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Summary:

The Hulu-will-charge-you-money rumor mill is churning once again, and the blogosphere has lit up with preemptively angered Hulu viewers vowi…

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The Hulu-will-charge-you-money rumor mill is churning once again, and the blogosphere has lit up with preemptively angered Hulu viewers vowing that they will never darken Hulu

This article originally appeared in Forrester Research.

  1. This sounds like more of a way to appease the cable companies than to grow Hulu. Surely $24.95 a month is a bit steep for modest enhancements to a free service. I’m not sure I see the value for the consumer here unless Hulu starts streaming live programming such as sports, especially since Netflix’s streaming service can be had for about $9 a month.

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  2. matt_carrasco Friday, April 23, 2010

    Great summary James. I love reading the comments from pundits of paywalls, with their arguments focusing primarily on the idea that people will flee to advertising only supported sites or pirated sites to get their content. And to be sure, there will be some of that. However, when you turn around and ask these pundits a simple set of questions, you ultimately don’t get very far. Example, “You are aware that the creation of content costs money?” Answer, “Yes.” You are aware that there is considerable risk in developing content – i.e., a lot of ideas fail and that costs money?” Answer, “Yes.” “So, if content companies cannot recoup their costs with advertising alone, then how do you propose that content companies continue to produce future content that you and the masses want to watch?” Answer, – blank stare, well, almost. Often these pundits will offer side-ways arguments that talk about the need for efficiencies, cost cutting, large overhead, etc., that contribute to the inability to be profitable. And, yes, they’re partially right, but to date, no one, not Google, Microsoft, Apple, Yahoo, AOL, etc., have figured out a way to create content on par with that produced by the major studios in terms of popularity (awareness and reach) and profitably (targeted or otherwise) on a strictly advertising supported model.

    Moreover, the reason, at least in part, why cable networks now produce such great original programming (FX, USA, etc.) is due to their ability to take risks that are supported by dual revenue streams – subscription fees and advertising. Leakage of that revenue via digital distribution means – PC, Mobile, etc. – only dilutes a studio’s ability to continue to churn out great content over time.

    We tend to forget that part of the justification for Hulu was an answer to Google’s indexing of video content that played directly on their search page without any revenue returning to the studios that created the content – that plus YouTube (circa 2005-2006). And we tend to forget that it was only 6 years ago that we were focused on downloads for content – not streaming – as the next “big thing”. YouTube changed that. So, the studios rushed into a new model that focused more on adoption and combating piracy. And the fastest way to do that, was to offer the content in an ad supported fashion. Now that we’ve surpassed the adoption chasm, studios need to figure out how to monetize this content. Mobile platforms have already proven consumers’ willingness to pay for the added convenience and value of mobility and increasingly location based relevance.

    Look, this boils down to a basic premise – you get what you pay for. In other words, anything of material value tends to cost something in return and once we choose to engage our selective memory to recall this well accepted fact, we’ll realize and accept James’ premise – in order to have access to great content, we’ll have to part ways with some of our dollars (or other currency), otherwise we’ll be relegated to suffer from consumption of YouTube CGM content in perpetuity.

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  3. Looks like they got another reason…some ad agency is spending $40 million on web video ads and looking to do only $2 CPM, not Hulu rate of $20-$30 CPM

    http://adage.com/digital/article?article_id=143486

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  4. You don’t make any valid points in this article why Hulu should charge money when they pull in 100-200 million a year. Greed is the only reason they will.

    If they do, it will encourage people to continue going the illegal route to watch films. And Hulu is only licensed to show some tv shows and some movies, so don’t expect people to get rid of their tvs for a website, what a joke. If they want to charge money, have a free subscription too but with just the basics like it has now. Pay only will NOT work, no matter how they try to explain themselves to the public.

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  5. We’ll see how “with cable you pay $10, without cable you pay $100″ pricing stands up.

    I would think that Hulu and the cable and broadcast industry could violate provisions of both the Sherman and Clayton Antitrust Acts specific to cartel behavior to invoke the former and price discrimination and tying/exclusive dealing to invoke the latter.

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  6. I agree that this is a good move for Hulu and they will succeed where others have failed in premium online video. Their content and experience is unmatched, and I predict that Hulu Plus will bring in over $100 million with a million subscribers in 2011. http://digitalquarters.net/2010/04/hulu-plus-will-be-worth-100-million-in-2011/

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  7. ‘”t will also finally give some purpose to the random movies that Hulu offers, because they can be discovered using the new tools described above and then watched on more devices than just browser-based PCs.”
    Good article, however I’m not following the logic you employ to movies becoming more popular on Hulu. Crap is crap, regardless of the multiple devices or tools to interact with said crap and movies on Hulu are pretty crap right now.”
    A paid subscription to Hulu may, however, allow them to afford to acquire the rights to better, more recent releases. You would think that’s what $100 million in profit would be used toward, mind you.

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  8. Interesante discusión en relación al contenido gratis o cobrado en un entorno donde el target 18-34 ya ve video en 3.3 aparatos por semana @eazcarraga

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  9. Mr. McQuivey your scenario is missing a key fact in the decision making process, Hulu is inherently handicapped. They have multiple owners that apparently agree to disagree more often than not, because they’re in a state of confusion about shifts in the marketplace.

    I believe that the Hulu management team did the best they could with the cards that they were dealt. Clearly, their charter was not built around a typical start-up business plan. Meaning, the needs and desires of content consumers was never a central part of their business plan.

    They had to mediate between a group of legacy big-media companies whose primary reason for funding the start-up was deep rooted fear that their status-quo business model was being threatened.

    I can’t think of a single successful new venture that was founded upon a reaction to an apparent threat to their key investors vested interests. I for one would not want to be tasked to innovate under those circumstances.

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  10. Some great comments, thanks everyone. First, a quick note for those who think Hulu is greedy. The $100 million is revenue, not profit. Hulu said they made a profit on those revenues, but we don’t know how much. It might be $1 million, it certainly won’t be more than $5 or $6 million. Second, $100 million is not a lot of money in this business (yes, I know, I’d love $100 million in the bank, too, but compared to the billions the rest of the business brings in, this is not enough for a media company to start celebrating when it costs nearly $100 a year just to make a single hit show like Glee).

    Matt Carrasco’s lengthy comment is particularly appropriate on this note, certainly written from an industry perspective, but it sounds a note that I hear a lot when speaking to producers who sign the checks to make expensive shows. They can’t possibly afford to keep signing those checks if people begin to prefer a Hulu model — even a $10 a month Hulu model. So how does it break out in the future?

    Imagine 10% of Hulu fans want to pay for more content on more devices. Let’s say that’s 4 million subs x $10 a month or $40 million a month or nearly $500 million a year. Then, by quadrupling the ad model, Hulu can get $400 million in ad revenue instead of $100 million like they did in 2009. Now we’re nearly talking about a billion dollar business. That’s far less than the $13 billion CBS brought in last year, for example, but it’s enough that Hulu can really contribute to the cash flow of the networks from whom it buys content. And that’s ultimately what will happen. Just like a cable company does, Hulu will start paying networks a fixed bit per month per subscriber along with a few-cent fee every time a show is streamed. Sounds a lot like a cable company, eh?

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