ComScore (SCOR) says Hulu generated 856 million video views during the month, second only to Google’s (GOOG) YouTube in the U.S. This makes sense given that Hulu is driven in large part by broadcast TV, which starts running new shows in the fall.

And if Hulu didn’t post record numbers after adding ABC’s shows to the mix, there would be some real head-scratching. But it will be very interesting to see what happens to these numbers next year if Hulu does move ahead with some sort of pay service.

As always, note the huge disparity between YouTube and everyone else. And it’s also worth noting that while Hulu generates more views than any of its non-YouTube competitors, its reach isn’t quite as deep:

All of which is less relevant than the joint venture’s performance, which is still the subject of much debate. People familiar with Hulu tell me it is “close to break-even,” but I worry about putting much stock in words like “close” (or “break-even,” for that matter) without seeing numbers.

And in any case, that’s only half the issue for its owners these days; just as important are the performance of its parent companies and whether all the free stuff on Hulu is helping or hindering their networks and studios.

But more on that after the holiday. For now, here’s wishing you and yours a happy and healthy Thanksgiving.

The cable provider is promoting a “Roll Over Or Get Tough” campaign, which asks consumers to…well, it doesn’t ask them to do anything, really. But there is a Web site where the company makes its case–its programming partners want more money, because that’s what they always want–and says that at some point, consumers will be able to “vote” on…something.

The thing is, the cable providers are at least half right: Cable programmers do want more money, because that’s what they always want. And now broadcasters like CBS (CBS) and News Corp.’s (NWS) Fox, which traditionally haven’t been paid for their programming–at least not officially–want money, too.

But boy oh boy, is it going to be hard to gin up sympathy for the cable guys. When’s the last time you felt anything remotely warm and fuzzy toward your local operator, which may well have an effective monopoly in your neighborhood, and certainly acts like someone who has a monopoly?

And in any case, it’s hard to see what consumers are expected to do here: Left to their own devices, they might well elect to pay for just a handful of cable channels they want instead of subscribing to dozens of ones they never, ever, watch. That might well drive down cable bills, dramatically. Which is why programmers and providers don’t want that to happen.

For the record, the deal theoretically values Imeem at something like $8 million, but most of that comes in the form of accounts receivable and debt obligations, and isn’t relevant to MySpace, which won’t be dealing with that stuff. And it’s not relevant to investors like Sequoia and Warner Music Group (WMG), which pumped at least $25 million into the venture.

In retrospect, Warner’s move to write off all of its Imeem investment in May was 100 percent accurate.

In September, I visited Caldwell in his San Francisco office. He looked like a guy who has had a very hard year, but he was confident that the company had gotten through the worst of it. If Imeem executed on plan, he argued, it would be able to survive. It wouldn’t be a home run, but it could at least sustain itself–no mean feat for a digital music start-up.

So what happened? “Things can change very quickly,” a person familiar with the company’s story told me yesterday. The short version of the story is that Imeem quickly and unexpectedly ran out of cash. Here’s the longer version of that story, which I’ve pieced together from various sources:

• As Om Malik reported, the company was hit with a copyright lawsuit by music publisher Orchard Enterprises (ORCD). Fighting the suit or settling it would require significant resources.
• Efforts to raise another funding round fell flat. If you want, you can blame the fact that Sequoia declined to pour more money into the company, which acted as a blinking red warning light for other potential investors. Or you could point to the fact that Web music start-ups of all stripes have been flailing for a couple of years.
• Ad sales, which had been perking up throughout the year, fell short of Q4 targets.
• All of the above meant that Imeem was struggling to meet payroll and payments on its debt, which it racked up when it built out its own content-delivery network.

So in retrospect, it’s easy to see why the company sold: It had no choice. And it’s sort of easy to see why News Corp.’s (NWS) MySpace bought Imeem: It’s hard to pay less for talent.

But oddly, the deal is the only one of its kind. While the big music labels have played footsie with Hulu in the past, they have yet to actually move any of their clips there.

