Hulu Desktop Impications and Bad News for Boxee

Earlier this week, Hulu launched Hulu Desktop, a desktop app that transforms Hulu into a lean-back viewing experience (much like Boxee). When I first heard the news, I was surprised. Hulu had previously blocked Boxee from allowing their content to be used in a lean-back 10 feet experience, and I understood why. Hulu’s content creators (NBC and FOX) didn’t want their online content repurposed to cannibalize their cable business model. Now, one had to wonder why they are creating their own 10 foot experience if the economics on cable is so much better. Why would they accelerate any cannibalization to a lower margin business?

I talked to my friend Bobby at Forrester Research and he reminded me that Hulu is a sampling platform, where only the most recent episodes are able to be accessed. So currently, I can only watch the most recent season (and sometimes only the most recent episodes) of any series before they are taken down from the site. Hence, Hulu’s library is still limited and therefore, I am unlikely to cancel my cable subscription at this time.

Then it dawned on me. This move by Hulu is the first phase of an experiment that could end with Hulu providing paid on-demand access to their content partners’ entire libraries. In the short-term, Hulu Desktop will improve viewer experience by allowing Internet-sourced content on a living room TV. But as people start to cut their cable subscriptions and start replacing cable with Boxee, Hulu Desktop, Apple TV, etc., then Hulu is all of a sudden in the best position to continue to provide premium content and also monetize their partners’ libraries through on-demand services. As long as Hulu provides a cheaper plan than current cable providers do, people may be willing to pay to access Hulu’s “premium” services, essentially making Hulu a new media cable provider without having to go through third party cable companies.

Also, as long as Hulu’s partners don’t allow the Boxees of the world access to their content (and it doesn’t seem like they will anytime soon), then Hulu becomes the prime destination for all ABC, NBC, and FOX shows.

Avner Ronen (CEO of Boxee) wrote on his blog:

“Hulu just launched their own boxee-like application for watching Hulu content. the new downloadable application is built to be used from the couch with a remote. we’re glad to see Hulu had a change of heart about bringing their service to the big screen, and we hope that this means Hulu content is coming back to boxee. we’ve already put in a request to Hulu to work with them on bringing Hulu back to boxee, and we’ll let you know the response..”

Unfortunately, I don’t see this happening. Hulu’s desktop app can replicate Boxee’s strategy and aggregate other Internet content such as YouTube, Blip, etc. Acquiring Internet-created content is not going to be difficult. And since Hulu is the only major player for premium content, viewers are more likely to flock to Hulu. We’ll see how things shake out, but I think this could be a very smart move for Hulu and pretty bad news for Boxee.