Is Hulu a threat to Netflix? Maybe, but it's more likely a challenge to TV Everywhere

How much of a threat is Hulu Plus to Netflix? The coming months will say more about that as the platform--announced yesterday for a multitude of CE devices including the iPad and iPhone--rolls out.

Opinions in the online video industry vary from not much because the two are significantly differing offerings, (see this blog post) to very much because they'll compete for an audience hungry for time--and place-shifted episodic television (see this post). Netflix currently has some 14 million subscribers, nearly half of whom stream video. Hulu, meanwhile, saw some 40 million unique viewers in February, according to comScore. Strategy Anaytics' Jia Wu estimates that 5 percent to 10 percent of free users could be converted to subscribers for Hulu, giving it a potential 4 million users turning over some $480 million in subscription revenue a year once the service is up and running. That's a nice bump from its current $100 million revenue, even if it only converts half as many freemium users.

The bigger impact may be on the efforts of cable companies and telcos looking to roll out their own flavors of TV Everywhere, which is a far less developed product than the Netflix subscription model, and far less publicized--and popular--than Hulu's current service.

And, having the brand awareness with consumers--especially young, educated and well-off consumers that Hulu has--is a big edge.

On first blush, Hulu Plus throws an industrial-sized wrench into the plans of the TV Everywhere engine, while at the same time pushing the fortunes of over-the-top delivery and online video to new highs.

For just $10 a month, a subscriber gets near-real-time content from ABC, NBC, and FOX (and, possibly in the near future CBS, Viacom and Time Warner at the minimum), and they get it on their mobile phone, iPad, PC and their TV screen. They don't have to be part of a closed environment, like Xfinity from Comcast, or a subscriber to any other service. They just need a broadband connection--or WiFi or 3G connection--and a sawbuck a month. Boom, real TV Everywhere... at least the way consumers envision it.

Crucial to Hulu's success will be its discussions with content providers like HBO, a Time Warner property, and the slew of cable networks that have such an ardent following. If Hulu can convince those content providers that they'll get a solid return, and an opportunity to grow audience and brand awareness by enlisting in the Hulu Plus push, subscribers will follow.

Earlier this month, Bloomberg broke a story that said CBS was in talks with Hulu, a surprise at the time because CBS head honcho Les Moonves had made it clear at the Cable Show in Los Angeles that the network wouldn't be interested in a free Hulu model because it returned "just pennies" to content owners who had huge production overhead to deal with. It's likely Hulu Plus piqued the network's interest, and it won't be at all surprising to hear--shortly--that CBS has joined the fold.

Put a $10 Hulu together with a $9 Netflix, and there isn't much need for a cable company or a telco IPTV subscription, and ala carte VoD begins to make more sense as well, especially as Netflix builds its catalog and works new deals with studios to get more current releases.

The wild card in all of this, though, still has to be Comcast, which will eventually own one-third of Hulu after its deal to buy NBC Universal--which owns the video site in a joint venture with Disney and News Corp.--is approved. The nation's largest MSO has a big stake in TV Everywhere, having rolled out its Xfinity product--largely to the yawns of consumers, and the industry--late last year. Although Comcast has generally been very reassuring about the future of Hulu after the deal gets regulatory approval--and, make no mistake, it will be approved--will Comcast really allow an "independent" OTT product to compete with its own TV Everywhere offering? Especially one that's more mobile, easier to access, and that delivers more for less?

Time will tell.