Dollars and pennies and free, oh my!

There’s (new) trouble in the “have your cake and eat it too” world of the networks and studios. Frank Rose nails it well in a must-read Wired article, Hulu, a Victim of Its Own Success? Rose begins with the decision in January to pull It’s Always Sunny in Philadelphia from the site.

Instead of carrying every episode of Sunny, a way off-center Danny DeVito comedy that languished on FX until Hulu users made it one of the site’s most popular programs, Hulu limited its offering to the five most recent shows. User reaction to the move was swift and predictable. “Well, off to the torrent sites,” one wrote on Hulu’s Sunny forum. “Hulu blows!” declared another. “Whose retarded idea was that?”

Well, not Hulu’s. The move was taken at the network’s request. Powerful forces are working against free, legal online TV — and the decision to pull Sunny may have made that show the canary in the server farm.

In theory, at least, the availability of such shows on Hulu threatens two of the key financial underpinnings of cable TV: DVD sales and carriage fees. Comcast and its brethren pay the cable networks to carry their programming, and the idea that Internet users can watch the same shows online for free is not popular in places like, well, Philadelphia — or at least that corner of it where Comcast is headquartered. Stock analysts aren’t exactly thrilled with the concept, either.

The user reaction to return to the torrent sites is a bigger deal than you may think. Duncan Riley notes in The Inquisitr that new figures released from anti-piracy group BayTSP show that the United States dropped from 1st to 4th place in 2008 in their annual list of copyright infringements by country. The reason? You guessed it.

…piracy is rapidly heading downwards in the United States. The big question is why? Why is piracy heading down at a time that the act of piracy has never been easier and more accessible?

Could it be that the 42 million videos served by Hulu in March, a number that has for the most part continued to grow over the last 12 months on a month to month basis, has a direct correlation with the decline in piracy rates in the United States?

We know it’s not the RIAA/ MPAA anti-piracy measures, with even the RIAA (mostly) giving up on taking downloaders to court. Even they could see that the strategy doesn’t work.

Instead, we have a response from big media that created supply where there was demand, supply that in part negated the need to download pirated content.

Riley concludes that Hulu is, in fact, the cause for the drop in illegal downloads, and that it has profound ramifications for the media industry. Combating piracy, he notes, involves the “free supply of content,” and this is what’s so bothersome to Hollywood.

It’s a conundrum, isn’t it? And I keep thinking of Jeff Zucker’s famous “trading analog dollars for digital pennies” phrase. The problem with big media is that it isn’t about trading at all; it’s about finding a way to have both the dollars AND the pennies, while technology and user demand keep pushing it in a direction away from either. Hulu is a tremendous asset to the viewing public, and I have to believe that it will become the standard for program distribution down-the-road, both paid and advertiser-supported. A single repository of programs accessible by everyone makes sense from a users’ perspective. It’s not, however, what the networks and the studios need, because the big money comes from the scarcity created by limited distribution. It is a conflict that threatens not only the cable industry, but also broadcasting, and it’s going to get worse. Hulu is a better mousetrap, and we all know what that means ultimately.

These are two excellent articles that provide insight into the world of entertainment distribution today.

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