The networks thought they had Web distribution figured out—until they met Boxee.

That's why on Wednesday Hulu CEO Jason Kilar and Boxee founder Avner Ronen posted on their blogs the news that Kilar had asked Ronen to remove Hulu's offerings from Boxee, and after two weeks of negotiating, Ronen finally agreed.

Kilar wrote that Hulu's content providers, who are also its owners, forced the move, even though, as Ronen noted, Boxee users watched more than 100,000 Hulu streams last week alone. Theoretically, Hulu can only benefit from increased traffic on the site; it means more people will have seen the site's ads, making money for the networks. But the networks don't want to make money from Hulu on a TV set—that undermines their relationship with cable providers and robs them both of advertising revenue on a much more lucrative scale.

Even though users can already watch Hulu on TV through their Web browsers, Boxee's remote-controlled version of the site is what scared the bejesus out of Hulu, the networks, and the cable companies. Indeed, dozens of commenters wrote on the blog posts that they have already canceled their cable service in favor of Boxee (and Hulu).

Cable companies got their first glimpse of Boxee at this year's CES in Las Vegas, where Ronen says he told them, "[W]e should all be friends." A commenter asked, "So what *were* the cable execs' responses? Do they want to be friends?" Ronen replied: "[N]ot sure they know what to think of boxee, yet. but now we're on their radar. for good or bad."

So, imagine you're a cable executive. You own the tubes that bring television, Internet, and, increasingly, telephone service into millions of American homes. Your industry made $86 billion in revenues last year. On your January trip to Sin City, a developer with $4 million in funding shows you a product that is free, sports an interface more powerful than any cable box in existence, undercuts one of your core business lines, has legal content from the same providers to whom you pay billions of dollars, and is about to be launched to the general public. Oh, and it does all of these things over the very cable infrastructure you spent decades and billions to build. Good or bad? (That's a real question. Cable and the networks ignored my requests for comment or directed me to Hulu's flack, who wouldn't expand past Kilar's blog post.)

Phil Leigh, senior analyst for the newsletter Inside Digital Media believes the move against Boxee was too little too late. He predicts 2009 will be the year people discover they can plug their laptops into their TVs and access a whole world of content outside of the cable box. "Next month, Microsoft and CBS are rolling out a new player for the NCAA tournament. It's the perfect opportunity for guys to hook their TVs to their laptops." On the CBS Web site, viewers can control which games they watch, rather than leave it to Greg Gumbel to toss them from Indianapolis to Memphis to Washington like a sports-fan rag doll. "CBS had 165% growth last year, 5 million viewers online," Leigh says. "If they have that this year, that's 13 million."