Hulu’s Big Mistake May Be Its Last

When Hulu.com began, it had a simple mission, combat the growing piracy of television shows by offering viewers free ad-supported content over the Internet. That is, after all, the same thing they do with broadcast television. It is still free, despite the fact that many people pay cable companies to view it.

Hulu.com was supposed to be the answer to this problem, and it seemed to work rather well. But the owners of Hulu, NBC Universal, News Corp. and Walt Disney Co., have never been satisfied with the amount of ad revenue Hulu generated. It was simply not enough in their eyes. That should not be surprising for companies that shuffle TV shows, sometimes even in the middle of seasons, just to milk as much ad cash out of them as possible. In an industry where ratings are gospel, the alternative-minded tech start-up was an anomaly.

Hulu’s owners also had their eyes on the competition, which distributed much of the same content on an ad-free subscription basis. According to analysts at server hosting provider 34SP.com, Netflix brought in $2.16 billion in revenue in 2010, making Hulu’s $260 million seem like chump change.

Back when Rupert Murdoch began hinting that they would start charging for online content from Fox and some of News Corp’s other networks, those who loved Hulu could see what was coming. It was not long before the owners decide to make some changes. They implemented a subscription service that offered entire past seasons of some shows plus the ability to watch Hulu on other devices, such as televisions, mobile phones, and game consoles.

The problem was that not all shows were available on these devices, even some that were available to stream on a computer. Furthermore, the $9.99 per month price did not remove the ads or even lessen them, turning off some customers who preferred Netflix, Amazon, or Apple’s iTunes for ad-free viewing, and lowering the price to $7.99 has done little to dissuade them.

Now, news is circulating that Hulu’s owners may scrap the whole service altogether and rework it as some type of Internet cable subscription service that shows live TV and keeps some on-demand content. Viewers would have to pay and would still see the ads. Meanwhile, NBC is out, due to their marriage with Comcast, which would create a conflict of interest (Comcast being an Internet service provider that despises Hulu and Netflix). That leaves News Corp and Disney at Hulu’s helm.

Time to Face Reality

The reason Netflix has done well and survived is that they are willing make deals and concessions with networks and movie studios. Hulu, on the other hand, is owned by the networks, and yet they expect it to make money even if they withhold some of their best content and show ads for subscription service. They are still thinking in the old network TV mentality, whereas Netflix has successfully turned itself into an Internet content streaming company, shedding its mail-in DVD image with relative ease.

In reality, the networks killed Hulu from the start and continue to offer content to other providers that do a better job of delivering it to Internet viewers. Hulu will not survive unless it is willing to listen to customers and give them what they actually want. They may not make billions doing it, but the perception that they are somehow losing money if they do not squeeze every cent out of Internet viewers is dead wrong.

These are people, after all, who allegedly pirated TV shows from BitTorrent sites before Hulu existed. If that is actually the case, the networks can only gain money by offering these people subscriptions. These are the same people who recorded shows on their DVRs so they could fast-forward through commercials, who block ads in their web browsers, and who want content when and how the choose. They are willing to pay subscription prices, but they are not willing to be milked for every penny, simply to add zeros to the end of already bloated network executive paychecks.

Hulu’s big mistake is thinking that they are not expendable, that viewers cannot get the content they want elsewhere. This is how it used to be when there were only a few networks. Viewers could either watch them or turn off the TV. Now anyone can Google their favorite show and find it on hundreds of different sites, all posted illegally, and all commercial free.

These same people are willing to pay Hulu or at least sit through their ads in order to get that same content, and Hulu is not listening to the needs of those customers. It is the fatal flaw with Hulu’s approach, and it is one that may very well lead to its demise.