Is Hulu Working?

One of the primary objectives behind Hulu was to put free programming on the Internet to combat the rampant pirating of TV content that took place on sites like the popular file-sharing destination, The Pirate Bay. As iTunes did with music, the idea is to make using Hulu's service easier than having to go out and seek the illegal downloads.

Although iTunes charges for music on a per-file basis, Hulu, too has a business model that makes you pay - except in their case, you're paying with your eyeballs, not your credit card. Using video ads, Hulu has been attempting to monetize its service, but those efforts have been difficult at times. This spring, for instance, Screen Digest analyst Arash Amel claimed that Hulu had only sold about 60% of its ad inventory. "What we've seen is rapid growth in consumption, but the advertising isn't keeping up," he said.

While these figures, if accurate, could be reason for concern, many feel that the profitability of an online video venture of this nature takes time to develop. Eventually, the ad-supported model would work for Hulu as it has worked for numerous other websites and services, supporters claim.

Besides, more recent deals seem to bode well for the site. Case in point, this month the Publicis Groupe announced a mulit-million dollar ad deal that involved targeted advertising to particular Hulu demographics. The deal is said to represent a "significant increase" in spending on Hulu.

Hulu to Charge?

Despite the promises ad deals like this hold, there is still debate as to whether or not Hulu is going to stick to the ad-supported model or try something new. At a conference last week, News Corp. deputy chairman Chase Carey made a pronouncement regarding this point that raised more than a few eyebrows:

"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," Carey was quoted as saying by Broadcasting & Cable. "Hulu...needs to evolve to have a meaningful subscription model as part of its business."

This seems to jibe with earlier reports where News Corp. CEO Rupert Murdoch also hinted at the site's plans to add premium services by saying, "Are we looking at it with a view toward adding subscription services and pay per view? Yes we are."

But "looking at" and "doing" are two very different things - where does Hulu stand now? Has their core philosophy - that is, their belief in the ad-supported model - changed?

According to AdWeek, it has not. In the article, the company claims their ad-supported free service is still the one that "resonates with the largest group of users" and that any additional models would just serve to complement that.

However, when we reached out to Hulu to ask about their plans regarding charging for content, the company wouldn't go on record with any such statement.

Why So Cagey?

Hulu's current decision to clam up could be taken in a few different ways. Perhaps they simply haven't decided what they're going to do about adding new premium services to Hulu and therefore don't want to discuss it at all.

Yet the quote they provided to AdWeek seems innocuous enough - so why not just stick with it? Why now choose to say nothing at all? Maybe they're hoping that with no quote, there is no story, and that will allow them to quell the impending panic among some users who are worried about Hulu's plans to make customers pay. Because some people are so opposed to paying for online content, just hearing reports that Hulu might change to a pay-to-stream model could dissuade them from continuing to use the service.

Then again, it could be that the opposite is true. Hulu wants to keep everyone wondering about what's coming next, generating excitement without providing any details. This means people can speculate wildly and give their opinions, allowing Hulu to tap into that online conversation about what people want before making any official decisions or announcements.

What We Think: Hulu Will Launch Value-Added Services

Despite any official confirmations from the company, we think it's pretty clear that Hulu has intentions to launch value-added services on top of its free, ad-supported model in the coming months. These may include pay-per-view options and some sort of subscription model. However, that subscription model would be there to provide users with value-added services that you couldn't get from the free model alone. Perhaps behind the scenes interviews? Sneak peeks? Actor interviews? Who knows...but the possibilities are endless.

As to why we think that, it comes down to simple math. We've now seen three different statements about these premium services: Carey's recent remarks, Murdoch's quote from earlier this year, and anonymous sources quoted by Dan Rayburn who hinted that Hulu's iPhone app won't launch until "Hulu rolls out a subscription based service."

...And They'll be Tied to the iPhone

The iPhone app, in fact, may be the real secret the company is trying to hide. Imagine if the much-rumored and highly anticipated application was linked to a subscription-based model. That could downright revolutionize the way people watch TV. Providing streaming content over the popular Apple smartphone would easily bring in additional revenue and that new source could quickly outperform the profits made by the ad-supported model.

Yet launching a Hulu iPhone app would be a challenge, as the company is undoubtedly aware. And, of course, Hulu wouldn't want to say anything about it, especially considering how difficult Apple is when it comes to applications that compete with their core services. Apple may not even approve such an application, claiming (rightly so) that it competes with iTunes.

However, Apple may be loosening up on that front, with no small thanks going to the FCC who recently questioned the company's rejection of the Google Voice application - a VoIP dialer that Apple rejected because it competed with what the iPhone does natively. (Apple claims they're "still reviewing" it, but no one really buys that.) Since the FCC's involvement, however, Apple has gone on to approve a streaming music app called Spotify, an application that many had feared would be rejected because it, even more so than Google Voice, competed with iTunes. That leaves us hopeful that a similar application launched by Hulu could also make it through the approval process.

Still, we wouldn't blame Hulu if they wanted to keep that extremely quiet. And that would certainly explain why Hulu won't comment on their plans.

Of course, this is all just speculation at this point, but we hope it turns out to be true.