Hulu’s Free Pricing Strategy

For this case analysis on pricing strategies I decided to investigate one of my personal favorite online video sites. From a consumer perspective, the perceived value of the service Hulu provides is quite great through their free pricing strategy. Not having the time or patience to DVR my favorite shows, this online content provider has allowed me to watch streaming shows and video clips at my own convenience.

Founded in March 2007, Hulu is co-owned by NBC Universal, News Corp. and Providence Equity Partners. It is operated independently by a dedicated management team with offices in Los Angeles, New York, Chicago and Beijing. Online video services such as Hulu.com obviously needs access to legitimate content as content needs to belong to a host. Hulu brings together a large selection of videos from more than 130 content providers, including FOX, NBC Universal, MGM, Sony Pictures Television, Warner Bros. and more.

The mission statement found on the “About Hulu” page of the site reinforces my preferences as a consumer:

“Hulu's mission is to help people find and enjoy the world's premium video content when, where and how they want it. As we pursue this mission, we aspire to create a service that users, advertisers, and content owners unabashedly love.”

As mentioned above, Hulu seems to identify with three key consumer groups which impact the free pricing model and in turn the bottom line of the company. The company classifies itself as free and legal through an advertising supported model. This model revolves around content being subsidized by advertisers who find that using this website allows for great marketing potential due to the high traffic of the popular pure play while still making sure to remain somewhat non-invasive in the eyes of the consumer.

User Experience
It seems as though Hulu is doing quite well for itself by incorporating the advertising model into their pure play. The on-demand nature of the website and the lack of subscription or tier pricing are features of the site which allow even the most uninterested experiential users little excuse to not check out what Hulu has to offer. As a user of the website, I can say that the ability to watch a single show or entire television series over an extended period without restriction as to time period or frequency is great. One of the best attributes of Hulu for me is that it has allowed me to discover new shows I would never be smart enough to find on TV in terms of the network and listed air time. Now I can stay on the same page as family, friends and classmates who tune into and make recommendations on the most popular shows.

Advertisers
Hulu gives advertisers an opportunity to associate their brands with premium online video content, connect with highly engaged consumers and extend their reach beyond Hulu.com to Hulu's distribution network. The ability of Hulu to become as viral as say YouTube creates a platform for advertisers to utilize in terms of generating successful advertising. Since the advertising is typically only around thirty seconds, there is a lower click off rate among visitors and viewership can remain strong for Hulu.

Content Owners
Hulu holds a wide database of network generated content which is controlled by those providers. Streaming online videos instead of having them available to download may help steer the consumer to the shelves for that extra bit of season 5 not available through Hulu – in an ideal marketing world. It will be interesting to see whether the advertising model will be successful enough on its own to keep content owners happy. Intellectual property needs to be licensed and content owners need to be paid! After all, content needs a host such as Hulu to create that viral appeal of a hidden network show that might not have done so well on broadcast television. It could be inferred that Hulu has an overall pricing goal that is market-oriented; creating loyal among users to each network affiliated with Hulu keeps consumers fixed on one pure play location as well as steering interest to TV or DVDs sales, thus increasing network market share.

Prescriptions
One of the flaws I can see with Hulu is that at times the content is not as flush as I would like it to be as a consumer nor are all shows guaranteed to stay available over an extended period of time. Often times I have checked out a show on the recommendation of a friend only to find that the content was unavailable or there was only one season posted to view. I can recall that over the first semester I starting watching the show “It’s Always Sunny in Philadelphia,” a program almost impossible to find on the FX network at a steady broadcast time. There were around five seasons available when I first visited Hulu. I was greatly disappointed when I had finished the third only to find the remaining two taken off the web.

Check out what is going on with the discussion on the Always Sunny page:





One suggestion I have for Hulu to increase their customization efforts and thus their brand is to actually employ a freemium of some kind. This does need to be done with sensitivity as most consumers may not feel an upgrade is necessary. I do not think the current shows and content should be scaled back for the free model but that there needs to be an offering to have more show choice as well as depth to entire seasons for a low fixed monthly price (say $1.99). With the freemium model, there only needs to be a low ratio of paid to free users to create a negligible cost in servicing the Hulu population who are not planning on paying for service.

Hulu:
2008 gross revenue for US: $70 million

Net margin (factors in infrastructure costs and payments to affiliates and content owners): 15 percent to 18 percent

Net revenue: $10.5 million to $12.6 million