Hulu achieved what the networks wanted. The problem was the unlikely success it found along the way

By Sarah Lacy , written on January 4, 2013

From The News Desk

In perhaps the most anti-climactic news announcement of the week, it seems the long running rumors that Jason Kilar would leave Hulu have finally proven true. Kilar and Hulu CTO Rich Tom are both gone in what Kilar says was a "difficult" decision.

The war stories Kilar must have after the roller coaster of building and running Hulu are no doubt stunning. The speculation of whether it would go public or not, endless content negotiations, the three-front war for users with Apple, Netflix, and YouTube, the speculation on whether it would get acquired or not, the return of the IPO rumors. There were even the more minor scandals we've all likely forgotten about -- like when Hulu disabled its content to work with Boxee sparking a full-on nerd uprising back in 2009, which later became the subject of a congressional hearing when Comcast bought NBC.

Unfortunately, for us, Kilar is likely too diplomatic to ever really dish. But Jesus what a five-plus years it's been for a venture that never should have even been remotely interesting to begin with.

Hulu was first launched out of fear. NBC and News Corp. (later joined by Disney) got together to launch a video portal that could compete with YouTube before it pirated away everything they owned, sending the television industry the way of the music industry. Few innovative sites are ever launched by Hollywood incumbents, and even fewer are launched out of defensiveness. Google even laughed off the effort internally referring to it as "Clown Co."

But then the owners did something stunning. They hired Kilar to run it: a guy who could build a great product and had aspirations of running a giant, important, independently held media company. The tech world was stunned when Hulu launched, and it actually had a gorgeous, useful product that was a pleasure to use compared to the UCG flooded, hard-to-search YouTube.

So what happened along the way?

Well, if you want to be a cynic about it, the owners all got what they probably originally wanted, throughout all the ups and downs and fights and demands for more resources, equity and independence. They started Hulu as a place to direct users to watch their stuff online without sending them to a piracy laden third party. They wanted to give away as little as possible and canabalize their core product as little as they could in the process. Mission accomplished. Hulu has been a respectable adjunct, but not a hugely disruptive force in their world, and long since overshadowed by larger players without the sticky entanglements and more resources.

The problems arose from that great coup of hiring Jason Kilar. He wanted to run a real company -- not be a puppet. And the shockingly good product convinced him, his management team, Silicon Valley, and Hulu's users that he could. Judging by the shifts in strategy along the way, at least some of the owners were seduced by this as well.

I have mostly watched the last few years of Hulu from the sidelines. The last time I had a sit down interview with Kilar was for my Yahoo Finance show TechTicker back in April of 2009. (In Yahoo's infinite wisdom it has pulled down all the archives of interviews I did with Mark Zuckerberg, Evan Williams, Dean Kamen, Richard Branson, Sue Decker the day Yahoo turned down Microsoft's $40 billion offer, and, yes, Jason Kilar as well, so I can't link to it or embed it. Which was, you know, the promise of doing the show on the Web to begin with. Oh, Yahoo. One day you'll act like a tech company.)

But this was very much in the time when the Valley thought of Hulu as a real startup. The big debate that Kilar and I had was whether he could really run a company that fundamentally had to serve three masters: Users, advertisers, and the networks. I argued that the interests of all three were fundamentally at odds, and users would inevitably lose. He needed the networks to continue to get funding and survive -- and that's why they won the battle over Boxee, at the expense of what users wanted. Networks had legacy businesses to protect, and users wanted to watch what they wanted to watch anytime online for free. Meanwhile the advertisers introduced yet another wrinkle, as Kilar was essentially competing with the networks for ads -- and boasting they liked him better.

Kilar fervently disagreed with the suggestion that he couldn't juggle all three, and while he's one media trained fellow, I think he believed it. Why else would he have bet his career on Hulu and stayed so long, given his clear ambitions to run a real -- and independent -- media organization?

And for a time, it looked like he might get his wish. But ultimately the squabbling owners knew they had a good thing owning a portal they could control. RBC Capital Markets analyst David Bank told Bloomberg back in 2011 that the networks were wise to shut down talk of an acquisition. “They are making a very smart move to leave their content in their own hands and not leave their destiny to a third party," he said.

If the biggest thing that confused Hulu's trajectory was the surprising success of the guy they found to run it and the product, the other thing was that the power of YouTube diminished as other media portals surged. It became less important to have one, single place where all the networks' content could be housed, because suddenly there were a myriad of free and legal alternatives for instant streaming in Amazon, Netflix, and iTunes. As Hulu's owners, users, and Kilar himself battled between what they wanted this surprisingly successful thing to become, the market changed around them, making some of the arguments simply moot as they squabbled.

While the networks will likely find competent people to run Hulu, they won't hire another Kilar. They couldn't convince another one if they wanted to, and one certainly wouldn't accept the job as it stands now. They'll hire someone who gets the now hashed out playbook. The service has likely already passed its zenith. It'll be a nice little side project now that doesn't distract, doesn't threaten, and certainly never sells or goes public for billions of dollars. It's a shadow of what it could have been with a tiny fraction of the resources competitors are spending to remake the TV.

Which was -- in the very beginning before success confused the issue -- probably all the networks were hoping for.

As for Kilar, he made approximately $40 million when Hulu cashed out employees equity last December. Sources say he still wants to run a big media company. Expect him to advise, maybe invest, and dabble until the right offer comes along. Perhaps he and Ross Levinsohn can enjoy long lunches together.