Reconfiguring the Hulu.com Business Model for the Movie Industry
NBC, Fox, and CBS did not have to make an extreme change to their business model when creating Hulu. Their primary source of revenue stayed the same from the transition from television to the Internet: advertisements.90 In contrast, the movie industry relies on box office and DVD sales as their main sources of revenue. Hulu, however, has been a success story for the television industry that may prevent the previous quoted gloomy future from occurring. Similarly, the movie industry must now develop a new business model that utilizes the Internet to satisfy their consumers and prevent piracy from destroying their industry.
Hulu is a great business model for the movie industry, but it will need to be re-configured in order to fit the movie industry’s needs. Hulu changed considerably during its first two years in existence and is still not a complete solution to piracy for the television industry, but it is a great beginning business model that has helped immensely and will continue to be molded as digital technology and consumer demand changes. Hulu satisfies the on-demand consumers’ desire for cheap, easy, and fast un-restricted access to high-quality digital products. A movie site that offers a large selection of movies, viewable instantaneously on a high quality HD video player will have the qualities necessary to replace any need for consumers to pirate movies.
As discussed above, the expanding market for online advertising offers the movie industry great potential for revenue with a site that would undoubtedly attract a lot of users. Even though advertisements are usually not shown during a movie at a theater or on a DVD, the Internet offers a unique opportunity to not change that familiar experience with consumers, but still to make revenue from advertisements. Since consumers are used to watching 15 minutes of previews before a movie, the site could play advertisements before playing a movie. This would also be a great opportunity for the movie industry to cash in on the exploding branded entertainment market. $22.3 billion was spent on branded entertainment in ad spending in 2007 and is expected to keep rising.91 Television networks with falling ratings, such as NBC, have actually been able to increase its profitability due largely to their use of branded entertainment.92 The possibilities of using online advertisements are immense and create the potential for a substantial new revenue stream for the movie industry.
The movie industry, however, may not have to start off by relying solely on advertisements as its only revenue stream like the television industry does. Where “subscription or pay-per-view services are unlikely to work in [the television industry]”93, the same is not true for the movie industry. People are still willing to pay to watch movies; whether purchasing a movie ticket, subscribing to NetFlix or Blockbuster Online, or renting a DVD from RedBox. People do not expect their movie watching experience to be free, unlike their expectations with their music and television experiences. Therefore, a movie site, through trial and error, could determine the maximum price consumers are willing to pay to rent or purchase a digital movie file, and whether subscription or pay-per-view services result in sensible additional revenue.
Many movie websites have failed, however, because they contained unappealing technical restrictions in the form of DRM, offered limited selections, or charged nearly the same for movie downloads as for physical media.94 Also, legitimate movie sites cannot post movies as quickly as pirated sites, since legitimate sites are subjected to the industry’s standard release policies.95 The time period between box office and DVD release has usually been around four and a half months.96 During that time, people who wish to watch the movie after watching it in the theaters and do not want to wait four and a half months, will download an illegal copy and lessen the chance of that person every buying the DVD when it comes out. Also, in four and a half months, a consumer’s desire to buy a DVD may fade. The movie industry should experiment with making the DVD release date closer to the box office release date, and even try releasing them on the same date since this will match what piracy offers.97
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