NBC: Please watch our shows on Hulu (only sometimes)

File this in the, “Um, you’re kidding, right?” department.

Yesterday, NBC, one of the owners of Hulu, demanded that Hulu force Boxee to stop letting its 200K+ users watch Hulu programming through Boxee. Boxee, in case you haven’t tried it yet, is a wonderfully simply interface for browsing media on the net in a “lean back” experience. It is directed at those of us who have attached our computers to a nice TV screen and would rather watch Hulu, YouTube, and all the other free content on the web on a nice big screen, ads and all. Boxee is an internet browser at its core. It is not licensing content, selling you downloads, or directing you to stolen shows. It is making watching web-delivered video easier to find and watch. It is helping Hulu. Last week it sent Hulu more than 100,000 viewers.

NBC, who licenses thousands of shows to Hulu, in their wisdom, is getting scared. They are hearing about all these 20-somethings who are cutting their cable bill and foregoing the $80 a month to instead watch their faviorite shows online. They aren’t stealing the shows through torrent sites, mind you, they are watching them legally through the means that NBC is providing. The problem is that NBC makes an overwhelming amount of their profits through subscriber fees paid to them by the MSOs. The ad revenue they get from putting ads in Hulu are the digital pennies I refer to here.

While I understand the digital transition is challenging for big media, doing things half-hearted won’t help. If you want to beat piracy, you have to embrace the methods consumers demand. Boxee has done what AppleTV and all the other digital media adapters have not done which is to put a pleasant interface on the browsing of web-delivered entertainment. And they have 200K+ of the most savvy internet video viewers as their customers. What do you think those customers will do now? Throw away Boxee just to watch NBC’s shows? Nope. One of two things: watch non-NBC programming, or worse, steal NBC’s shows. Either result is a loser for NBC.

Tip o’ the hat to Dave Mandelbrot for a bit of prodding to post.

Memo to Studios: Break the windows

Brad Stone and Brian Stelter have a piece in this morning’s NYT about the rising toll of piracy, or digital theft, on the TV and movie studios. We have heard this story before.

On the day last July when “The Dark Knight” arrived in theaters, Warner Brothers was ready with an ambitious antipiracy campaign that involved months of planning and steps to monitor each physical copy of the film. The campaign failed miserably. By the end of the year, illegal copies of the Batman movie had been downloaded more than seven million times around the world, according to the media measurement firm BigChampagne, turning it into a visible symbol of Hollywood’s helplessness against the growing problem of online video piracy.

Like their music industry brethern before them, the Studios are referring to these downloaders as “pirates” and “thieves” instead of what they really are…customers who cannot buy the product they want. I am not suggesting that all seven million downloads of Batman could have been sold, but certainly a great many of those people wanted to see the movie in their home as it was released. The problem was, they couldn’t.

The movie industry has used a windowing release strategy for years which basically skims profit from various demand groups of customers; those who want to see a movie on release weekend can go pay $10 to see it then. If you would rather see it free, no problem — you just need to wait about 18 months until it hits ad-supported TV. This has been fantastically successful and makes all sorts of sense. Except for now. In the digital entertainment economy, customers are in control. They won’t wait for entertainment product to hit a particular window. Customers expect to be able to watch what they want, when they want it, at a reasonable price and in a convenient format. This is the lesson of MP3 music. And customers are about to teach it to the studios.

It’s time for the studios to break the windowing strategy. There are challenges with this: they will certainly cannibalize sales of early window-ed product like theatrical releases and DVDs. But by doing so they will avoid forcing digital customers to seek out pirated copies in order to satisfy the demand for the movie. For the Dark Knight, Warner Brothers spent more than $100M generating demand around the theatrical release of the film. Only a certain number of recipients of that advertising intended to see the film in a theatre. The rest of us might have been interested in seeing it too that same weekend, but in our home, or on our iPod while traveling. Those options were not available to us. So seven million people went out and stole the film. Why not sell it to them too?

Breaking the window model is probably impossible in Hollywood. It is so tightly ingrained in the culture of its distribution system. But digital consumers have new expectations, and they are in control. Content owners must adapt to the reality that they must now win over customers and ask them to buy their products, but they must first make sure they are selling the products in the formats and at the time the customers expect.