Friday, October 23, 2009

Hulu Needs To Grow Revenue

The idea of Hulu sounds impressive; bring TV content to the computer, build an advertising stream, gain new viewers by providing another avenue to watch shows, and hopefully move those viewers back to TV to strengthen the primary business. Why not. Most viewers would prefer the TV experience to computer and would rather watch long form in a sit back living room type experience.

Except Hulu seems to have some unintended consequences. Younger viewers see the computer as an alternative to TV, are getting content through the web, and eliminating their cable bill. Others are more technophiles and can connect the PC to their big screen and still enjoy long form content in a sit-back environment. In fact, TV makers are adding USB ports to support that connection. And advertisers aren't flocking to web video so that the CPM on the web is much less than the TV; hence, the owners of Hulu, NBC and Fox, are seeing "analog dollars being exchanged for digital pennies". It is not a fair trade. Some may contend that Hulu is additive to the TV experience, but my informal research tells me that it is talk without proof. The web is another distribution path for content and consumers are choosing the web to fill more and more of their entertainment interests.

So what is the next step for Hulu. Well according to the NY Post's article, Adieu free Hulu, it's time for Hulu to find incremental revenue models like subscription. "The online video site that offers full-length versions of current TV shows -- one of the fastest growing sites on the Web -- could start charging users as soon as next year, according to reports." Perhaps Hulu should tie itself back to cable and get a license fee in exchange for enabling authentication so that only cable customers can access cable content.

Will cable pay? Comcast is already building out its ondemand online model to compete with the Hulu model. Others may follow Comcast or embrace Hulu. Either way, it would have been naive to think that the free model from Hulu would last forever. The almighty dollar is far too powerful a force to keep it free forever. Will consumers adapt to this change to paid content? Not if it is accessible in other ways for free. The rise of free on demand viewing of these same programs, network websites, and even Apple's iTune store may become the more preferred means to access content. As Hulu becomes a pay model, it may simply become the first step to its destruction.

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