Analysts Question Pending Hulu Subscription Service

29 Apr, 2010 By: Erik Gruenwedel

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Beginning next month, Hulu, the online site for re-purposed television programming co-owned by The Walt Disney Co., NBC Universal and News Corp., reportedly will bow a $9.95 monthly subscription program for catalog content.

Dubbed “Hulu Plus,” the service is designed for hardcore viewers seeking TV shows older than the most recent episodes still available for free under the site’s current ad-supported business model.

Just the mention of a monthly fee, however, has many Hulu viewers up in arms, with some declaring they will stop visiting the site May 24 — the day the subscription plan is supposed to start, according to posts on the company’s blog.

“Now Hulu wants us to pay … I think I am just going to give up altogether,” wrote one disgruntled viewer on the company’s discussion board.

“There's not a chance that we'll be paying any money for ‘premium content’ that's aired on television anyway,” said another post.

Los Angeles-based Hulu, for the record, has not commented on the issue.

Since its launch, the site has become a Web sensation with more than 40 million viewers in March watching 1.1 billion videos (2.6 hours per viewer), according to comScore.

“Initially, viewers may be hesitant when they have to pay for what was free,” said Edward Woo, research analyst with Wedbush Morgan Securities in Los Angeles. “I think $10 might be too high for just TV shows.”

Indeed, Woo, along with other analysts, believes Hulu will offer tiered pricing programs depending whether the viewer is a cable subscriber and on the availability of higher-quality fare.

“Ad supported models will still work for certain stuff, but not for premium content,” Woo said.

Phil Leigh, analyst with Inside Digital Media in Tampa, Fla., said consumers love the informational highway, but they are not going to pay a toll every five miles.

“It will put the nail in the coffin for subscription services,” Leigh said of the proposed plan. “The reception they will get to [a subscription plan] will be surprising to them.”

Despite the furor, the move from a free ad-supported service to monthly fee is not unprecedented.

In 2000, popular ISP provider NetZero began charging heavy users $9.95 for access to the Internet — a strategy that helped it survive the dotcom meltdown, and continues today.

Despite recently turning a profit, Hulu has faced increased scrutiny from media companies looking for incremental revenue from digital distribution and tech-savvy consumers accustomed to ubiquitous free content on the Internet.

In March, Comedy Central, which is owned by Viacom, yanked two of Hulu’s most popular shows —“The Daily Show With Jon Stewart” and “The Colbert Report” — from the site, citing a willingness to return the programming “in the future,” which will likely occur when Hulu ups its license fees for the shows.

He said as media companies (The New York Times, Dow Jones, Rhapsody, music labels, etc.,) line up offering content access for a monthly fee, consumers already saddled with $100 cable bills will balk.

Indeed, Comcast, in this week’s financial report, said the average monthly cable bill for its subscribers approached $123, up 6.3% from a year ago.

He said a small minority of Hulu viewers will pay the fee, but increasingly large numbers of viewers will seek replacement — notably free — entertainment elsewhere on the Internet.

Leigh said Madison Ave. will have to adjust and figure out a way to make ad-supported content less intrusive and more compelling.

Speaking on an online panel discussing online video consumption, Glenn Goldstein, VP of  media technology strategy for MTV Networks Digital Media, said the pendulum between ad-supported, subscription and transactional business models will alternate over time, but that a large segment of the population might feel entitled to the content if they are already paying for it in the their monthly cable bill.

“Hulu may be interesting because it is not necessarily tied to an existing subscription-based TV service, but is a new subscription on top of that,” he said. “That might be a tough sell.”

Emil Rensing, Chief Digital Officer, with Epix, the online repurposed TV program site co-owned by The Walt Disney Co., News Corp. and NBC Universal, said he found the service attracted different types of viewers.

“We’re seeing three distinctive audiences around our products,” Rensing said. “Our on-air linear person is one [audience], our set-top box person is a very different type of customer from our online person. It appears to be working.”

Karsten Weide, VP of digital media and entertainment with International Data Corp., applauded Hulu’s foray into a subscription business model.

“To at least give people an option to buy their way out of advertising is a great idea,” Weide said. “And it works for the [content] publisher just as well.”

Regardless, Michael Nathanson, analyst with Sanford Bernstein, in a note to clients last month, said that until the major media companies create a workable business model for electronic sellthrough, “the development of online video will be halting at best.”

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