This article was published 14 years ago

Charging access to Hulu will kill it and the industry

Napster changed the music industry. Craigslist destroyed the newspaper industry. The VCR changed the movie industry. Apple is changing the smart phone market.

Hulu is changing the TV industry.

Thanks to Hulu – along with a PC connected to your television set – you can kiss those expensive cable bills good-bye.

And it has folks at TiVo, FOX broadcasting and Comcast showing their envy-status towards Hulu.

TiVo and Comcast kept their feelings about Hulu secret. FOX was the first network to show their displeasure to the free video-streaming site.

“I think a free model is a very difficult way to capture the value of our content. I think what we need to do is deliver that content to consumers in a way where they will appreciate the value,” News Corp. deputy chairman Chase Carey told the audience at the OnScreen summit.  “Hulu concurs with that, it needs to evolve to have a meaningful subscription model as part of its business.”

Charging for access to Hulu would be a disaster not only for Hulu and its investors (NBCU, News Corp. and Walt Disney Comp.) but for the TV industry as well.

I wrote a column about the cable-freedom movement back in March and continue to stress that people are leaving cable because of the high monthly cost for cable. Cable subscribers are falling, online viewing numbers are rising.

As cable prices continue to rise, subscribers continue to dwindle.  78,000 subscribers left Comcast basic cable in April 2009; oddly digital cable subscribers rose 288,000.

If the TV industry wants to become the powerless music industry – go ahead and charge for access to Hulu and watch the numbers drop.

It’s not a doomsday situation for the TV industry, they can still survive the looming downfall if they can adopt to their viewers. Some suggestions: don’t charge for access to the site, increase the advertising rates, put more advertisements on Hulu and allow third-party applications to access Hulu.

There’s a basic rule in business – supply and demand. Reportedly, ad rates on Hulu are incredibility cheap. An article in Business Insider stated that advertising rates on Hulu in 2008 were $25 to $30 per thousand impressions. Depending on the show, ad rates on television usually go for $20 to $40 per thousand. Higher rates are applied on popular shows like Lost and American Idol.

Hulu is starting to see the future.  Bloomberg reported that it’s more expensive to advertise online during The Simpsons than prime-time TV – $60 per thousand impressions online than $20 to $40 per thousand on TV.

Another revenue opportunity for Hulu is allowing third-party applications to access the site. Hulu already has a desktop application, which streams are in HD. Maybe this will be their new revenue source?

Several media center applications have been adding Hulu to their applications, including Boxee – which have been in a disagreement with Hulu for several months. Hulu has been trying to block access to these third-party sites, mainly because of the concerns raised by advertisers. I suspect cable giants like Comcast and Time Warner Cable had more to do with these block aids than the advertisers.

This will probably be the first thing Hulu charges for. If they decide to charge for access, value must be added besides a monthly subscription model. Some add-ons many people would like added: HD versions, more content from other networks, access to all episodes of shows and no expiration dates on newer episodes.

Can you imagine how many people will drop cable if TiVo added Hulu with the new premium features to their DVR boxes?

If executives at Hulu start charging for access, it better be worth whatever amount it will be. There has to be value for the monthly subscription. FOX has every right to do what they feel is necessary to get a  return on their investment.

However, Hulu is becoming the online version of cable TV. And if they cut off access to the younger, everything-is-free generation, Hulu will cease to exist.