more access to them) without torturing my wife by watching sports on the tv. 

  • Matt

    Both my Hulu and Netflix subscriptions are less then half what I was paying for cable. I think the cable companies are still in denial that their old business model is becoming more and more obsolete as far as TV content providers go.  Eventually online streaming will prevail but I fear Hulu plus will become a casualty of the war.

  • Jake

    If News Corp, Disney and NBCUniversal pull the plug on Hulu they'll be killing the goose that laid the golden egg.

    Kilar will go work for Netflix or LoveFilm (an Amazon.com subsidiary - I'm sure Bezos would be keen to have him back) and the three networks will lose market share. Online video is unstoppable.

  • Bob Singer

    I used to watch Hulu but refused to pay for both Netflix and Hulu +. Now I never get on Hulu because my Kindle is considered by it to be a "mobile device" and I can't watch items on it without Hulu +. Makes no sense. If I use my netbook I can watch, but if I use my Kindle I can't. I would rather hope that Netflix picks up the shows like Fringe or Psych that I watch rather than go to Hulu again. 

  • Mike B

    Dude.... you're complaining about paying $16??  Now that makes no sense.  Blame the media companies for Hulu + not hulu, they can only do what they're allowed to do.

  • jt

    jason kilar needs to be remove from hulu as ceo since he started in 2007 it has not had a tv interface upgrade or content deals with any big network it sucks paying $7.99 per month just to see that all content says web only i only subscribe to this because cable rates where going up hope hulu get someone that knows about online media content and know about running a media content company not just their for the money

  • Benjy1

     JT (short for Junior Troll), if you've been following any of the stories, reports and reading in between the lines you would realize that 1) Kilar is the reason why Hulu is a success 2) if Kilar wasn't there Hulu would be an unwatchable messy flash infected site with hardly any content (good or bad) AND with triple the amount of commercials - TRIPLE the amount of commercials  3) Kilar has been quoted as saying "if you just want to make money, go somewhere else, if you want to build come to hulu.  Seems like they want people who have a vision of something better (though a sarcastic troll like yourself would find some other negative opinion).

    JT, where there was nothing five years ago, there is now something and in many ways it's better than most of the other services out there .   Yeah, it has it's bugs, but when online premium video content was legally uploaded to the web, Hulu was better than any of the network sites - and still is.   Have you looked at it recently?  Have you seen what it offers?? Im not talking about what is not on the site - but what you can see on the site.  It's amazing.  And you can watch if for free or pay $8 for it!!!  Spend another $8 and you can watch a bunch of good movies and other TV shows on Netflix.   That's $16!  $16 Dollars for all sorts of entertainment, movies and documentaries.   SIXTEEN DOLLARS - and you're complaining???  About what?  You're commenting on a niche website (and with horrible grammar by the way) so it's safe to assume you don't dig ditches for a job or make french fries (well, you don't use any punctuation, and there is that atrocious grammar...).  So who are you JT?  What's a fry cook, who can't afford $16 or even $7, doing on a site like this. 

    Troll, troll go away, we don't even need you on a rainy day.

  • Andrew

    Hulu is awesome! I don't find a reason that it has to stop. I'm streaming it on my ATV2 on Canada with some help of Unotelly.

  • Greg Wilker

    I'll chose Hulu or any other online service to watch shows for two reason. A) I'm never home between 7-11pm I'm always out with friends or working. B) being able to catch up on all my shows 8ish whenever I want via my computer plugged into my 33inch HD monitor at my desk with my $600 dollar HM desk chair.

    if hulu dies and or the shows stop coming online legally ... I guess illegally will be my only choice either that or dvd box sets.

  • David Olson

    I agree Greg. Same thing at my house. My grown kids already turn to torrents around the world over the commercials of broadcast TV and Hulu. The world has changed. For my wife and I, if it isn't Hulu or iTunes, it will be Netflix, Amazon or torrents. We aren't going back.