Coverage: Hulu announces Netflix-like streaming service

In order to better rival Netflix, Amazon and other cord-cutting options, Hulu announced a new commercial-free streaming service that will cost users $12 a month.

Cade Metz of Wired had the story:

Redoubling its challenge to Netflix and Amazon Prime Video, Hulu is finally offering an ad-free version of its Internet movie and television streaming service.

On Wednesday, the big-studio-backed Hulu announced that users can now watch movies and shows without commercials for $11.99 a month. Since 2010, the company has offered a for-pay subscription service, and though this included fewer ads than the company’s free service, it still included ads—much to the chagrin of some Twitter-happy American consumers. “I’ve heard all the arguments for it, but I’d never pay for Hulu and still sit through ads. Nope,” one North Dakota woman wrote on Twitter this spring.

Now, she doesn’t have to. And those with existing subscriptions can upgrade to the new ad-free version for $4. The move puts Hulu in more direct competition with Netflix, whose popular internet streaming offering operates as an ad-free subscription service. Netflix is used by about 40 million Americans, Hulu by around 9 million. Amazon also offers ad-free streaming as part of its Prime service, where people pay $99 a year for free shipping on retail orders.

Re/code’s Peter Kafka broke down the $4 price jump:

Netflix, Amazon and Hulu will all let you stream old TV shows and movies. The difference is that Netflix and Amazon don’t have ads and that Hulu does — even for its $8 a month subscription service.

Now Hulu is offering an ad-free option as well, if you’re willing to pay extra.

Hulu will charge $12 a month for its ad-free version, while continuing to market its ad-supported service. Netflix charges new subscribers $9 a month for its service; Amazon streams video for free for people who subscribe to its $99-a-year Prime shipping service.

The Wall Street Journal had previously reported on Hulu’s plans.

Hulu is jointly owned by Disney, 21st Century Fox and Comcast’s NBCUniversal*, and those companies are heavily invested in the business of selling TV ads. Hulu won’t come out and say this out loud, but the 50 percent price jump between the two versions is meant to give most of Hulu’s nine million subscribers a reason to keep the version they have, and not hasten the erosion of the ad model.

Hulu CEO Mike Hopkins will say that he expects a “solid majority” of Hulu’s subscribers will end up with the lower-priced version.

The Wall Street Journal’s Mike Shields explained why advertisers aren’t worried about the announcement:

After Hulu announced its new subscription option that lets people pay $11.99 a month to watch all the shows and movies they want without any commercials, ad buyers collectively shrugged.

It’s not that advertisers don’t like Hulu. They actually really like Hulu, given its TV-quality content online in an environment with a typically lighter ad load than traditional TV. It’s just that most buyers don’t think that the ad-free offering will put much of a dent in Hulu’s overall supply of ad spots.

Plus, with the proliferation of Web video options over the past few years, some ad buyers say that Hulu is hardly the only game in town anymore for premium advertisers.

Hulu announced the ad-free option Wednesday in a bid to more directly take on Netflix and Amazon, whose shows don’t carry any commercials. The video service will still keep its $7.99-a-month premium subscription that requires its nine million customers to watch “limited” commercials.

Kris Magel, chief investment officer at the media buying firm Initiative, said that Hulu had kept his agency in the loop as the ad-free option was being discussed. He championed the move, but said he doubts Hulu’s ad business would see much impact.

“There aren’t that many people in the U.S. that are going to shell out $12 a month to avoid ads,” he said. “I don’t believe this is going to wipe out their ad business.”

Several other ad buyers concurred. “As far as the volume of premium content to run ads alongside, you’d be hard pressed to find a larger aggregator of that than Hulu,” said Brian Leder, senior vice president, North America, at the digital agency Razorfish.

The goal isn’t to abandon the ad-supported model, according to Hulu, but rather to lure consumers who never subscribed in the first place or who had abandoned the streaming service because of an aversion to advertising.

“We’re not walking away from the ad business,” Hulu Chief Executive Mike Hopkins said in an interview Wednesday. “We’re really confident that the ad business is going to continue to grow.”

Emily Steel of The New York Times laid out what Hulu has already done this year to be competitive:

It has already been a busy year for Hulu, during which it has bolstered its roster of film and television offerings and expanded distribution. Mr. Hopkins started as chief executive in 2013, after its owners — Walt Disney, 21st Century Fox and Comcast — announced that they were scrapping plans to sell the site and instead investing $750 million into the service.

Recent developments signal that Hulu’s owners think of the site as a defense against the rise of Netflix and Amazon, which have contributed to sharp TV ratings declines, some media industry analysts have said. Building a stronger streaming competitor of their own could help traditional TV companies fight back.

Just this week, for example, Hulu announced that it had landed a streaming deal with the premium cable network Epix to bring films including “Hunger Games: Catching Fire,” “Transformers: Age of Extinction,” “Teenage Mutant Ninja Turtles” and “The Wolf of Wall Street” to the service. (Previously, Epix had an agreement with Netflix. Epix programming is also available on Amazon and cable television.)

That followed Hulu’s streaming deals for televisions hits including “Seinfeld,” “Empire” and “Fargo,” as well as with the networks AMC, FX and Turner. Hulu also has ramped up its investment in original programming, including “11/22/63” from Stephen King and J. J. Abrams, about a time traveler who tries to stop the assassination of John F. Kennedy; Amy Poehler’s comedy “Difficult People”; and the next season of the comedy “The Mindy Project.”

Hulu also has struck deals with cable companies such as Cablevision and Charter, which resell the service to their customers.

“We knew that we had to make a lot of investments in content so that we could stand apart and make some headway against the competition,” Mr. Hopkins said.