Hulu moves ahead with ad-free SVOD service, but can it compete with Netflix and Amazon?

Move over, ad-supported Hulu: the streaming service is adding a third subscription tier, this time completely ad-free, for $11.99 per month. The widely rumored move was announced by the company in a blog post on its website.

The service will allow subscribers to watch content completely free of commercials. Hulu's original $7.99 monthly service still features limited commercial interruptions, but will continue to enable access to the most current episodes of top-rated broadcast TV series, as well as exclusive content.

"Many of our customers have asked us for a commercial-free option, and so today we are excited to introduce just that," CEO Mike Hopkins said in the post.

Hulu's move aligns it more directly with its top two SVOD (subscription video on demand) competitors, Netflix and Amazon, both of which have offered ad-free streaming since their conception. The question is whether the provider's ad-free option can move it out of its distant third-place ranking in terms of subscribers and revenue.

A joint venture of broadcasting and network companies including Comcast-owned NBCUniversal, Disney and 21st Century Fox, Hulu has around 9 million subs, generating an estimated $71.9 million from streaming revenues in the second quarter of 2015, according to a Subscription Insider article. By contrast, Netflix has more than 21 million U.S. subscribers and over 62 million total subs worldwide. Amazon doesn't report subscriber numbers, but all of its Prime members have access to the retail giant's Prime Instant Video service. Analyst firm Consumer Intelligence Research Partners in February estimated Amazon Prime subscribership to be around 40 million in the United States.

However, Hulu has been working hard to make its service much more attractive to potential subscribers. As Netflix and Amazon have turned their focus toward producing a greater amount of original content, Hulu has pursued exclusive licensing deals at every turn. Its most recent occurred this week as it inked a deal with Epix to stream its content after Netflix let its five-year deal with the premium network lapse.

Hulu also partnered with Showtime to offer its brand-new, standalone streaming service, Showtime Anytime, to Hulu subscribers at a discounted price of $9 per month, which is $2 less than its normal monthly rate.

Will new subscribers take a bite at Hulu's apple? Some surveys suggest that the provider may have a difficult time getting younger millennials to pony up $12 per month. At the recent OTT Executive Summit in New York, for example, a panel of "trenders" featuring teens and young adults said that they did not mind having to sit through ads in order to access the content they want for free.

Hulu's move could signal a noticeable shift in the OTT video market, however. With Netflix pursuing a path that could make it more like premium networks HBO and Showtime -- featuring a good deal of original content along with older licensed content -- Hulu may find itself competing more directly with pay-TV providers and even broadcasters as their TV Everywhere strategies expand.

Hulu also risks alienating advertisers with the ad-free strategy. While the company still touts its data-collection capabilities as a big draw for companies that advertise on the service, and it recently launched its first programmatic offering, Deadline Hollywood noted that its most recent content deals were developed with the new ad-free tier in mind. Most of the deals are "based on fixed fees, as opposed to a split of ad revenues," the article said.

Hulu Commercial-Free

Hulu's commercial-free service launched with a free trial for new subscribers. (Source: hulu.com)

For more:
- see Hulu's blog post
- see this Variety article
- and this Deadline Hollywood article

Related articles:
Price war? Showtime joins forces with Hulu as premium SVOD competition heats up
Netflix stakes big on original content strategy, letting Epix deal lapse and heading for Hollywood
Hulu chooses LiveRail for programmatic ads, retaining control of automated process

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