What is Hulu Thinking?

The online streaming industry is becoming more and more competitive. With recent announcements like Netflix releasing its first original feature film and Amazon Prime allowing customers to download content onto mobile devices to watch offline, it’s hard to think of how the industry will keep evolving.

Then there’s Hulu, the confused odd ball in the industry that just announced it would no longer be showing ads — to subscribers who pay an extra $4 per month. Let’s take a look at how Hulu can get away with that and why it still isn’t enough.

Hulu’s competitive advantage

Formed as a joint venture by NBCUniversal Television Group, Fox Broadcasting Company and Disney—ABC Television Group, Hulu has connections its competitors will likely never have. Its claim to fame is offering the most recent episodes for popular television shows. For example, I enjoy watching The Blacklist, but I’ve been waiting months for the second season to come out on Netflix. Hulu subscribers were able to watch it throughout the season, five episodes at a time after they were broadcasted.

The problem with its announcement

Hulu subscribers wishing to get rid of the long ads are in luck with the company’s new $11.99 per month subscription…sort of. It will still show ads on its top seven shows, one before each episode and one after. Is this a good value proposition to customers? Not really. Netflix and Amazon Prime have never shown ads because the subscription fees cover those costs.

So what is Hulu thinking? Is it losing so much money that it still can’t get by without the ads? Or is it so woefully unprofitable that it has little money to invest in new content licensing deals like the ones it recently scored in Seinfeld, Empire and Fargo?

“You can split people into two categories: ad avoiders and ad acceptors,” said Mike Hopkins, Hulu’s chief executive. “There are clearly people who just are not going to buy Hulu because there are ads. We think we can bring them back into the fold with new content and this new choice.”

Why it’ll fail

If Hulu can learn anything from Netflix, it’s this: Don’t charge people more for what they’re already getting. Four years ago when Netflix split its DVD service from its streaming service and charged the same amount for the two, doubling the cost to subscribers. The move cost the company 800,000 subscribers and millions of dollars per month in subscription fees.

So when Hulu says it’s “listening” to its customers because they’re complaining about the ads, charging them more for what they should already expect to receive isn’t the right answer. It’s not even a good answer any way you look at it. While some people enjoy what Hulu offers enough that they’ll stick around, I wouldn’t be surprised if this blew up in the company’s face and they lose subscribers in the aftermath. It happened to Netflix. It’ll happen to Hulu.