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This story first appeared in the July 24 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.
The year 2007 may have marked the high point of existential angst with the traditional media business about the encroachment and relentless proselytizing of digital media. Among the responses to that grim moment was the slapdash creation of Hulu, born out of the television industry’s panic that somehow Netflix and other nascent streaming technologies would … well, disrupt. Disney, News Corp. and NBCUniversal got together to create a not-very-thought-out alternative. Hulu was not so much a plan as a placeholder — a panicky, we’re-cool-too effort.
During that same period, entertainment lawyer Kevin Morris convened a meeting of Hollywood talent and Silicon Valley execs and investors. Network suits such as Comedy Central’s Doug Herzog and NBC’s Kevin Reilly, actors including Scarlett Johansson and Matthew McConaughey and writers Matt Stone (South Park) and Anthony Zuiker (CSI) were told — most notably by Marc Andreessen, one of the leading digital media venture-capital funders — that, in the view of the tech industry, Hollywood and the TV business were toast. “We are against each other,” Stone recalls Andreessen saying at the meeting. “This is a zero-sum game.” Adds Stone, “We all wanted to run away.”
On July 8, eight years later, Hulu, which in 2014 made an $80 million deal for streaming rights to South Park, extended it to a nearly $200 million deal. Has the world changed that much? Did Andreessen, the oracle of Silicon Valley, get it that wrong?
Certainly, Hulu’s journey from desperate response to profitability seemed far from preordained. It had all the earmarks of a botched old-media new-media dive, MySpace to Netflix’s Facebook. It had squabbling partners, a retro ad model, content limited to its owners’ libraries and, to boot, owners who seemed to shun it, except no buyer was willing to pay enough for it.
Meanwhile, South Park‘s Stone and Trey Parker were waiting with much of the TV industry for their world to end. Television, by 2007, had become the pirates’ next target, with YouTube as their Napster and South Park as the most stolen show.
Yet there was a parallel and contrary narrative, too. TV’s most panicky moment also marked the beginning of what, with growing cable fees and new retransmission deals for the broadcast networks, was the biggest period of financial growth in its history, highlighting its transition from a mostly ad-supported medium to also a powerful subscription business.
Netflix, together with YouTube, might seem to be transforming video habits — except, arguably, the transformation was not so much about video habits but web habits. Watching content on Netflix quickly was becoming the single biggest use of broadband. What’s more, YouTube, sued by Viacom for $1 billion in 2007 — not least of all to protect its South Park franchise — began paying licensing fees and policing its content. So just as a revolution in media behavior was being proclaimed, the opposite also was happening: Traditional audience behavior and media business models were reasserting themselves.
Indeed Stone, 44, and Parker, 45, have pursued South Park‘s digital future from quite a conventional view. They have held on to the show’s streaming rights (via a joint venture with Comedy Central), not as a bet on disruption but because they have seen that South Park works on all platforms. It worked in cable, syndication, DVD sales and games. Why should streaming be different? And why should the fundamental content-licensing business model change?
Meanwhile, Hulu’s owners had something of a wait-a-minute flash after the company failed to find a buyer in early 2013. For one thing, Hulu’s revenue had jumped nearly 50 percent within a year. For another, Hulu realized it was owned by exactly the companies on which its competitor Netflix was most dependent for content.
Indeed, Netflix’s reliance on other people’s content was reshaping the streaming market. Closely following the HBO model, Netflix began to emphasize original shows. Meanwhile, Hulu, confident in its access to a supply of hits, started to look more like a basic cable model. Where Netflix was curating a long-tail catalog of specialized shows, Hulu was amassing a collection of singular franchises — the type of 300-plus-episode series that long have dominated the rerun market. Its new $192 million South Park deal follows a $160 million deal for Seinfeld and before that a pact for CSI, in addition to original franchise plays like James Franco‘s upcoming Stephen King miniseries 11/22/63. (Netflix, not immune to this game, has an NCIS deal.)
Hulu, saddled with an original ad model, is using big content deals to complete its transition to a largely subscription service and away from declining web and mobile ad rates. This the-more-things-change-the-more-they-stay-the-same outcome is, in some ways, the ultimate refutation of Andreessen’s digital revolution assumptions: TV attracts a big, passive audience on any platform despite the allure of the social, the interactive and the user-generated.
There’s a clear triumph here of the old creative system: Stone and Parker, outlandishly talented writers, supported by Comedy Central’s Herzog, produce uniquely valuable content — which, mirabile dictu, really is king.
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