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Hulu puts a price tag on expanded service

Online video provider Hulu will keep its free site and give premium subscribers access to hundreds of additional programs.

June 30, 2010|By Dawn C. Chmielewski and Meg James, Los Angeles Times

Hulu, the 2 1/2-year-old video website controlled by three major media companies, made a bet Tuesday on the future of television by introducing a paid service that would provide viewers with hundreds of additional episodes for $9.99 a month.

The move, called Hulu Plus, is a recognition by TV networks that viewing increasingly will shift to online and mobile devices. Along with the cable industry's competing TV Everywhere initiative, which allows cable or satellite TV subscribers to watch programming online, Hulu Plus will offer users a wider selection of programming.

Under the plan, which has been in development for months, subscribers will be able to watch a season of episodes from such popular shows as "Glee," "Modern Family" and "The Office," for example, as well as episodes of cult favorites, including "X-Files" and "Buffy the Vampire Slayer," which aren't available on Hulu's free site.

At the same time, Hulu plans to continue to stream shows free on its original advertising-supported site. However, the free offerings will be more limited than what is available through the subscription service.

Hulu does not expect to scale back its free offerings, said Chief Executive Jason Kilar. About the same number of advertisements will run in episodes offered on the free site as in those found on Hulu Plus. The new service will offer a library that contains shows from more than 100 providers.

Hulu is the second-most-popular Internet site for watching videos, behind Google Inc.'s YouTube. Hulu managers also are betting there will be plenty of users willing to pay the $9.99 monthly fee to watch TV episodes on their Apple iPads, newer-generation iPhones, some Samsung TV sets and Blu-Ray players from Sony and Vizio. The service is expected to be available soon on Sony PlayStation 3 game consoles and next year through Microsoft's Xbox 360.

Hulu and TV Everywhere were conceived and designed by the broadcast and cable industries to thwart the free — and sometimes unauthorized — distribution of content on the Internet that ravaged the music and newspaper industries. Online TV and movie viewing is still in the early stages but is expected to grow sharply in coming years as broadband networks expand and mobile devices proliferate.

Hulu's quick evolution to charging viewers for access reflects how swiftly people are changing their viewing habits. Created to stem piracy and grab a slice of online advertising, the service is now the preferred way for many people, especially younger viewers, to watch TV.

That presented Hulu's owners — Rupert Murdoch's News Corp., NBC Universal and Walt Disney Co. — with a puzzle: how to make more money from online viewing, especially given that Internet advertising has not yet achieved its promise. Hulu's pay service is modeled after the cable TV industry's "dual-revenue stream," which generates revenue from both advertising and pay-TV subscriptions.

The cable TV industry is also trying to lock up programming online through its TV Everywhere initiative, which lets cable subscribers watch programming online.

The problem is that none of the players wants to offer a service that is so attractive that cable customers are motivated to simply cancel their $80-a-month home subscriptions, the lifeblood of the entertainment industry.

Mike Vorhaus, managing director of consulting firm Frank N. Magid Associates, described the service as a "hybrid" that will appeal to a certain segment of viewers. He doesn't believe the service will be a threat to cable companies, at least not yet.

"Hulu doesn't have all of the content that you get through cable. It doesn't come close," Vorhaus said. "Until you can see past episodes of 'Parenthood,' an NBC show, as well as ESPN, most people are still going to continue to pay for cable.… Now in five, 10, 15 years from now it could become more of a threat if TV content becomes ubiquitous on the Web."

Hulu also was being pressed to respond to increased competition. Movie delivery service Netflix has 13 million subscribers who, for as little as $8.99 a month, get unlimited access to movies and TV shows on the same sorts of devices, including Sony's PlayStation and Blu-Ray players, that will work with Hulu Plus.

The announcement had been expected for months and prompted an outcry from some users who don't want to surrender their free online access to popular shows. On Tuesday, Kilar tried to allay concerns of those fans, saying there were no plans to phase out the free service.

"We see great opportunities for both sites," Kilar said.

"This is a manifestation of our original mission statement, which was to delight consumers as well as the content owners."

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