Hulu Makes Room for a Third: Disney Deal Coming Soon

A deal to bring Disney’s TV shows and movies to Hulu has supposedly been imminent for weeks. But people familiar with the negotiations between Disney and the video site insist that discussions are now very, very advanced and that a deal could be struck any day.

At this point, I’m told, Disney (DIS) and Hulu, the joint venture between GE’s (GE) NBC and News Corp.’s (NWS) Fox, are haggling over the finer points in the tie-up: Details like which Disney shows and channels will be included in the pact and how many seats Disney will get on the company’s board. (News Corp. is the owner of Dow Jones, which owns this Web site.)

For instance, I’m told that Disney’s ESPN will not be a part of a deal, nor will ABC News, but big ABC shows like “Lost” will be. But it’s unclear, for instance, how much of Disney’s movie portfolio, including its hit Pixar films, will be included.

Whatever Disney does end up contributing to the partnership, its payment will be the same: An equity stake equal to those owned by NBC and Fox, plus a revenue share for advertising sold against its stuff.

There has been some speculation that Disney CEO Bob Iger might be set to announce a deal this morning when he appears at the cable industry’s annual convention in Washington, D.C. But I was cautioned by insiders yesterday not to expect anything quite that soon.

Still, at this point the other players that were trying to convince Iger not to do an exclusive deal with Hulu–including Comcast (CMCSA), CBS (CBS), and Google (GOOG), which was trying to strike its own deal with Disney–are now thinking about what they’ll do once it does happen.

“It’s not the end of the world, but it is big deal,” an executive at one of the soon-to-be disappointed rivals conceded to me yesterday.

Disney’s addition to Hulu won’t instantly turn the site into a financial juggernaut. Last year, Hulu was able to sell out all of its advertising inventory, but it no longer makes that claim. And it’s still unclear whether Hulu will ever able to turn a significant profit given its JV structure whereby its big media partners keep 70 percent of all ad revenue.

But the deal would help establish the site as the place for video watchers to watch “premium content”–that is, movies and full episodes of TV shows–on the Web.

That’s a problem for Google’s YouTube, which has lots of eyeballs but can’t sell ads against most of them. YouTube has been trying to fix that by wooing studios and networks to show their advertiser-friendly stuff on the site. But to date, it has only gotten a handful of movies, as well as clips from the likes of CBS and now Disney.

The deal will also put pressure on CBS to abandon its strategy, championed by digital boss Quincy Smith, of distributing its shows widely on the Web while selling the ads itself. CBS has always said it was willing to put its stuff on Hulu, though not exclusively. But people outside the company think that CEO Les Moonves won’t want to be the only broadcaster not working with Hulu and will eventually go over Smith’s head.

Sources within CBS say Moonves is committed to Smith’s strategy, which hinges on controlling the sales channel for CBS’s content. More practically, even if Moonves did want to tie up with Hulu, he wouldn’t strike an exclusive deal in the near future since CBS would have no bargaining power in the aftermath of a Disney pact.

Least perturbed will be cable giants like Comcast and Time Warner Cable (TWC), which lobbied against the deal but whose businesses are the least dependent, for now, on online eyeballs. But you may hear grumbling from the cable guys, as well as Google, that a deal that brings together three of the big four broadcast networks will raise antitrust issues. And yes, the irony here is obvious. But opponents of the deal are already pointing to the fate of Kangaroo, a similar plan to knit together British broadcasters on the Web, which was derailed by U.K. regulators earlier this year.

I’m not sure that example will be very useful on these shores, even in an Obama administration. But it will be fun to hear Iger talk about this this morning. At least I’m hoping he will: I’ll be covering his presentation, which is scheduled to start at 9:45 Eastern time.