That could still happen one day, and the site hints that you may see more clips coming down the road. But Hulu is less valuable for the labels than it could have been a year ago: Since then, three of the big four have struck deals that give them much more incentive to show their stuff on Google’s (GOOG) YouTube, the world’s biggest video site.

Vivendi’s Universal Music and Sony (SNE) have a deal that locks up their stuff exclusively on Vevo, a sort of “Hulu for music videos” that will be powered by YouTube. And Warner Music Group (WMG) has convinced YouTube to give the label its own branded channel for its clips.

No word on financials for the Hulu deal, but I’d surprised if this generates much cash for EMI. Hulu’s core partners–News Corp.’s (NWS) Fox, GE’s (GE) NBC Universal and Disney’s (DIS) ABC–have deals that let them keep 70 percent of any ad revenue their stuff generates on the site. But other partners get closer to 50 percent.

In other Norah news, my soon-to-be sort-of neighbor is having construction problems. Here she is taking on one of the great Wilco songs:

Haven’t heard a price yet, but I wouldn’t expect much, given that this deal, like the iLike purchase MySpace made earlier this year, is an “acqhire”–News Corp.’s (NWS) social network/portal wants to buy Imeem for its “sales team, engineering, Snocap and other Imeem IP,” a person familiar with the transaction tells me.

The deal, which isn’t finalized, was first reported by TechCrunch.

Once it’s finished, it will conclude an up-and-down year for Imeem, in which the service pleaded with the major music labels, successfully, to change the terms of its music licensing deals, which were killing the streaming music site. But that wasn’t enough to prevent investor Warner Music Group (WMG) from writing off the money it had sunk in the service (though Warner later ended up increasing its stake in the service without actually writing another check).

Like other Web music services that sprang up in the past few years, Imeem wanted to provide users with free tunes, and pay the licensing fees by selling advertising against its user base. But the economics for that proposition appear unworkable: The labels, who are afraid that giving away music on the Web will kill any chance they have of selling the stuff, are reluctant to cut their fees substantially, and ad dollars for music sites have been relatively hard to come by.

That dynamic is still causing problems for MySpace’s own music service, one of the few remaining sites offering free streams. It will be interesting to see how that company is affected by “OneBox,” the new Google (GOOG) search feature which provides free streams for searchers, then directs them to MySpace and LaLa, one of the other surviving services.

Or at least that’s the way I read it. My guess is that Jim is using the “leaky wall” strategy to access the rest of the Journal piece rather than using a paid subscription. But the writers seem to have made that deliberately oblique. Or perhaps they think their audience has zero interest in the minutiae of media economics.

And for the record: In addition to Dow Jones and The Wall Street Journal, News Corp. (NWS) owns this Web site.

It’s not clear if News Corp. (NWS) will end up investing in the joint venture, which is designed to control distribution of “print” content to readers like Amazon’s (AMZN) Kindle and Apple’s (AAPL) rumored tablet, or if the company will simply agree to tailor its stuff–most notably, The Wall Street Journal–to the joint venture’s standards.

In either case, News Corp. has yet to officially sign on, sources tell me. An announcement formally acknowledging the JV itself is supposed to be a couple of weeks away, though I have been hearing this for at least six weeks.

No comment from News Corp. or Time Inc., the Time Warner (TWX) publishing unit that has been assembling the JV. Other expected partners include Hearst, Condé Nast and, perhaps, Meredith. (Disclosure: News Corp. owns Dow Jones, which owns this Web site.)

In some ways, News Corp. is an obvious partner for the coalition, which I like to call “Hulu for magazines.” Murdoch has been an outspoken critic of Amazon’s distribution and pricing policies; he argues that by controlling the subscription of digital newspaper and magazines delivered through its e-reader, Amazon deprives publishers of a valuable asset.

Murdoch also wants more money for the stuff it does sell: In an earnings call last week, he said that while the bookseller was now paying his company up to $6.50 a month for each $15 monthly subscription to The Wall Street Journal, that split wasn’t good enough.

