Tuesday, June 9, 2009

Video Insider: Should Hulu Go Subscription?

Should Hulu Go Subscription?

The buzz is everywhere -- in the blogosphere, on industry panels, and even at lunch with colleagues: Should Hulu go subscription? Is a subscription model coming to Web video, and soon? Well, let's look at what makes a subscription model work, why consumers (en masse) sign up for subscriptions, and see if we can figure out whether a subscription model makes sense for Internet-delivered television today.

Cable subscriptions took off in the early 1980s. If we look back and ask why, the answer was simple. If you wanted the new television sports reporting and highlights (ESPN), music videos (MTV) or movies (HBO) accessible in your living room, you only had two choices: pay the cable operator, or don't get any of it. In recent history, the same has been true for many consumer goods obtained through subscription services, like newspapers, milk and ice.

Subscription services for milk and ice have pretty much dissipated in favor of the grocery store (a platform change) because today's supermarkets have become more convenient and provide us with more options. In some rural areas, food home delivery services are still very popular because the menu choices (features) and convenience make home delivery a better offering, just as the features and ease of online shopping are often superior to in-store shopping, even though the retail outlets may be down the street.

The most basic takeaway here is that a subscription model or platform change works if you offer the consumer something he or she wants but can't get anywhere else, or you provide benefits of such significance that a consumer's marginal utility increases more than any incremental cost. If we apply these teachings to Internet-delivered video, we realize today's Internet video subscriptions or "for pay" video offerings make sense for (1) premium content that isn't readily available on television, (2) premium content that is far superior because of platform features or quality, and (3) premium content that is more conveniently obtained because of the platform.

MLB.com and TennisTv.com are examples of premium content offerings that aren't available on television. Consumers are subscribing to these offerings for the same reason they bought cable in the 1980s :"I want it and it isn't available elsewhere." Though not subscription-based, PBS recently enhanced its PBS KIDS GO! children's site with in-video interactive content. After the interactivity was added, viewership and engagement skyrocketed as PBS leveraged the technology platform, making the content experience superior for its audience. Reasonably priced, choice-rich and easy to obtain, movie downloads should also succeed because of the convenience factor, just as iTunes and NetFlix have been doing.

Hulu and others on the Internet are certainly on their way to achieving the "for pay" value proposition. But before we can get the consumer dollars en masse -- whether by subscription or advertising -- we (the industry) need to concentrate on providing content and adding value that is unique to our platform and industry. Consumers will then, and only then, be willing to switch or augment their subscriptions.

Steve Robinson is CEO of Panache, which offers an ad-insertion platform that provides major media and entertainment companies with the infrastructure to generate and increase revenues in their movement of video to the Internet.

Video Insider for Tuesday, June 9, 2009:

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