Free video website Hulu plans to soon begin charging customers and is looking to expand its content to consumer devices like the Xbox and iPad, according to two sources, as the site's media owners experiment with platforms beyond an ad-supported TV model.
Those sources and another with knowledge of the matter said that Hulu, the website for TV viewing owned by News Corp., General Electric's NBC Universal and Walt Disney Co., was developing a subscription service to be rolled out on multiple devices in the next month or two. It was not clear if that service would be offered before Hulu is available on devices. (Msnbc.com is an NBC Universal-Microsoft joint venture.)
One of those devices is expected to be Microsoft's Xbox, which also features Netflix's movie streaming service, one of the sources said on Tuesday. Another one of the sources said Hulu was also working to offer its service on Apple's iPad.
Newer episodes still free?
Hulu, which generated an estimated $100 million in advertising revenue last year, will continue to offer newer episodes of shows like Fox's "Glee" free of charge, but it will also charge viewers a monthly fee to see older episodes and other content, two of the sources said.
Hulu and Microsoft declined to comment.
Entertainment and cable industry executives will be closely watching Hulu's attempt at a paid model. Competition is intense, with entertainment companies and content distributors scrambling to become top dog in a worldwide online video market expected to hit $16.1 billion through paid and ad-supported services by 2012, according to ABI Research, which tracks media trends.
Since its launch in 2008, Hulu has emerged as one of the star players in online video, offering TV shows like "The Office," "The Simpsons" or "Lost" as well as hundreds of full-length movies. Advertising has enabled it to be free.
Hulu is hardly an exception. Across the Internet, nearly all movies, TV shows and video clips can be seen for free if the consumer is willing to tolerate advertisements. But that could change quickly if a Hulu paid service succeeds, since other entertainment companies are likely to accelerate their own efforts to create subscription models.
Will consumers pay?
Hulu's plan is not without risks, given how accustomed its users are to watching free video.
"Many consumers already pay $100 or more monthly for TV, telephony and high-speed Internet access and are unlikely to welcome an incremental fee merely to watch from the Internet some of the programs they already get," said Phil Leigh, an analyst with Inside Digital Media.
But Mike Vorhaus of media consultancy Frank N. Magid believes that consumers will pay for the convenience of getting content when they want it, where they want it.
"Many viewers are not going home to watch TV anymore. They've already been trained to believe TV is coming to them and demand is growing for this content in different forms and different business models," he said.
"Some payment by some people for some online content is here to stay, but it will continue to evolve," said Vorhaus.
Netflix's chief executive, Reed Hastings, said on a recent conference call, "There's the potential emergence of direct competitors (like) Hulu. We'll see what they do, and potentially others over time ... but the upside is it's a very big market."
Threats from cable, satellite operators
Some of the biggest threats to Netflix and sites like Hulu come from cable and satellite operators, who are ramping up video-on-demand, fearing viewers will drop pay-TV subscriptions in favor of broadband and mobile video.
Cable company Comcast and Time Warner are trumpeting plans for "TV Everywhere," which would enable viewers to watch TV shows on demand for free and on any device as long as they are already paying customers.
There has been industry speculation that companies from Apple to Disney's ABC are looking into launching subscription-TV services. Sony recently inked a deal to offer Time Warner's HBO programs via download through the PlayStation 3 game console.
An episode of an HBO series like "True Blood" will be available for download on the PS3 as it is on services like Apple's iTunes. Through affiliates like Comcast and Verizon, HBO also offers "HBO Go", a broadband service attached to its regular cable subscription, which goes into the TV Everywhere model.