The JV is supposed to solve those problems for publishers by letting them control sales, customer billing and pricing. But it is also primarily designed with magazine publishers in mind, and News Corp. isn’t in that business.

Meanwhile, New Corp.’s Dow Jones unit is proprietary about the system it has already built to handle subscriptions to the Journal’s print and online editions and its BlackBerry and iPhone apps.

While it’s possible that the JV could use the Dow Jones subscription/commerce platform as the technological base of the JV, Dow Jones could be prickly if asked to play well with others. “Newspapers and magazines, don’t mix well, for reasons that aren’t obvious to the outside world,” says a News Corp. executive briefed on some of the company’s conversations.

In any event, balancing different partners’ interests is only one of the hurdles facing the JV. Some others, from the story I published last month:

• They’ll have to convince consumers who already have billing relationships with Amazon, Apple and other vendors to sign up with yet another service.
• They’ll have to convince device makers to play along with the strategy, which runs counter to many of their own plans. Both Amazon and Apple, for instance, have intentionally created closed systems that give them control of both devices and distribution.
• They’ll have to create content consumers want to buy. The new product can’t simply be a digital version of the magazines they’re already printing: That’s already available on the Web, and consumers have shown almost no interest in paying for it, and advertisers haven’t fully embraced it either.

So what exactly will the JV be selling? That’s probably the most difficult question for publishers to answer, made even more difficult because they don’t know what capabilities the e-readers of the future will boast. Apple for instance, refuses to even acknowledge to Time Inc. executives that it plans to produce a tablet device, let alone provide them with specs.

The deal will be structured as a joint venture, and Scripps (SNI) will kick $181 million into the new partnership; it will then issue another $878 million in debt.

Scripps itself frequently pops up as an acquisition candidate, and that chatter has only gotten louder as a new wave of consolidation appears to be in motion, prompted by Comcast’s (CMCSA) pursuit of GE’s (GE) NBC Universal.

Scripps, which had planned on announcing quarterly results this morning, is pushing back its earnings call till tomorrow morning.

Here’s the full press release:

CINCINNATI–(BUSINESS WIRE)–Scripps Networks Interactive Inc, owner and operator of the Food Network and HGTV lifestyle television networks, will enter into a joint venture with Cox Communications Inc. by which it will acquire a controlling interest in the Travel Channel.

The two companies today signed a definitive agreement that, upon completion, will result in Scripps Networks Interactive owning 65 percent of the Travel Channel and Cox Communications retaining a 35 percent minority stake in the network.

The Travel Channel transaction is expected to be completed by or before January 2010.

“Combining the Travel Channel with Food Network and HGTV will make our fast-growing, young company the undisputed global leader in lifestyle programming,” said Kenneth W. Lowe, chairman, president and chief executive officer of Scripps Networks Interactive. “This collection of popular lifestyle networks will be in great demand worldwide and promises to create substantial long-term value for all of our stakeholders.”

Launched in 1987, Travel Channel has grown to become one of America’s best known cable television networks and today reaches about 95 million U.S. television households. The television network–the cornerstone of Travel Channel Media–supports a growing range of cross-platform initiatives including Internet, mobile and social media applications.

“Adding the Travel Channel, and its related enterprises, provides us with a unique opportunity to meaningfully expand our portfolio into a lifestyle category that’s highly desirable to media consumers, advertisers and programming distributors,” Lowe said. “Our vision for Travel follows the same script that’s made Food Network and HGTV two ofthe most powerful brands in all of television. By lending our unparalleled expertise in developing successful lifestyle media businesses, we have every confidence that we can build on Travel’s strong brand identity and leverage the successes achieved to date by the top-notch team at Travel Channel and our new partners at Cox Communications.”

As proposed, the transaction is structured as a leveraged joint venture between Scripps Networks Interactive and Cox Communications.

Cox will contribute the Travel Channel, valued at $975 million, and Scripps Networks Interactive will contribute $181 million in cash to a newly created partnership. The partnership, in turn, will take on $878 million in third-party debt that will be guaranteed by Scripps and indemnified by Cox, with the proceeds to be distributed to Cox.

