With so much uncertainty in the TV and online video industries these days, I keep telling myself to never be surprised by anything anymore. But last night, when the WSJ headline, “Hulu is Developing a Cable-Style Online TV Service” popped up in my Twitter feed, I have to admit it tested the boundaries of my imagination.

The most immediate head-scratcher was that such a move would position Disney and Fox, two of the three network shareholders in Hulu (along with Comcast, which is now a silent partner due to terms of its NBCU acquisition) as direct competitors of pay-TV operators, their biggest distributors. These companies spend billions of dollars per year to carry the very same TV networks that would now be included in the skinny Hulu lineup.

Competing with your best customers is always a risky strategy, but in this case it’s even more fraught, because the multichannel bundle is already under enormous pressure. Anything that might lead to further disruption would be highly unwelcome by pay-TV operators (see industry reactions to HBO Now). With carriage negotiations a constant in pay-TV land, Disney and Fox could expect an immediately cooler reception for their continual demands for ever-higher fees for their broadcast and sports networks.  

Hulu has long offered VOD access to the networks’ primetime shows, a terrific value proposition for viewers interested in quick, inexpensive access. Because Hulu has had exclusive SVOD access to these shows, it has always been in a privileged position in the increasingly competitive SVOD space. Hulu has augmented its network TV shows with licensed content and more recently, with original content as well, emulating Netflix’s and Amazon’s strategies.

But by offering to stream linear feeds of network TV channels, skinny Hulu would be competing directly and indirectly for the same viewers that pay-TV covets. Skinny Hulu wouldn’t be like Netflix or Amazon which are mainly augment subscriptions for most pay-TV households. Rather, skinny Hulu would be a clearer substitute - providing core broadcast and sports networks that are currently only accessible in pay-TV bundles.

To the extent that there’s overlap, then for Hulu’s owners, the question arises - is it better to have a direct skinny Hulu customer or get paid their wholesale fee by operators? Skinny Hulu will be priced around $40/month, according the WSJ article, to allow equivalent per subscriber compensation to the networks and a margin to Hulu. But when you factor in subscriber acquisition costs, churn and potential offsets in pay-TV fees, it’s hard to see how this is a more sustainably profitable route for the networks to pursue.

Some of this may be moot anyway, because it’s debatable how many subscribers an ad-supported skinny Hulu could attract in the first place. I’ve been a skinny bundle skeptic from day 1, believing that the “Swiss cheese” effect of missing key networks will turn off many prospects. For example, if CBS didn’t participate in skinny Hulu (which is likely given its own CBS All Access initiative) and Comcast was able to opt NBCU networks out also (an unknown given its non-voting status), then skinny Hulu would have just 2 of the 4 main broadcast networks. How compelling is that, for $40/month?

Beyond the Swiss cheese issue, there’s likely minimal actual savings to be found by subscribing to skinny Hulu. The math of spending $40 for skinny Hulu on top of robust broadband would most likely steer prospects toward a cost-effective double or triple play bundle. These bundles will become more attractive as next-gen set-top boxes like Comcast’s X1 continue to proliferate, offering web-like experiences on TV along with extensive TV Everywhere access. The main way to attract any cord-never or would-be cord-cutter (i.e. cost savings) would be minimal for skinny Hulu.

Given all the instability in TV and video, everyone is considering experimenting with new business models and approaches. That’s a good thing. But in the case of broadcast networks, there are significant sensitivities involved, primarily billions in affiliate fees and hard-fought retransmission consent fees. From my vantage point, it’s hard to see how skinny Hulu fits in, assuming it ever even launches, potentially a year from now.