Hulu Offers a $9.99 Subscription to Full Seasons of Current TV Shows

Hulu Offers a $9.99 Subscription to Full Seasons of Current TV Shows
By BRIAN STELTER
Copyright by The New York Times
Published: June 29, 2010
http://www.nytimes.com/2010/06/30/business/media/30hulu.html?hpw


Hulu lifted the curtain on its sweeping vision of the future of television Tuesday, promising access to full seasons of TV shows on laptops, iPhones, iPads, Blu-ray players, video game consoles and even old-fashioned TV sets.

Most Hulu users are already paying more than five times that amount for an unlimited package of channels from a cable or satellite company. Both Hulu and those established distributors are betting that people will pay for both.

Hulu, a hub for online TV and movie viewing, was founded three years ago to capitalize on the growing popularity of free video streaming. It quickly dominated the marketplace for free episodes of shows like “America’s Got Talent” and “Glee.” But advertising revenue has not been enough for Hulu’s powerful content providers, some of whom have been clamoring for a subscription service since last year.

Hulu’s chief executive, Jason Kilar, said Tuesday that what was free on Hulu — typically the five most recent episodes of shows from ABC, NBC, Fox and other providers — would remain free.

The subscription service, called Hulu Plus, will open the door to more episodes of current and classic shows, including entire seasons in many cases. Both flavors of the Web site will have ads; Hulu has signed two sponsors, Nissan and Bud Light, for the introduction of the paid site.

In a first for Hulu, the shows will be accessible to subscribers on the iPhone, the iPad and some Samsung television sets and Blu-ray players, with more platforms expected to be added later.

Access through the PlayStation 3 and Xbox video game consoles is also planned. Hulu Plus will consist of over-the-air shows like “The Simpsons” and “Brothers and Sisters.” Cable shows will not be included.

Hulu Plus amounts to a free-with-paid-perks model for content, not unlike the business models being contemplated by some newspapers. Michael Vorhaus, who has extensively studied online pay models for networks and newspapers as the president of Magid Advisors, said he thought that Hulu had made a good decision.

“They are offering a hybrid approach which I think leverages the Web — some content is free and supported by ads and some content will be paid,” he said in an e-mail message.

Even just a partial pay wall is still a risk, though. Bruce Leichtman, the president of the Leichtman Research Group, said that “there is not a lot of interest in paying for Hulu.”

He cited his company’s three-month-old survey of 1,250 households, which found that only 5 percent of respondents with home Internet connections were willing to pay $9.95 a month for a service like Hulu. Four in five respondents strongly disagreed with the proposal. But if even 5 percent of users sign up, it will create a new revenue stream for Hulu. The closely watched company is finishing its third quarter of profitability, but because those profits are split among dozens of content contributors, no one company is making a meaningful amount of money from the Web site.

Analysts suggested that the so-called season ticket of episodes on Hulu Plus was a new window to be exploited by producers. The NBC series “30 Rock” is an example: its first window is on network TV; its second window is on Hulu and NBC.com; and its later windows include TV syndication and DVD sales.

The prospect of putting more episodes online is sure to bring new attention to the dichotomy of online streaming by TV networks and traditional distribution by the Comcasts and DirecTVs of the world, which pay fees for the right to carry those networks. There has been talk for years about people “cutting the cord” and simply watching TV online, though there is little evidence of a mass migration in that direction.

“I think the hope is that a $10 subscription is a complement to a $50-plus subscription from a cable or satellite company,” said Quincy Smith, a former chief executive of CBS Interactive and a founding partner of Code Advisors.

“At minimum,” Mr. Smith said, Hulu Plus “conveys the opportunity of more platforms, more eyeballs and more ways to monetize. Some of TV consumption in the future will take place not on TV sets, but online and on mobile devices, he added. Publicly, cable and satellite companies shrugged at Hulu’s announcement, saying they had known it was coming for months. Privately, they said it could be used as leverage in future negotiations with the networks over payments for retransmission of their programming. The companies have previously complained about paying to carry networks when so many of the shows are available online.

“We’re in a kind of a wait-and-see mode right now,” an executive at one of the leading distributors said. The executive asked for anonymity because the parent company had declined to comment on the subject.

In an initiative sometimes called TV Everywhere, distributors like Comcast and Time Warner cable are building their own online hubs for replay cable shows, but none has yet garnered the same user interest as Hulu.

In an interview, Mr. Kilar of Hulu stuck up for cable, saying he could not believe that anyone would view Hulu Plus as a substitute for monthly cable or satellite service. “It’s full-season passes of largely broadcast television shows,” he said. “It’s a library of older shows. It’s not news. It’s not sports. It’s not cable.”

“In many ways,” he added, “it’s like what the smartphone is to the laptop,” implying that it would be a secondary way to watch video, not a primary one.

Hulu has much to gain from being a friend, rather than a foe, of cable and satellite companies. The company was jointly founded by NBC Universal and the News Corporation — which both rely on fees from those distributors — and the private equity firm Providence Equity Partners in 2007.

Having signed myriad contributors of content since then — the Walt Disney Company became an equity stakeholder in Hulu last year — the Web site drew a formidable 43 million unique visitors in the United States in May, up from 38 million the month before, according to comScore.

CBS and the CW are not available on Hulu. The subscription service will start as a preview by invitation only, the same way that Hulu was gradually introduced in 2007. It has not indicated when the service would be available to all users.

There is evidence that Hulu’s users are eager to have more to watch. The number of monthly video streams on Hulu has more than tripled in a year, to a record 1.2 billion in May. Hulu’s users are loyal; they watch an average of 2.7 hours of video a month, according to comScore. That statistic surely buoys Hulu’s executives, who will now see whether its customers are loyal enough to pay.