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NBC, News Corp. Threaten Apple With Hulu

Monday's launch of the ad-supported online video service undercuts the buying of TV shows and movies through services like iTunes.

NBC and News Corp. on Monday launched in beta an online video service that offers ad-supported video and feature films, a model that undercuts the buying of TV shows and movies through services like Apple iTunes.

Called Hulu, the service, which is available for now by invitation only, carries content from NBC and Fox networks, as well as from Metro-Goldwyn-Mayer Studios, Sony Pictures Television, and more than 15 cable networks, including Bravo, E! Entertainment, FX, Sci Fi, and USA. Sony has licensed more than 40 TV shows to Hulu, and MGM is offering television shows and feature films.

Hulu is the result of a partnership between old media companies NBC Universal and News Corp. The joint venture also announced on Monday that it had closed a $100 million investment from private equity firm Providence Equity Partners. Hulu is led by chief executive Jason Kilar, formerly of Amazon.com.

Although Hulu has some big backers, it won't have content from some of the biggest entertainment companies, such as CBS, Viacom, and ABC, which is owned by Walt Disney. Each of the companies has its own strategy for bringing video to the Web. In addition, some shows on Hulu will also be available on NBC.com and Fox.com.

Besides delivering content on its own site, Hulu is also making content available through distribution partners, including AOL, Comcast's Fancast.com, MSN, MySpace, and Yahoo. Hulu users will also be able to embed video clips in their own Web sites.

Among the popular TV shows offered on Hulu are "24," "Battlestar Galactica," "The Office," "Scrubs," and "The Simpsons." Older movies are offered through the service, such as "Conan the Barbarian," "The Jerk," and "Sideways."

NBC and Fox announced in March that they would be launching their own video service, which they hoped would eventually carry shows and movies from all the major entertainment companies. While the new site could be seen as a challenger to YouTube, James McQuivey, analyst for Forrester Research, said Hulu is a bigger threat to Apple.

Where YouTube specializes in showing short clips submitted by its millions of users, Apple sells TV shows and movies, a model that Hulu undersells by offering ad-supported content at no charge. "We already know that ad-supported delivery is the way most people get content, and it's going to be the same on the Internet," McQuivey said. "Advertising drives most video, and the Internet won't be any different."

TV advertising today is worth about $70 billion a year, while DVD sales, which would be comparable to buying TV shows and movies over the Internet, is worth about $23 billion, according to Forrester.

In a high-profile falling out, Apple in August tossed NBC's lineup of new shows for the upcoming TV season off of iTunes, saying the two companies couldn't agree on pricing. NBC had wanted to double the wholesale price Apple pays for TV episodes.

While Apple iTunes has millions of customers as a result of the popularity of Apple's iPod media player, the company will have to compromise eventually with content providers. "Apple is going to have to figure out how to make friends with these guys," McQuivey said. "If they don't have the content, then they can't make money."

Cable companies could also eventually feel the competition from Hulu, since they also make money showing full-length shows, McQuivey said.

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