Who’s heard of Hulu? Hands up. Nobody? One person down the back? Good.

Who’s heard of Apple? Everyone. Good.

First up: Hulu. Hulu is one of those massive US-based ad-supported video distribution websites (kinda like YouTube) that was set up in 2007 by two major mainstream media juggernauts: NBC-Universal and Fox. There are plenty more but Hulu is a biggie.

Of the four major networks in the US, three are now with Hulu (ABC recently joined in April 2009) – only CBS remains isolated on its own (residing at TV.com).

Media and techie watchers see this triumvirate as a big hairy deal because ABC is owned by Disney and Steve Jobs (the guy who owns Apple) is the largest Disney shareholder and (surprise, surprise) is also on their board.

The aforementioned media-techie types have asked what this ‘deal’ means for Apple (specifically iTunes) – where users can rent or buy the same shows that they can watch on Hulu for free.

Well – what does it mean?

First, some background about online video (stay close, people - the silly comments are coming).

There are TWO basic ways to distribute video via the Internet:

1.    DOWNLOADING (watch it later)

2.    STREAMING (watch it now)

And there are THREE basic business models you can follow to make money:

1.    THE USER BUYS CONTENT

2.    THE USER RENTS CONTENT

3.    THE USER WATCHES FREE CONTENT (WITH COMMERCIALS)

Now, many would argue that STREAMING (like on YouTube) is better than DOWNLOADING (like on iTunes) because it’s quicker and easier.

Likewise, many would also argue that WATCHING WITH ADS (free) is better than BUYING OR RENTING (the iTunes model). When I say ‘many would argue’, I’m kind of coming from the ‘nobody-pays-for-online-content-never-have-never-will’ school of thought because it’s illegally free via so many alternative ways and means.

Recently, those media-techy types got all excited because they saw the Hulu ‘move’ as the precursor to the end of iTunes.

Well, Bob Cringely thinks that’s bollocks and I agree.

And it’s not because I’m an Apple fanboy.

Apple fans. Should do more volunteer work. Seriously.

Look at the business model. When you buy content on iTunes, everyone gets paid. Now we can argue separately about the split of that revenue but they all get paid: the artist, the producer, the distributor.

Hulu (and services like it) do not work this way. They rely on contractual arrangements which exclude writers / producers / actors from sharing in the profits of their labours. (Maybe they’re hoping to figure that out later when they’ve got all the networks on board.)

But back to iTunes – they do know how to make money. For example: American Idol performances on iTunes make more money in ONE week than all the COMBINED REVENUE generated by ALL the shows on Hulu.

This doesn’t mean that Apple might not move to an ad-based or streaming model at some point but in the future. But from their perspective, it is WAAAAAY easier to go from a PAID to a FREE service (should they choose to), than from a FREE to a PAID service (that’s a hard slog).

So as well being a hardware and software company, Apple is going to become a content provider – not just a content distributor. When the devices, bandwidth and the services are all in celestial alignment, Apple will be ready. And (again, according to Bob) it’s not far away (personally, I think 'alignment' sounds too like 'convergence' for me to be as confident). As for market share, well, they’ve already done the hard yards.

So no matter how many networks end up on Hulu (and those like it), how will they create a business model that generates revenue? Apple already has one.

And the clincher? Apple has tonnes of cash. Tonnes. If they want to buy the rights to TV shows they’re well placed to do so.

Apparently, US TV production costs about $15 billion per year. Imagine if Apple weighed in to this market with their smooth white edges and saucy little icons? A few billion dollars would enable them to buy the rights to every TV show in the US (easy peasy).

The money wouldn’t go to the networks (who by now will be sulking on Hulu and losing money); it would go to independent producers.

People have pointed out this could be mean a fundamental shift in the type of content that was produced – it could dramatically change the slate of video content that we see on our screens (all screens, wherever they may be).

Some have likened it to the impact that HBO (The Sopranos, The Wire, Big Love, Flight of the Conchords and so on) has had on ‘regular’ television.

What do you think?

Tony Soprano. Doesn't give two feijoas about Hulu or Apple. We respect his opinion.

Where is the future of online video distribution, or more precisely, how do you see video production being funded? Especially ‘quality content’ (I’m not even going to start that debate.)

Will it be funded by a ‘traditional TV network’, an ‘Apple’, a ‘GoogleTube’ or a ‘Tweevlo’ (translation: the next big thing)?