Hulu Meet Racing

The Wall Street Journal has a story up on Hulu - the web streaming television service - today which details their possible changing business model. The change in tactics has to do with cannibalization, and ad revenue.

"...its owners—industry powerhouses NBC Universal, News Corp. and Walt Disney Co. are increasingly at odds over Hulu's business model. Worried that free Web versions of their biggest TV shows are eating into their traditional business, the owners disagree among themselves, and with Hulu management, on how much of their content should be free."

I have never really understood the model in the first place, and although it was an ad revenue driver, this is not overly surprising to a lot of people.

In the old days CEO's said "get me online for some of that internet stuff" and built websites. Later on they worried about selling something profitably. Now it seems we are at "get me some of that online video stuff everyone is watching" but again the same rules apply.

The problem with television streaming video or their produced shows, lies in the fact that other than the medium (ie watching at home on your TV or on your computer) there is very little difference in product. Sure you can watch a show at a coffee shop, but you can DVR one now and watch it at home on a $4000 home theatre system. For those who don't want to pay for cable or satellite TV it's there, but chances are these folks would have a TV if they needed to. It reshuffles the deck chairs, it does not build a bigger boat.

Racing has the same issues and has for some time. Internet wagering, long held as a beacon of hope for the industry, has not delivered what it has promised. Sure "we gotta get us some of that internet wagering" and have got some. Yes it is growing. But it is simply, like online TV show streaming, catering to the exact same audience because there is nothing ostensibly different about it.

The marginal cost of taking a $2 bet at a portal could be pennies, yet they have not changed their pricing. I could bet a superfecta in 1992 by punching it into a machine and in 2011 I can bet the exact same superfecta on a machine. It's the same game, the same bet the same everything on a different medium, and not much else.

In contrast to Hulu or network sites that stream their shows and racing, successful internet businesses add some hard value.

In 1976 I would buy 1000 shares of a stock at $1 and pay $200 commission. To sell it I would have to wait until it hit about a buck and a half. It did not matter too much if I had to call a broker on the phone. It had no value.

In 2011 I could buy the same stock, pay $15 in commission and fire it out on a spike to $1.09 and make a couple of dollars. Sure the fact I can do it with a mouse adds convenience and is something, but it is not the reason mom and pops and others all around North America are trading the markets daily. Value is.

In racing Betfair is the prime example.

They did two things that used the Internet as it should be used. First, they took a solitary game like horse betting, and made it social with a different platform. You are not standing in a line, or betting an exacta with a different tool. You are playing a brand new take on an old game.

And clearly that was not enough. Second, I, like a lot of you, will only play something neat or new for so long if I am getting my wallet kicked. We need price value like Etrade. At betfair they delivered it with low takeout. This is particularly relevant as the US looks at exchanges and some want to control them. Charge 14% takeout and you kill it before it starts, because you kill what drives it - its differentiation.

The above is why Etrade and Betfair do not and has not cannibalized stock trading and horse betting, it grows it.

We often hear the Internet has not delivered for horse racing what it had promised. In actuality, we in racing have not delivered what the internet asks.

Hulu is going through the same thing right now. It will be interesting to see which way they go for their new business model, but I will bet you a donut the change will be systemic and not cosmetic. We in racing must start to do the same thing. It's not about much we can squeeze out of the same lemons, it's about how many lemons are in the bush.