Disney investment in video streaming site could strain iTunes

This week's announcement that Disney will invest in video streaming site has rattled Hulu competitors CBS and YouTube. CBS and it's fledgling TV.com are the only remaining TV networks outside the Hulu clique – NBC, Fox and now ABC.

The other major company that will see red in the Disney-Hulu tie-up is Apple. Analysts point out that Apple neither creates video content nor does it distribute it free online. These happen to be the core features behind Hulu.

In a matter of years, Apple came to dominate the business of legal music downloads through the pairing of its iPod digital music players with the iTunes online music store. Hollywood frowns on any single company dominating digital distribution of video in the manner in which Apple does.

Hulu might be the answer to end Apple's domination. However, when the $100 million venture was launched in 2007 it was greeted with much skepticism. The initial skeptics not withstanding, the site quickly became an online destination for watching premium movies and TV shows. It now ranks the No 3 video site behind YouTube and News Corp's (NWS) Fox Interactive Media, owner of MySpace. Hulu's business model allows it to distribute video free by selling ads against an ever-widening – and popular- repertory of shows and movies.

The threat stems from the free streaming of content that Apple sells and rents and with analysts pointing to a shift away from paying for video content to streaming it for free what it means for Apple is anybody's guess.

Hulu may become an even bigger threat if it can enter into content-sharing partnerships with cable companies, according to analysts. They say cable content could help unprofitable Hulu generate profits from placement ads alongside its programming. Cable companies can remain relevant by partnering with Hulu as consumers will increasingly view video online.

Hulu is leading the movement to try and convince iTunes customers that ad-supported video content is better as it comes free and they don't need to purchase downloads. Hulu is also reportedly considering charging subscription fees for premium services in the future.

While Apple at the time seems to be content to sit on the free video sidelines with video podcasts and its half-hearted Apple TV analysts are not discounting Apple just yet. They point out that Apple has too big a lead in iPod and iTunes to allow the networks to run away with all the profits from online video.

Analysts are meanwhile keenly awaiting Apple's response. They don't envision Apple competing with free video streaming as it would undermine the lucrative business model it put together with iTunes. Nor is it likely to roll out a video subscription service, they say.

The options they point out for Apple include a killer video streaming for the iPhone. They point out the Apple currently has video viewing capabilities in the iPod but that is reserved for video content purchased or rented from Apple.

While an iPhone video streaming appliance sounds like a great idea, Hulu is reportedly developing an iPhone appliance and may beat Apple to it.

But analysts think Apple may spring a summer surprise in the form of the rumoured MediaPad in a partnership with Verizon. The million dollar question, however, would be will it be too little, to late?