The transaction will result in the partnership having about $696 million in net debt.

“This solid partnership that we’re establishing today allows us to maintain an interest in Travel Channel while at the same time giving the network an opportunity to leverage the resources and expertise of a successful programmer like Scripps Networks Interactive,” said Cox Communications President Patrick Esser. “Scripps has an outstanding reputation as a company, an employer and a programmer. Over the past 15 years, Scripps Networks Interactive has built a portfolio of leading lifestyle programming brands, and we think this complementary expertise will be a boon to Travel Channel’s future growth.”

Scripps Networks Interactive will control the joint venture and the network will be run as part of the company’s growing portfolio of popular lifestyle media brands.

“The incredibly complementary nature of our lifestyle media businesses presents an abundance of opportunity to provide services for Travel Channel that will result in increased advertising and affiliate revenues and substantial cost synergies,” Lowe said. “We have extensive experience working with partners to build value over the long term. Among cable companies, Cox has an outstanding reputation for its vision and investment for the long-term success of its businesses. We look forward to partnering with them in this venture.”

Scripps Networks Interactive was advised on the transaction by Barclays Capital Inc. and Skadden, Arps, Slate Meagher & Flom LLP.

The takeaway: The site is losing traffic and money and no longer expects to get all of the $900 million it once counted on from a Google search deal. Also, the company really doesn’t know what to expect of the property going forward, except that it’s a work in progress.

So: Either digital media boss Jon Miller, MySpace CEO Owen Van Natta and the rest of the new team brought in this year to fix the site have an impossible task or expectations are now so low that even modest improvement will look like a huge victory.

Details from the earnings call, which I covered live this afternoon:

• Revenue was down 26 percent at Miller’s Digital Media Group (MySpace and a handful of other sites).
• That’s in part because conventional ad revenue is down and in part because search ad revenue is down.
• But isn’t Google (GOOG) supposed to be paying $900 million over three years in a search deal? Yes, but only if News Corp. (NWS) hits certain traffic/query guarantees, which isn’t happening anymore, says Murdoch.
• How much is MySpace going to miss by? This question occasions much confusion on the call. “I don’t know. But it will be a real figure,” Murdoch says. Then he throws out the number $300 million. His lieutenants suggest that it’s closer to 10 percent, or $90 million. I’ve since checked with News Corp. PR, which says the figure is “in the 100 [million] zone for the year.”
• So what’s the plan to fix all of this? “It’s a work in progress,” News Corp. officials say over and over during the call. Chase Carey, Murdoch’s new number two, uses the phrase at least three times in one answer.
• Any other color on overhaul plans? Nothing you haven’t heard before: The company is trying to become an entertainment portal instead of a social network. Carey: “We’re not trying to beat Facebook. We’re not trying to beat Twitter.”

(Disclosure: News Corp. owns Dow Jones, which owns this Web site).

And the first look at results from News Corp., which owns this Web site, seems similar. Revenue of $7.2 billion are in line with Wall Street’s expectations, and the company figured out how generate earnings of 22 cents a share, a nice bump from the 18 cents a share consensus.

Just as Time Warner reported this morning, News Corp.’s most valuable assets are its film studio and its cable TV business. Its broadcast TV business is wobbling, and its print business has been in decline for some time. A quick look at each sector:

• Movies: Operating income up due to yet another “Ice Age” movie, among other releases.
• TV: Fox’s local stations saw operating income drop 26 percent due to crummy advertising; the Fox broadcast network also dropped because programming costs increased and ad revenue dropped.
• Cable networks: Booming. Operating income up 41 percent, as News Corp. is able to extract increased fees from cable operators for the likes of Fox News Channel.
• Newspapers: Getting hammered. Operating income was a mere $25 million, a decrease of $109 million in the last year. You know why, but for the record: The Wall Street Journal saw ad revenue decline, though price increases boosted circulation revenue.
• MySpace/Web properties. News Corp. doesn’t offer much transparency here, but does say that “earnings contributions” from its Web unit dropped $22 million because of lower search and advertising revenue. Sure we’ll hear more about this during the call.

