Free vs. Paid content: Hulu becomes the next small thing

Not one to usually value unsubstantiated rumors, I will occassionally pass along rumors that seem substantiated. In this case, it's the rumor that the video sharing site Hulu intends to start charging for access to it's content sometime in 2010.

I say substantiated rumor because Hulu owner Newscorp's very own Chase Carey says it thusly:

“It’s time to start getting paid for broadcast content online,”

Full quote via TVWeek here

Of course Hulu isn't the only new-legacy media outlet online attempting to find a way to get paid for what's previously been free. Newspapers, like the NYTimes, have gone free online, tried a paywall, then torn it down, only to reconsider it again.

The long, slow decline of ad revenue at Big Media has driven the best and brightest they have to offer the usual and customary response: raise prices.

So what?

The obvious challenges in charging for broadcast content (or news, or opinion, or entertainment) online include:

1. How does customer behavior that has been groomed around free access online suddenly change to a paid model?
   
2. What value must be provided beyond what is currently available via the free model?


3. How do you define broadcast content competition online that includes the myriad other channel options people have for spending their time and interacting?


4. Broadcast content offline is subsidized by advertising...does charging customers for access online presumes that advertising is not required?

Beyond these questions, the reality behind the online subscription model rumblings is this: traditional broadcast models are based on a cost structure that is under duress...because the models are based on big. Big audiences, big production, big ad revenues.

Paper pays for infrastructure (printing presses, distribution, etc.) that is not able to be cost recovered. Broadcast content producers and their network distributors pay more than their audiences are willing to pay to watch (and, increasingly, more than the advertisers are willing to subsidize).

Applying technology to most human endeavours does two things: it decreases the costs associated with doing the same thing the old way and it enables things to be done in a new or different way.

Until broadcast models do something new and different, their only option will be to reduce costs and prices to reflect the long-tail reality of their customer's interests...the challenge is that cost cutting ends at zero. Ultimately, I think this means Big Media will have to think smaller...smaller audiences, smaller segmentation, smaller budgets...in aggregate, they may become something bigger...but they have to start by thinking smaller.

Ultimately, Hulu will probably deploy a mix of paid and free access...all-you-can-eat and on-demand packages. As with any endeavour that has near commodity status, the challenge will be in setting a price that marks to a market of one--not to what Hulu wishes a market of millions would bear.

With any luck, small thinking might--finally--become the next big thing for Big Media.