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Can Hulu Make Viewers Pay?

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Hulu will soon begin testing a subscription service, the L.A. Times reported yesterday, in an effort to wring more revenue from its premium content. It's a bold move, but one the industry saw coming. It's been widely reported that the site's owners, News Corp. (Fox), NBC Universal, and Disney, aren't satisfied with the revenue generated by advertising and want to make online video more profitable.

Besides being a big step for Hulu, it ‘s a crucial test for the growing online video industry. Can viewers be made to pay for content or will they simply move to free content?

According to the news article, Hulu will still offer free content: it will let viewers see the most recent five episodes of its premium shows for free. For deeper access, they'll have to pay $9.95 per month. The plan will be called Hulu Plus.

Hulu has a significant advantage over every other online video destination, in that it has premium content from multiple studios. It's also quickly become a household name. It's the only online video destination with the clout to attempt such a move.

"As video viewing devices like the iPad proliferate, there is a growing number of platforms for services such as Netflix. Hulu could tap into this user base to drive revenue streams beyond advertising," says Ross Rubin, consumer technology analyst with the NPD Group.

"Leveraging the content of popular TV shows from its content partners, Hulu has been able to amass a large audience in a relatively short time. It would need to move beyond its current offering, though, to justify a subscription. Access to entire back catalogs would have strong appeal, but could cannibalize DVD sales," Rubin adds.

So far, all the broadcast television networks have made shows available for free online. The revenue these shows bring in from advertising is minute compared to what the same shows get on-air. As the online video space matures, content owners don't want the public to see online video as something that should always be free. They want to train the public to pay for premium content while many people are still discovering it. It's anything but certain, however, that the public will go along.

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