Beyond the macro take, News Corp. (NWS) is worth paying attention to because of Rupert Murdoch’s increasingly pugnacious stance toward what he calls the Internet’s “Philistine phase”–the one where just about everything on the Web is free. And because Murdoch almost always makes for entertaining earnings calls, where he frequently veers off script.

I’m covering the earnings call as it happens. All notes below are paraphrased unless I use quotes.

CFO David DeVoe notes the digital group (MySpace, etc.) is in “significant transition.” Revenue was down 26 percent at the unit. Says MySpace revenue goals will take longer than expected.

Rupert Murdoch:
Looking ahead, seeing “encouraging trends in most of our businesses.” Broadcast TV business appears to have hit bottom of cycle. Advertising pacing for December looks good. October flat, November up in midteens. Cable TV ads doing well. “Quite pleased” with momentum at film biz.

Cable now generates half of company’s operating income, which is “no accident.” Love those dual-revenue streams, especially when we can jack up affiliate fees.

Digital media group: Difficult to predict when we’ll see improved results, but overhaul has clearly helped it for long-term.

Newspapers: For what it’s worth, all of our newspaper and TV businesses are having a great November.

Very confident about short- and long-term future. Clearly in better shape than a year ago. But recovery is “still a little fragile.” [Note: Rupert is clearly sticking to his initial script this time.]

Q&A

Question: When will you start cutting shareholders some dividend checks?

Murdoch: Not thinking about it. We’re right to be sitting on this cash. We have a $2B debt repayment due next year, so pile isn’t as big as it looks.

Question: How does international cable market look?

Murdoch: For the most part, it’s a new growth area. Markets are relatively undeveloped. So they’re all growing double digits, 15, 18 percent on average. May start another 30 channels this year.

Next, there’s a question about retrans (getting paid for broadcast programming): How many renegotiations will we see in next few years? Murdoch offers a nonanswer, for the most part.

Question: You said affiliates fees were up 18 percent and that affiliates fees represent 70 percent of revenue. So that means cable ads are down, right?

David DeVoe: Yes, but I think they’ll be up a bit this quarter.

Question: How can MySpace search revenue be down? Isn’t Google (GOOG) kicking in a fixed amount through next year?

Murdoch: Quite simple. “We have not been making our minimum guarantees,” so our search revenue will not be what we’d expected.

Missed most of the M&A question and answer, but it Murdoch evidently said he wouldn’t rush into anything. That doesn’t mean that much.

Question: Can we get an update on The Wall Street Journal and the relationship with Amazon (AMZN) Kindle, other e-readers?

Murdoch: Oh. WSJ.com going well. Pricing up very strongly. Will be announcing some “extra developments” with it “if they haven’t been announced already, I’m not sure.” Kindle: Look, it’s a fantastic invention for reading books. It’s not great for newspapers. We’ve gotten them to charge $15/month for WSJ and give us $6.50, but that’s not a great deal for us. Half-a-dozen early-stage e-readers on market for Christmas, and we’ll be available on them provided they give us a good deal. But there’s much more advanced work going on.

Question: What’s the new strategy at MySpace?

Chase Carey: Obviously, we got spread a bit wide and thin. No focusing on heart of business being a social network focused around key content sites. “We’re not trying to beat Facebook. We’re not trying to beat Twitter.” Music, gaming, etc. Farthest along with music. “Clearly a work in progress. We’re still losing traffic.”

And now for some press Q&A. This usually makes Rupe a bit testy, which is fun:

Question: Any interest in NBC?

Murdoch: No. “When things come around, we kick the tires, but we’re not in any talks with anybody at the moment.”

Question: What’s up with MSNBC-Fox News truce, which appears to be broken? 

Murdoch: “We didn’t start this abuse, which we thought went way beyond…finally, we had to allow people to retaliate. When they stop we’ll stop.” 

Question: And is it good for you to have antagonistic relationship with the White House?

Murdoch: No.

Question: Bidding on Travel Channel?

