Hulu May Move to Subscriber System by 2010

Published by Jeff Leins on October 22, 2009

Hulu.com, the second largest video provider for free streaming content, may be moving to a paid subscriber-based system as early as 2010.  Growth for the joint venture has slowed in recent months and the advertising system isn’t returning the kind of numbers that make executives feel warm and fuzzy about the continued investment.

You may be able to catch the latest episode of “The Office” on your mobile device, but soon you may be shelling out a few dollars for the convenience of Michael Scott hilarity while you’re stuck in traffic.  (Well, aside from fines for driving violations.)

At the Broadcasting & Cable Summit, News Corp. Deputy Chairman Chase Carey said, “It’s time to start getting paid for broadcast content online.” Translation: it’s time to start screwing consumers.

In 2008, NBC CEO Jeff Zucker famously said they were “trading analog dollars for digital pennies.”  In reality, Hulu’s stakeholders benefit from battling piracy, expanding viewership for new programming, and providing an alternative to Google’s YouTube, but apparently the free model isn’t showing enough direct value to top brass.

Thus Hulu is experimenting with new models that show better returns.  The two main options are boosting the number of advertising spots during content (longer interruptions, similar to traditional channels) or switching to a “premium” payment system for videos, and the latter seems to be winning.

“I think a free model is a very difficult way to capture the value of our content. I think what we need to do is deliver that content to consumers in a way where they will appreciate the value. Hulu concurs with that, it needs to evolve to have a meaningful subscription model as part of its business,” Carey said.  When pressed for a timetable, he supposed it would be sometime in 2010.

A subscription model could mean anything from caps on the amount of free video per day based on your unique IP address to eliminating ads for paying customers to possibly an expanded range of content, like full catalogs of shows, a wider selection of movies, or special programming.  Perhaps a combination of those ideas.

Whichever option wins out in the end, a bigger monetary pie means larger slices for the various participants, from distributors (like Hulu) to content providers (networks, studios, etc).  The corporations will finally be making those “digital dollars,” but at the expense of a number of consumers who are used to receiving content for free and will likely look elsewhere if there is little added value in a newer system.

The number of players involved makes the shifting Internet delivery landscape complicated very quickly.  Take, for example, the three corporations that make up Hulu’s ownership: General Electric’s NBC Universal, News Corp’s Fox Entertainment Group, and Disney’s ABC Inc.  If acquisition talks continue, Comcast could be buying up NBCU soon, essentially purchasing a seat at the table of their Internet content competitor.

The cable provider is already implementing their own system of “TV Everywhere,” a promise that is doomed to fail even before it’s launched by the end of this year.  Basically you can only get to the (limited) Comcast content if you’re connected through a Comcast product, so that eliminates just about anything that isn’t your own TV and possibly your PC (right next to your TV).  No thanks.

Finally, switching back to News Corp. and Carey’s comments, he warned a battle may be brewing between networks (like Fox) and cable operators (like Comcast) over convincing (forcing) them to pay for carrying regular broadcast channels, which ultimately means a bigger bill for football fan #57904 just trying to catch the big game on channel 2.

The means to view media is becoming more fragmented with growing competition from the Internet, cable services, and more.  From the looks of it, consumers will be caught in the crossfire, paying more for channels or online content that has always been free.