I was surprised to hear this week that video site Hulu.com is going to start charging a subscription fee to view videos. For those of you not familiar with Hulu, you can watch movies and TV shows with limited commercials. What surprises me is that Hulu isn't able to turn a profit with their current advertising model. For example, if you watch an episode of House you will have to view 4 to 5 short commercials from 10 seconds in length to 30 seconds. This is still far fewer commercials then watching the show live. You might be thinking, just fast forward through the commercials like you do with your DVR or Tivo. However, with Hulu, there is no way to fast forward through commercials.

By Hulu's failure to become profitable with advertising we are led to believe that the financial "rights" to view these shows outweighs what advertisers are willing to pay. Perhaps it's because advertisers still think that the web isn't as successful as television, but I don't think that's it. The high royalty costs for programs are what drive the illegal download market. Sure there are some viewers, maybe even many, that despite the cost would still look for the least expensive, or free way. But there are others, and I believe the majority who don't mind watching a few short commercials to get video on demand to support sites like Hulu.

Do Hulu's owners such as Fox really believe that the Internet culture will support a subscription site for viewing videos? Imagine if companies like YouTube, Facebook or Twitter, all of which don't have the revenue to expenses ratio that Hulu holds, started charging a subscription to use their service. You could kiss them both goodbye as subscriptions online went out with AOL years ago. This doesn't mean that as users of the net we are entitled to FREE everything, but there is a culture instilled online and bucking that trend hasn’t worked in the past, so why will it now? This isn’t really a surprise as News Corp (parent company to Fox) announced last month that they will start charging to view news online. If all major news sources start charging, then maybe this would work, but until then, doesn’t this seem like a foregone conclusion of failure?

My guess is that when Hulu starts charging, illegal download sites as well as Hulu competitors will start coming out of the wood work at a significant pace. If we have reached a point where advertising won't pay for a user's experience, maybe we need to look at the costs to license these shows as the root of the problem. Don’t read into this as I am saying to cheat actors out of royalties or media houses out of profits, but certainly a review of whether they are excessive would be warranted. Most consumers have taken a hit one way or the other in this economy, but are actors being paid the same even though advertising dollars have shrunk at an alarming rate?

Bottom line, subscriptions for online services only work in certain areas such as gaming and financial. Does YouTube charge to view videos? What do you think would happen to YouTube's viewership if they started charging a fee tomorrow? Sure, videos on YouTube and Hulu are different, but at the end of the day, are they? Regardless of the amount of money that Hulu charges for the subscription, it is the hassle signing up, paying, and filling out forms before watching a video that will have a profound affect on their viewership.