Carey: We’re not going to comment on any specific properties [mumbles].

Question: How will Comcast-NBCU deal affect way you deal with Comcast (CMCSA)?

Murdoch: It won’t. We’ll be competitors with NBC as broadcasters and partners with Comcast when it comes to cable.

Question: What’s up with plans to erect some sort of paywall at all News Corp. newspaper sites in 2010?

Murdoch: “We’re all working very hard on this, but I wouldn’t promise that we’re going to meet that date…it’s a work in progress, and there’s a huge amount of work going on.”

Question: Is WSJ profitable?

Murdoch: “Yes. Barely. But Yes.” How did you do that? “We produced a better newspaper.”

Question: Please talk about digital/MySpace some more.

Carey: Going to repeat what I said already, basically. “We’re in state of transition…work in progress.” Can’t tell you what it will look like in 12 months because I don’t know. “Work in progress.” “Work in progress.”

Question: Google promised you $900 over three years. How far short will you fall?

Murdoch: “I don’t know. But it will be a real figure….It will certainly drop by $300M.” Carey or DeVoe corrects Murdoch, noting that it will be closer to 10 percent. I’ll ask News Corp. PR for a ruling and get back to you. UPDATE: Ruling from News Corp. PR–MySpace will be about $100M short on its Google payment for this year.

That’s the pitch Apple has been making to TV networks in recent weeks. The company is trying to round up support for a monthly subscription service that would deliver TV programs via its multimedia software, multiple sources tell me.

Apple (AAPL) isn’t tying the proposed service to a specific piece of hardware, like its underwhelming Apple TV box or its long-rumored tablet/slate device. Instead, the company is presenting the offer as an extension of its iTunes software and store, which already has 100 million customers.

A so-called “over the top” service could theoretically rival the ones most consumers already  buy from cable TV operators–if Apple is able to get enough buy-in from broadcast and cable TV programmers.

That’s a big if: Apple has told industry executives it wants to launch the service early next year, but I have yet to hear of a single programmer that has made a firm commitment to the company, which has tasked iTunes boss Eddy Cue with promoting the idea.

Industry executives believe that if anyone jumps first, it will be Disney (DIS), since CEO Bob Iger has shown a willingness to experiment with Apple and iTunes in the past: In 2005, Disney was the first player to sell its programming on iTunes, via a-la-carte downloads. And Apple CEO Steve Jobs is Disney’s largest single shareholder, a result of Disney’s 2006 acquisition of Jobs’s Pixar animation studio. Apple didn’t respond to requests for comment.

Network executives I’ve talked to are intrigued by the idea–they are eager to find new revenue streams–but are also wary, for several reasons.

Cable networks, for instance, don’t want to threaten existing relationships and subscription fees from cable providers like Comcast (CMCSA). And programmers are also worried about the effect a subscription service would have on advertising revenue: Even if the service didn’t distribute TV programs until after their initial air date, that could cut into ratings, which now measure viewership over the course of several days.

But the move to deliver TV and movies over the Web is already well under way. Netflix (NFLX), for instance, already bundles free streaming movie and television along with its disc-by-mail subscription service. iTunes and Amazon (AMZN) rent movies on a one-off basis, and Google’s (GOOG) YouTube is trying out the same thing. Meanwhile, Hulu, the joint venture between GE’s (GE) NBC, News Corp.’s (NWS) Fox, and ABC, is figuring out how to launch a paid service that may include rentals, paid downloads or subscriptions.

So Apple’s proposed subscription service, which the company has floated in the past, is no longer a huge stretch. Says one executive briefed on the company’s plans: “I think they might get it right this time.”

(Correction: An earlier version of this story incorrectly identified the owner of Travel Channel as Discovery.)

Rupert Murdoch and company are mulling a sale of the “action sports” cable channel, prompted by inbound requests, industry sources tell me. No comment from News Corp., which also owns this Web site.

If News Corp. (NWS) does part with the channel, it won’t be a whopper of a deal: Fuel TV, which features skate- and surf-themed programming like “The Adventures of Danny and the Dingo” (I know. Me either.) boasts just 30 million subscribers–about half of what cable networks need to get taken seriously by operators and advertisers.

