Commentary

Should Hulu Go Subscription?

The buzz is everywhere -- in the blogosphere, on industry panels, and even at lunch with colleagues: Should Hulu go subscription? Is a subscription model coming to Web video, and soon? Well, let's look at what makes a subscription model work, why consumers (en masse) sign up for subscriptions, and see if we can figure out whether a subscription model makes sense for Internet-delivered television today.

Cable subscriptions took off in the early 1980s. If we look back and ask why, the answer was simple. If you wanted the new television sports reporting and highlights (ESPN), music videos (MTV) or movies (HBO) accessible in your living room, you only had two choices: pay the cable operator, or don't get any of it. In recent history, the same has been true for many consumer goods obtained through subscription services, like newspapers, milk and ice.

Subscription services for milk and ice have pretty much dissipated in favor of the grocery store (a platform change) because today's supermarkets have become more convenient and provide us with more options. In some rural areas, food home delivery services are still very popular because the menu choices (features) and convenience make home delivery a better offering, just as the features and ease of online shopping are often superior to in-store shopping, even though the retail outlets may be down the street.

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The most basic takeaway here is that a subscription model or platform change works if you offer the consumer something he or she wants but can't get anywhere else, or you provide benefits of such significance that a consumer's marginal utility increases more than any incremental cost. If we apply these teachings to Internet-delivered video, we realize today's Internet video subscriptions or "for pay" video offerings make sense for (1) premium content that isn't readily available on television, (2) premium content that is far superior because of platform features or quality, and (3) premium content that is more conveniently obtained because of the platform.

MLB.com and TennisTv.com are examples of premium content offerings that aren't available on television. Consumers are subscribing to these offerings for the same reason they bought cable in the 1980s :"I want it and it isn't available elsewhere." Though not subscription-based, PBS recently enhanced its PBS KIDS GO! children's site with in-video interactive content. After the interactivity was added, viewership and engagement skyrocketed as PBS leveraged the technology platform, making the content experience superior for its audience. Reasonably priced, choice-rich and easy to obtain, movie downloads should also succeed because of the convenience factor, just as iTunes and NetFlix have been doing.

Hulu and others on the Internet are certainly on their way to achieving the "for pay" value proposition. But before we can get the consumer dollars en masse -- whether by subscription or advertising -- we (the industry) need to concentrate on providing content and adding value that is unique to our platform and industry. Consumers will then, and only then, be willing to switch or augment their subscriptions.

10 comments about "Should Hulu Go Subscription? ".
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  1. Lisbeth Kramer from Identities, June 9, 2009 at 10:24 a.m.

    AMEN!

  2. Thorsten Linz from FCB Chicago, June 9, 2009 at 10:34 a.m.

    i think it is not a bad idea as long as all the networks make more content available.....

  3. David a Becker from Friend of the Farmer, June 9, 2009 at 10:38 a.m.

    The integration of advertising into Hulu is one of the best I have seen in modern media. I would encourage the Hulu team to refine the mix rather than head down the subscription rabbit hole.

    That said, subscription offers could be timed to frequency of usage. Use Hulu X number of times and receive a prompt to subscribe for ongoing access and to more and better content. For some reason a mix of offers based on defined consumer interest has eluded most online marketers.

  4. Paula Lynn from Who Else Unlimited, June 9, 2009 at 10:38 a.m.

    Your premise depends on your 2 main points: Can't get anywhere else and reasonable priced. Both of which demands control and coercion of all media outlets for this to be successful. And then get your legal chops ready. We are all going to "pay for" one way or another because people need to get paid to deliver.

  5. Christopher Genovese from Merck & Co., Inc., June 9, 2009 at 10:57 a.m.

    Better to follow the Pandora model, and include a free w/ advertising version and then a subscription service w/ no ads. Users are going to find what they want for free...if not at Hulu, then somewhere else. It doesn't make it right, but it's not a war that can be faught.

    These online entities need to find new ways to be profitable without reaching for the user's wallet. Just like many other art/media forms...it's all changing. Invision.com now offers a dashboard so you don't have to be burdened to go to youtube and espn and wherever else you'd go

  6. Latease Rikard from LMR Publishing, June 9, 2009 at 10:59 a.m.

    I suppose if it offered the Cable/subscription only programming such as NFL games, NBA games and things on Showtime or HBO...but, showtime already allows you to see previous episodes on their website...so I'm not sure if subscriptions would work for Hulu...

  7. John Osborn from Ultramercial LLC, June 9, 2009 at 2:08 p.m.

    Well thought out argument, Steve, and valuable feedback in the comment loop. Wouldn't it be great if the consumer had an option to choose advertising to gain access, or subscribe at a reasonable price to get straight content? This "quid pro quo" exchange has the potential to increase the value of ad-supported media for consumers, advertisers and content providers alike, and make explicit the implicit social contract that advertising pays for media content.

  8. Prabhu Sivakumar from ESPN, June 9, 2009 at 3:05 p.m.

    There is already a subscription model for video that is moderately successfull. Netflix!.

    The main reason I subscribed to Netflix is not the DVD I get in mail but for the great choice they have online available for streaming. They also have Roku and other Netflix ready devices so that I can watch it directly on TV.

    When I can record most of the shows on Hulu through DVR, why would I pay subscription to Hulu?

    If Hulu adds a lot of movies from the studios, support HD streaming, cut out commercials and support Hulu ready devices (like Netflix) then may be.

    THe easier path for Hulu is to seamlessly integrate more advertisement that is targeted and demand higher CPM from advertisers because the advertisement is targeted. Making the advertisement more interactive would help too.

  9. Holly Brown from MRM Worldwide, June 10, 2009 at 2:43 p.m.

    Great points, theoretically. Subscription models require value exchange based on real "customer utility". The reality is that we 've trained consumers to expect FREE content because we applied the tried and true advertising model to practically everything online. But the ad model doesn't work in a long tail world because highly targeted content doesn't aggregate enough eyeballs to support an effective CPM model. Further, social media doesn't lend itself to the intrusion model. Meanwhile, the cost of keeping content fresh, hosting content and the data center infrastructure required to deliver content are extraordinarily expensive. Ultimately, consumers will pay for and use what they value. New economic models will emerge including sponsored content, app stores, and distributed experiences that put the consumers closer to the brand experience through a utility-based experience.

  10. Robbie Baxter from Peninsula Strategies, June 12, 2009 at 9:54 a.m.

    Great article, Steve. Especially agree with your point about content that can't be found elsewhere--one of the big challenges facing traditional content aggregators and creators (think newspapers, cable cos, record labels) is they have lost control over both content creation and distribution. Certain quality content, and unique content down at the end of the long tail will still have value, but mass-media is losing its cache. Too many other ways (besides subscription) to get value from it for too many other groups.

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