Posted by James McQuivey on April 23, 2010
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’s digital door again. Some call it greed, others point to nefarious pressure from ailing broadcast and cable operations, while some decry the end of a freewheeling era. They are all wrong.
Hulu charging for content is a good thing. In fact, it’s a necessary next step to get us where we need to be. Let me explain.
This comes at an awkward time, to say the least. The site’s CEO, Jason Kilar, admitted just weeks ago that the free site is profitable, taking in more than $100 million last year and on a run-rate to more than double that this year. Blunting that momentum would be foolish. But letting it run absent the burden of helping to pay for the shows it profits from would also be irresponsible, and not in a Father-knows-best “charging for content builds character” kind of irresponsible, but in a more “not taking advantage of the opportunity to take Hulu to the next level in benefit of the consumer” kind of irresponsible.
When (not if) Hulu finally announces its subscription plans, it will have a small but critical window of opportunity to explain itself to the market – to the viewers, to its content partners (who also happen to own it), and to its frenemies ranging from cable companies to cable networks. If it gets the details of the plan right – and explains the purposes behind the plan properly – it will succeed. Here’s the key: The secret is to position Hulu Plus (or Hulu 2.0 as I’ve called it for over a year now) as more. More content, more control, on more devices. More everything. I'll explain in reverse order:
- More devices. Currently online people watch video on 2.6 video devices a week. Young adults aged 18-34 have already expanded that number, watching video on 3.3 devices a week – usually a TV, a PC, a portable device like a phone or an MP3 player or both. We estimate that by 2015 people will watch video on 4 to 5 devices each week, including new platforms like netbooks and tablets. That’s a world that Netflix has already shown you can profit from by effortlessly serving up video on whatever device the consumer happens to be in front of. Hulu wants a piece of that action. You, as a consumer, should want Hulu to get in that game so you can download a Hulu widget to your Samsung connected TV, pull up the Hulu experience in your Wii, and, yes, even get a Hulu app on your iPad.
- More control. In this multi-platform world, Hulu will necessarily have to offer more control – playlists, bookmarks, TiVo-like search, even auto-assembled recommendations that consider your entire viewing history, not just what you’re viewing right now. This is one of the secrets to Netflix’s success with its back catalog of Watch Instantly content that you didn’t know you wanted to watch until Netflix identified it for you.
- More content. This ability to control content across multiple platforms will require more content options, not just the last 5 episodes of current shows, but an entire library of older shows, from last season to a decade ago. It 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.
This one-two-three punch of more content, more control, and more devices, makes Hulu worth paying for. And it lets an industry that behind closed doors currently talks about Hulu as the devil, finally have to release its anger and start using Hulu to reach consumers without fear. So what remains of the old Hulu in this scenario? All the worried freeloaders can relax: of course the free Hulu.com will still exist, it has to. It will hum merrily along, gradually increasing the ad load at first to 12 ads per 45-minute show, then eventually 24. This gives Hulu the ability to defend itself against angry industry voices while still retaining its current value to the customer who has yet to hear the siren call of Hulu Plus beckoning to a better world.
If you’re following closely, you notice one significant problem I haven’t solved. With this fabulous service, Hulu would be nearly as good as your $54-a-month cable service today. I’ll preview that answer for you, too, though the details would require another lengthy post. It’s this: Hulu will eventually end up with two pricing tiers – one for people who subscribe to cable and one for people who don’t. That’s right, the $9.95 price will be for people who pay for TV service already, right in the range of what you pay today to subscribe to HBO, something you can only do as a paying customer. If you cut the cable cord, your Hulu Plus service price will rise to $24.95 a month. Still cheaper than most cable bills, but roughly what it costs to get basic cable, and similarly incomplete since you won’t have any content from Discovery, Viacom, AMC, HBO, etc.
This scenario as I have laid it out makes sure that watching content online is easier than piracy – a very important consideration – but still promises people that they can have more of everything they like if they are willing to pay. Despite whatever knee-jerk reactions viewers have to the idea of paying for Hulu content, it’s the convenient access to Hulu content they’re really being asked to pay for. My money says they will gladly pay for that as they always have in the past.
(Also posted on Paidcontent.org)
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