Just as telling, perhaps: I’ve queried three different Wall Street analysts to get a ballpark price for the network, and none had a clue–and only one had even heard of Fuel.

So here, for everyone’s edification, is some Fuel TV programming: Danny and the Dingo’s (who are snowboarding stars, apparently) most recent high jinks.

Here’s the internal memo from Journal Editor-in-Chief Robert Thomson:

From: Thomson, Robert
Sent: Thursday, October 29, 2009 11:25 AM
To: WSJ All News Staff; Newswires_USERS
Subject: Boston

Colleagues,
Today we told our team in Boston that we are closing the bureau in its present form. The economic background to the closure is painfully obvious to us all. An investigative function will remain in Boston, but the core reporting team will be disbanded, though all nine reporters affected will certainly be able to apply for openings elsewhere on the paper. Coverage of the Boston mutual fund industry will switch to the Money and Investing team and we are creating an enhanced New York-based education team.

Any such decision inevitably stirs apprehension and uncertainty, but there are no plans, nascent or otherwise, to close any other U.S. or international bureau. Meanwhile, the Newswires bureau and the MarketWatch team in Boston will remain at their present staffing levels.

That there has been truly great reporting under the generalship of Gary Putka out of Boston over many, many years is not in doubt. But we remain in the midst of a profound downturn in advertising revenue and thus must think the unthinkable.

Robert

The short version is that unlike its broadcast peers, CBS (CBS) has been reluctant to make many of its shows available on the Web because it worries that doing so cuts into its core TV business.

So while GE’s (GE) NBC Universal and News Corp.’s (NWS) Fox put Hulu together, CBS stayed away. And when Disney (DIS) decided to join the joint venture earlier this year, CBS executives argued strenuously against the deal. Instead, CBS has been content to use the Web as a promotional tool for TV via outlets like Google’s (GOOG) YouTube.

The longer version is below, via the transcript of a brief chat I had with Smith this afternoon to discuss his plans and the network’s. This is stuff he’s talked about before–to reporters, in industry forums, and even via emails he wishes he hadn’t written–but I’m running it at length here.

Because 1) I think Smith does a good job of explaining the push-and-pull of Web viewership vs. Web economics that everyone in big media is grappling with, and 2) I want people to see just how difficult it is to keep up when Smith talks. He can get out a lot of words in a relatively short time.

I also had a quick chat with CBS CEO Les Moonves, who made many of the points Smith did, but with less verbiage: I’ll get you that transcript shortly, too.

Peter Kafka: Since you’re going to be advising CBS’s Web video strategy, why don’t you lay out, for the record, where things stand?

Quincy Smith:

We recognize that the Web is two things. It’s both a new medium…and there my example has always been, look at fantasy football: When you’re nice enough to watch the Jets just pound the snot out of the Raiders on Sunday, on a CBS channel…on fantasy football on CBSSports.com, you start on the Tuesday before and end the Wednesday after.

And what are you doing? You’re personalizing it, you’re becoming more of a fan of the game [Smith goes on to praise CBSSports.com's feature set]. All of those things are additive, so when Sunday comes in, you’re actually more of a fan, and you’ve even more convinced you’re going to watch that broadcast show.

Now, I realize that sports is reasonably bulletproof, and a good case study to begin with versus some of the other programming, but the fact is, the Web is a new medium. So what do I also mean? Tech reviews on CNET, Money Watch being watched on BNET. GameSpot videogame reviews.

Access to content that CBS didn’t already have, that are additive–both in their own right online, with the margins that the CNET business is used to, and where we’re getting just stronger and stronger from a margin perspective–and potential content that can also be applied to our [local TV stations owned by CBS], our affiliates, our broadcast news, as well as the radio. So that’s the side of our business that is $600 million revenue and $50 million-plus profit on the bottom line.

The other side of the Web, the side that is most thought of by many journalists, is the threat of an IP-deliverer of video. And how you turn that threat into an opportunity.

