Hulu, the popular online site for watching television shows, is preparing to execute the toughest maneuver in digital media: moving from free to pay.
The service will begin testing a subscription offering as soon as May 24, according to people with knowledge of the plans.
Under the proposal, Hulu would continue to provide for free the five most recent episodes of shows such as Fox’s " Glee,” ABC’s “Modern Family” and NBC’s “Saturday Night Live.” But viewers who want to see additional episodes would pay $9.95 a month to access a more comprehensive selection, called Hulu Plus, these people said.
The embrace of the subscription model by Hulu, a site celebrated as a maverick that flouted the old-media rules by offering shows for free, is a recognition of economic reality. There’s no such thing as a free lunch. Even on the Internet.
But getting users to pay for content that they have long grown accustomed to getting — and expecting — for free could be a tricky problem for Hulu.
“Going from free to paid is one of the hardest challenges that any company ever faces,” said Will Richmond, an analyst at VideoNuze, a site that covers the online video industry. “It’s a lot easier to go from paid to free than go from free to paid.”
Hulu, which ranks second to Google’s YouTube in monthly video streams in the U.S., appears poised to extend the service beyond the computer to other portable devices, such as Apple Inc.'s iPad and iPhone, and game consoles like Microsoft Corp.'s Xbox.
Hulu declined to comment.
The site has found itself caught between two worlds. While Hulu wants to be true to the culture of the Internet by providing shows for free, it also is beholden to its entertainment industry owners, News Corp., NBC Universal and Walt Disney Co., which are determined to preserve the cable and satellite fees that pay for the high cost of TV production.
The pay move also comes at an awkward time, as Comcast is pushing its deal to acquire Hulu partner NBC Universal through Washington. The content offered through the pay plan will largely be broadcast TV shows, and regulators and lawmakers could perceive it as yet another worrisome step toward making users pay for over-the-air content. The Federal Communications Commission has asked Comcast to explain how its take-over of NBC Universal might affect the online video market.
The 2-year-old service generated more than $100 million in revenue in the fourth quarter of last year from advertising. But that doesn’t come close to matching the revenue that these companies are accustomed to raking in from their more established businesses.
Television executives don’t want to suffer the same fate as music industry or newspapers, which saw revenues plummet after users flocked to free access to songs, stories and classified ads online.
Already, Hulu fans are decrying the proposal and threatening to turn to Internet pirate sites to watch their favorite shows.
“The challenge will be whether Hulu Plus has enough ‘added value’ so that consumers perceive that it’s worth the price,” said Michael McGuire, media analyst with research firm Gartner.
Another threat looms. Movie subscription service Netflix, which offers unlimited streaming of television shows and movies as well as DVDs by mail, this week reported huge growth in the number of customers, with newcomers gravitating to its $8.99 plan that enables users to watch as many movies as they want. It said more than half its 14 million subscribers have used its “watch instantly” feature.
“That’s what Hulu has to compete with,” Richmond said.