Why Hulu's Plans to Cut Off Freeloaders Is a Bad Idea

Hulu has long considered switching to a subscription-based model in the wake of very sluggish online ad sales.The thing about Hulu is that the online video service always seemed a little too good to be true. (Really, it is possible to watch "Ishtar" in its entirety for free online.) The venture, funded by NBC (GE), Fox (NWS) and Disney (DIS), is reportedly planning to change that, with the introduction of a trial subscription service, which would cost roughly $10 per month.

After the subscription roll out, which could happen as early as May 24, Hulu will continue to make five of the most recent episodes of TV shows such as "Glee" or "Saturday Night Live" available. But for older episodes, viewers must pay for the premium service, according to multiple reports.

As DailyFinance reported last year, Hulu has long considered switching to a subscription-based model in the wake of very sluggish online ad sales. Although the privately held joint venture claimed in March that it's been profitable for six months, that hasn't stopped network television execs from griping about the pitiful profits squeezed out of online video.

'Time to Start Getting Paid'

"It's time to start getting paid for broadcast content online," News Corp. deputy chairman Chase Carey reportedly said at a trade conference late last year. "I think a free model is a very difficult way to capture the value of our content."

The perplexing part of Carey's statement is that free works just fine for broadcast television. In fact, free content had been -- and continues to be -- pretty profitable on TV, even if broadcast television ratings are on the decline. Meanwhile, online advertising should be significantly more targeted, effective and valuable to advertisers, but it doesn't sell as well. (As Jeff Zucker famously said, the networks are trading in "analog dollars for digital dimes.")

But if networks can't figure out a way to profit online from the same content that's being broadcast on TV, the answer is not bullying viewers into paying up. Market prices aren't determined by how much a seller wants to profit. They're determined by how much the buyer is willing to pay. And it's not clear that people will be all that jazzed to pay to watch content on Hulu, especially if the website isn't really offering much additional value for the monthly fee.

Problem With Packaging and Selling

The fact that networks can't sell ads for their online content suggests they're not packaging or selling it right. Therefore, it seems silly to punish viewers for the networks' own lack of imagination. (Anyone who has watched programs on the ABC website, for example, has probably noticed that almost all the ads are house ads for other ABC programs.)

A Hulu spokesperson wasn't available to comment.
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