Recently I’ve written about why I think the Hulu Plus subscription model will be successful. Yesterday, Peter Kafka (@pkafka) wrote in AllThingsD that Hulu’s price point is both too high for consumers and too low to satisfy media companies. I respectfully disagree.
My prediction is that Hulu Plus will be driving more than $100 million in incremental revenue for the company in 2011. If Hulu grows modestly from its current 19.5 million monthly uniques in the U.S. according to comScore*, and they’re able to convert a small fraction of that audience at $9.95, the numbers are compelling even accounting for the likely double-digit monthly churn. I expect that the service will reach or exceed a million subscribers by the end of 2011. Meanwhile, 30% margin or $30+ million would be welcome for a company that only recently announced profitability, particularly if they’re able to avoid traffic cannibalization on their existing free, ad-sponsored streams.
Granted, most media companies are making more on their own sites, but this is largely upside to their existing online revenue. Meanwhile, a paid model preserves the “premium” value of the majority of their catalog.
Beyond the financial benefit, offering a paid subscription also provides several strategic benefits to Hulu:
- Gives them a path to move off the desktop and onto mobile and the TV. The media companies are adamant that consumers not be trained that video content is “free” on mobile as they’ve become accustomed to online.
- Opens up the service to new content providers including cable, and a much larger catalog of content from their existing partners
Is $9.95 monthly too much for consumers to pay? When your content is exclusive, and more importantly, the experience is this compelling, I think a small but meaningful segment of customers will open up their wallets. Of course, that is assuming that Hulu’s subscription offer and experience demonstrate the same outstanding execution as their free service (and marketing) to date. Many services have failed at charging for video online, but Hulu is in a unique position to finally succeed.
* Footnote: Interestingly this is substantially less than the 43 million uniques announced by Hulu CEO Jason Kilar back in December, perhaps due to the comScore hybrid measurement debacle; I’m using the lower numbers to be conservative