Thursday, July 1, 2010

Is Hulu Competing With Cable?

Is there no profit in a single revenue stream business? Hulu has done the math and now plans to offer a pay subscription model to bring in a second revenue stream. "For $9.99 a month, subscribers of Hulu Plus get access to a full season's worth of their favorite TV shows--and even past seasons in some cases--and 'not just a handful of trailing episodes' that the free-version of Hulu offers, according to CEO Jason Kilar, who wrote the note." So in essence, a cheaper alternative to cable programming than cable.

Will consumers pay $10 a month for programming that is available elsewhere? As cable puts more and more product on demand, as DVRs fill up, and as DVDs line the shelves with season after season of TV shows, will the consumer pick Hulu as their paid model of choice? With cable companies, like Comcast, putting more of its programming online too, aren't the owners of Hulu competing with themselves as they offer their product free on demand, on TV and online, to cable subscribers. Viewers love free. Viewers love added value. Viewers love the ability to watch what they want, when they want, and where they want. But will they pay $120 for the service?

Those consumers that currently have cable may be encouraged to switch to a cheaper provider in Hulu, but I doubt that the value proposition works in Hulu's favor. Those consumers that have already cut the cord on cable did so because they couldn't justify the value and liked what was available free on the web. It is hard to imagine that they will find a Hulu paid service differentiated enough to part with their cash. So how successful can a free model, converting to pay, be? I am skeptical that this is their winning formula. I doubt that Hulu can reach scale with a paid subscription service to justify this new endeavor.

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