Et tu, Hulu?: Internet Television at a Price

For decades, the business model of network television has been simple: NBC, ABC, CBS, and FOX rent out our eyeballs to advertisers. Better programming, more eyeballs, more advertisers. People don’t pay to watch network TV—if anything, someone should have paid us to watch the last two seasons of “Heroes.”

Hulu, it seemed, understood this. Since March 2008, the website has provided premium network TV shows for free, legal online viewing. Hulu also carries non-network content from the likes of PBS, Bravo, E!, and A&E, not to mention a surprisingly adequate rotating buffet of B-movies. The site is even gracious enough to offer a choice between standard commercial breaks or a longer presentation at the start of the episode. It’s a perfect symbiotic relationship between viewer and network.

But on October 21, News Corporation—you can already tell something evil is coming, can’t you?—Deputy Chairman Chase Carey announced Hulu’s plans to introduce a subscription fee as soon as next year. I’d reference the goose that laid the golden eggs, but Rupert Murdoch probably owns the rights to it.

Much like print journalism, television has struggled to maintain its traditional business model in the face of Internet competition. Last fall, for instance, more viewers watched the debut of Tina Fey’s Sarah Palin on “Saturday Night Live” online than on TV. It would seem that the logical corporate strategy should be to remain firmly on the defensive—could you imagine the New York Times charging readers a fee to view the day’s articles on its website?

Indeed, the user-friendly approach worked marvelously for Hulu. In March 2009, YouTube reported more than fifteen times as many video views than Hulu, but the latter’s growth was nonetheless so rapid that it lead some analysts to speculate that Hulu might overtake YouTube in ad revenue this year. Now that Hulu has threatened us with a subscription fee, though, how will YouTube be affected?

It’s easy to see why, relatively, YouTube doesn’t represent a particularly attractive option to the major networks. Its uploaded videos are rife with copyright violations, and the user-flagging system for inappropriate content detection is less than efficient. But YouTube, a financial juggernaut since before its acquisition by Google, has nevertheless taken steps in Hulu’s direction. The site managed to swing deals with CBS, MGM, and Lions Gate to show full-length, high quality versions of their television shows and movies with advertisements.

And, since April of this year, YouTube has provided its users with this corporate-mandated content—but the pickings are slim. The highlights, by a significant margin, are “The Late Show with David Letterman,” “The View,” and the original “Star Trek” series. That’s hardly a balanced TV diet.

However, if Hulu were to charge a subscription fee, those choices would quickly become appealing to disgruntled former Hulu users. I am a firm believer in the economic viability of something for nothing, even when the something isn’t especially spectacular.

But forget YouTube—if Hulu charges a subscription fee, it places itself in direct competition with Netflix. The online DVD (and now Blu-Ray) rental giant, which has already effectively vanquished Blockbuster, is more than up for the challenge. In addition to the more than 100,000 titles available for rental by mail, Netflix offers over 12,000 movies and television shows for instant online viewing. As of now, Hulu is only licensed to show several trailing episodes of popular, currently airing shows, with the occasional complete series sneaking its way into the collection. Hulu would have to increase its scope exponentially to contend with Netflix.

The force that Hulu has most egregiously underestimated is piracy. As things stand, choosing to watch last week’s “30 Rock” on Hulu instead of MegaVideo is almost a statement of morality. It has never been easier to stream an illegal copy of a television show or film. And the resilience of guerilla TV is formidable; every time the FCC summons the judicial will to quash one website, another inevitably appears in its place. It’s hard to imagine that many of Hulu’s now-faithful viewers wouldn’t turn to illegal sources to fulfill their TV-watching needs for free.

To put this in perspective, let’s consider that Hulu has never been a grassroots, anti-establishment company. Its ownership is divided amongst News Corp, NBC Universal, and Disney. This raises questions as to how conflicts of interest on the board of directors will play out—if Hulu charges a subscription fee, will NBC still show full episodes of its shows for free on its own website? And how much will the subscription cost? We don’t have the facts.

As mystifying as Hulu’s plan may be, it’s hard to believe that its corporate overlords haven’t crunched the numbers. Besides, there are permutations of a subscription-based Hulu that would be more acceptable than others. I’d understand the implementation of premium, ad-free version for the criminally impatient or the addition of extra features accessible only to those who pay for them. And it would be hard to turn down a subscription if it offered access to a video library expanded to rival that of Netflix.

But failing that, I don’t think I’ll be convinced that anything should change. Consider this an ultimatum, Hulu. Give me free television, or give me—well, just give me the free television.