ABC's Wipeout on

Source: ABC’s Wipeout on

So in my previous post I asked “so who might move their properties behind a paid wall at Hulu?”

Well, CBS may be a primary player as long as it can place its properties on its own online site, meaning CBS is not interested in any content exclusivity with sites such as Hulu. The network, which owns eight of the top 10 shows during prime time would likely place shows like “CSI” and “NCIS” behind the new Hulu Plus paid offering.

Time Warner and Viacom are thought to be pursuing similar deals and I expect them to reach far back into their back catalog for the new Hulu subscription service. Expect Hulu to retain a basic free service, but what content remains there might be limited to largely independent channels, and maybe a dozen or so notable TV shows to stimulate viewership. The key will be to convert free eyeballs to paid ones.

Ironically, Viacom recently removed all of its content from Hulu a few months ago; unhappy about the lack of revenue it was receiving via Hulu’s advertising only model. Nielsen recently pointed out that Hulu’s site averaged 12.2 million visitors in March and 13.1 million in April, down from 14.1 million in February, before popular programs such as the “Daily Show with Jon Stewart” and the “Colbert Report” were taken off. However, Compete, which measures Web site traffic and click shows data that contradicts Nielsen. Compete shows that Hulu’s monthly visitor and unique visitor numbers continue to climb.

Time Warner likewise is trying to protect its top brands such as its TBS and TNT channels from distribution on free sites. Hulu is seen as a threat to not only cable operators (like Comcast and Time Warner) but also pay-TV operators and cable networks as well. So the latest network shows have been arriving on Hulu at a slower pace, with first priority being the networks’ online sites.

There is wide speculation that Hulu will roll out a limited closed beta of Hulu Plus as early as this week. The revenue-sharing model is speculated to share subscriber income among the networks distributing content on the new service, which is thought to encourage more to join in.

It seems that Hulu’s going the same way that mobile apps have gone, taking a cue from Apple. Expect the free Hulu to be filled with advertising much like free mobile apps are today since Apple rolled out the iPad, new iPhones, and its iAd network. The same is happening on the Android development platform, as the march from free to paid and the fremium model gets more traction both online and with mobile.  Today, you can skip most online ads before watching content, but not on Hulu. I doubt it. I expect Hulu to increase its commercial minutes to recover the costs of its free service much in the way that today’s mobile developers are heavily inserting non-closable ads into their free apps to recover development costs.

While Hulu CEO Jason Kilar has stated several times that the site’s ad-supported model has been profitable on a cash-flow basis, cable networks have been pressuring Hulu because they want more control over their properties hosted on aggregators such as Hulu.

SNL Kagan calculated that Hulu posted $52.4 million in net revenue in February and claimed that 72 percent went back to content providers, leaving Hulu with $14.7 million over $12.6 million in operational costs, or just a $2.04 million profit. So the ad-based model has only gotten the site so far. A subscription-based offering could boost the site’s profitability while also placating content providers who would receive a piece of the revenue share. It’s not so much that Hulu is going subscription that it is going hybrid, as many sites both Web and mobile are realizing that ad-only business models are self-limiting.

So my question to you now is “what do you think subscription will do to Hulu’s audience?”

I’ll provide you my thoughts in a follow-up post.

– Randy Giusto