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Video portal Hulu is quickly trying to make good on its promise to charge for content, but as of yet no one is talking about what a premium Hulu product will look like.
After rumors surfaced about a two tiered subscription model earlier this week, Disney EVP Kevin Mayer came out to say that “no decisions have been made” on Hulu Premium. That's too bad, because there are plenty of ways the Hulu could successfully charge for money. It's just not clear that News Corp. will go ahead with them.
For starters, Hulu definitely will not be going behind an ironclad paywall. John Miller, News Corp.'s digital chief, said this week at the OnMedia conference in New York:
"Free versus paid misses the point. You have to have more than one source of revenue to be healthy over time, and that's what we're trying to set up for our digital media businesses."
That has worked for a product like The Wall Street Journal, which trades in niche financial content and has always charged for online content. Meanwhile, Hulu has set the standard for high quality online video, but shifting from a free to paid model is easier said than done.
However, there is one thing working in favor of Hulu's efforts to charge for content: their free product isn't very good. Sure, Hulu provides the best access to premium quality video online today. But that's not saying a lot.
A post from Dan Frommer at Business Insider today highlights that point. Two years ago, Frommer cut the cord and traded his Time Warner subscription to make his apartment a "Hulu Household." But today he announced that his experiment has ended:
"Anything that relies on a live, nationwide cable audience -- like most live sports, or the Oscars, or 'MythBusters' -- isn't going to be available for free online for a long time. (And while some of the online-only content out there is entertaining, it's not enough to completely replace professionally produced TV for most people.)"
While some great shows are currently available for free on Hulu, they're not available immediately and with the same reliability that most cable subscribers still pay good money to access.
On the Web, Hulu currently offers four free episodes of specific TV shows like Lost,The Bachelor and The Simpsons. Forrester Research analyst James McQuivey thinks when Hulu goes premium, it will provide more episodes for paid subscribers. He tells USAToday that Hulu could "settle on two pricing tiers: $4.99 for an ad-free Hulu, or $14.99 monthly for complete seasons of shows and back catalog."
But simply providing access to older episodes of shows online isn't the way to build a winning strategy for paid content online. Especially when there's no added value for consumers with DVRs on the televisions.
Meanwhile, Hulu's paid model still depends on Congress approving Comcast's purchase of NBC last year. According to the Consumer Federation of American and Free Press, the newly formed company “would have a powerful motive to starve competing online video sources” by withholding programming, according to BusinessWeek.
That means that just like existing cable companies, Hulu could continue the tradition of pissing consumers off with a model of scarce and pricey content and using access to Hulu to buoy its television Comcast subscribers instead of encouraging viewers to watch video online.
And while the networks admit that the future of video involves digital, they're not ready to encourage viewers to move there. But the alternative is charging people more money than they want to pay. And whether they like it or not, as video trickles online, the networks are already losing eyeballs.
For many, it's increasingly hard to justify the price of cable. As Frommer notes, his reluctant switch back to cable TV will cost him $1000 this year.
If Hulu can create an online video product that is reliable enough (and cheap enough) to wean people off their cable subscriptions, it could luck into a very profitable subscription model.
The real question is whether Hulu can convince the networks (and Comcast) to give its premium product access to the kinds of content that people are willing to pay for. Because that means potentially taking customers from terrestrial TV to grow the online product. The best way to do that is to charge less money for access to similar programming. But "charging less money" isn't the kind of phrasing that cable companies like to use.