And so, from that perspective, as  you know, we didn’t go ahead and say, “Okay, we’re going to lock down and stream, with all of our other peers in broadcast, and come up with the same rules, and embed and right-click this and go away.” I’ve never had a beef with Hulu. Hulu’s always worked as a great service. That’s part of the problem.

As a network, we need to make sure that our content is being seen where the dollars matter. And right now that’s on air. Opportunities like TV Everywhere–we’re not putting all of our eggs in that basket, though we are big advocates of it–are ones where you can actually take and expand and extend the television market online, so it doesn’t matter what screen you watch “CSI” on; what matters is that you watched it, it counts and you saw the ads.

But until that happens, it’s crazy to just stream the shows for zero economics. When in fact you can make a lot more money doing things that are additive and complementary to the rest of the CBS line. That’s where CBS interactive comes in now.

Kafka: But TV viewers are showing an increasing interest in watching their programs on the Web, whether from legal services like the Web or illegal torrents and pirate sites. Don’t you need to reach them where they are?

Smith:

Now, if you really look at those numbers, what they’ll say is [online and offline video are] both growing, right? We’re having the best year ever as America’s largest broadcast network, and I think that 99.9 percent of that–this is the quote I’ve never been able to get in there–is that’s [because] of the great content that we have. There’s some infinitesimal basis point that’s relevant [to CBS ratings because] we are making sure that when people watch it, they’re more inclined to watch it on television. For now.

Once that solution moves, once those economics move–whether that’s more ads, [higher] CPMs, more ad buyers….You and I can say all day long, “We’re sold out on Web video. That’s going really well. It’s sold out.” Well, no kidding, it’s sold out. It’s a $700 million market. The television market is $120 billion. And of that, $700 million, half of those [ad buyers] are spending  90 percent of their time doing Google keywords, not buying online video.

The key is, how do you turn television buyers into video buyers? And that’s where a solution like TV Everywhere comes into play.

And by the way, looking at [Hulu CEO Jason] Kilar’s comments the other day, in Colorado [at an industry convention], he sees that too. He’s more sophisticated on this stuff than most anybody. From the perspective of, he understands that’s where the big dollars are. And so he probably went at it as, “I’m going to aggregate all the people first, so hopefully things like TV everywhere come to us.” From our perspective at CBS, we’ve got to go to them.

I don’t hate Hulu. Hulu’s world-class video viewing. What I don’t understand is, why license all that content to something that works that well, that seamlessly, yet–without the economic model around it?

This should finally change next year. People familiar with Microsoft’s (MSFT) plans say the company intends to open the exchange, which will allow online ad buyers and sellers to match up in real time, in January. That will put it several months behind Google (GOOG), which turned on its real-time ad exchange in September.

But on the plus side, AdECN will offer lots of intriguing inventory from the get-go: It will sell space on Microsoft’s giant MSN network, as well as inventory on sites the company reps, like Facebook, Digg and News Corp.’s (NWS) Fox Sports.

Here’s Microsoft’s formal statement about AdECN’s the timeline:

AdECN and Microsoft remain fully committed to the AdECN Exchange and exchange business.  AdECN has been running a Pilot of its Federated, real-time bidding technology within Microsoft for the past several months and will be rolling that product out to a select group of participants in the coming months.

Real-time ad exchanges are a big deal for people trying to automate advertising buying and selling. They differ from older ad exchanges, like Yahoo’s (YHOO) Right Media, in that they’re supposed to let buyers and sellers negotiate a price within milliseconds on specific pieces of inventory.

But it’s not clear that buyers and sellers will embrace real-time exchanges. In order to use them, for instance, they’ll have to build, buy or rent technology that allows them to make and process orders at lightning speed.

AdECN manager Jeff Green left Microsoft earlier this month without explaining what he intended to do next. Jed Nahum, Microsoft’s director of network strategy and planning, is running the unit in the interim.

(Disclosure: News Corp. owns Dow Jones, which owns this site.)

[Image credit: rednuht]