Hulu Plans to Charge for Content

Since its launch in late 2007, Hulu has largely defined the vision of old media on a new medium, the internet. Each month, this online site, with a portfolio of 1,700 TV shows and movies, attracts nearly 40 million viewers – people willing to endure a few ads per show in exchange for the luxury of watching series that aired just a day earlier on television.

Prepared by: Vanja Figenwald

However, those days are coming to an end. NBC, Fox, and ABC, the media companies that control Hulu, are getting closer to the idea of charging for at least some content, and Hulu is expected to begin testing a subscription model next year, according to sources close to the company. BusinessWeek has learned that Hulu has already begun negotiations with cable operators, including Comcast and Time Warner, about restricting access to those viewers who can prove they already pay for cable subscriptions. This would be a significant concession to cable companies that are concerned that such sites, which offer free content, will prompt people to cancel their cable subscriptions. A Hulu spokesperson did not comment on these rumors.

It is not hard to understand why Hulu’s owners are willing to sacrifice the explosive growth of their project – they may be second in the number of viewed videos, right behind YouTube, but this year they can expect a loss of $33 million. ‘Hulu has been a great way to explore what is happening with online video,’ says Mark Cuban, owner of the cable channel HDNet. ‘But the shelf life of that has expired.’

Analysts believe that Hulu will sooner or later certainly abandon its open model in favor of a closed, paid model. Most likely, the site will be available to subscribers of satellite or cable television in a model called TV Everywhere. Comcast plans to offer a version of such a service starting January 1 of next year for all 24 million subscribers. The service named On Demand Online will allow subscribers to watch series online by entering a code, and several cable programs have decided to create a program, but so far only one television company, CBS, has agreed to this, and only for testing access authorization technology.

On the other hand, at least one Hulu partner would like things to remain as they are – Robert Iger, head of Walt Disney, who became an investor in Hulu in May. Disney, the parent company of ABC, wants to continue with the current model, but if cable companies want to offer ABC’s programming through online services like ODO, Disney wants its share. ‘When you provide more conveniences, you should be able to charge for it additionally, and at a reasonable amount,’ he said.

While Hulu’s partners are fighting over the business model, Jason Kilar, head of Hulu, is exploring other options for increasing profits. ‘There is no universal solution,’ he stated in an interview in August. However, as failed internet projects have shown, the start of charging for previously free content generally leads to a drop in traffic, which is already a significant problem for anyone looking to profit from offering multimedia content over the internet. As long as it is free, it is not a problem to reach users, but as soon as payment is introduced, traffic and visits plummet like Niagara. It has been shown that it is almost impossible to control the internet when it comes to content sharing, especially free content, and people are simply no longer willing to pay extra and will certainly prefer to endure a larger amount of ads rather than finance the service out of their pockets. On the other hand, the question is to what extent large companies cannot earn from ads, or how much they are trying to squeeze out a little more money.