The iPad: A Petri Dish for Pay Models

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Hulu is coming to the iPad. But you might have to pay to watch it.

That's the rumor from this New York Times piece on the successes and travails of Hulu. The joint venture of NBC, News Corp and Disney, Hulu is newly profitable with video streams climbing to 900 million in January, according to comScore. But content providers are complaining that the company's ad-only model, which returns between 50 and 70 percent of revenue to suppliers, isn't generating enough dough, and big names like Viacom have already withdrawn programming.

Struggling industries like music and journalism have looked to Hulu as a viable Internet model. Record labels came together to make VeVo, a Hulu/YouTube hybrid that runs ads before high quality music videos. Meanwhile Journalism Online looks to introduce bundled payments to online journalism.

The irony is that Hulu might not want to be "Hulu" anymore. It's aiming to be more like Netflix, a subscriber-based model that delivers all-you-can-eat content for monthly fees. In a way, magazines and Hulu share the same problem, although Hulu has edged into the black. Both have relied on monetizing users' eyeballs with online advertisements. But facing skimpy display and video ad returns, now they want to charge users to read and watch the content upfront.

The iPad gives them this opportunity. On the Web, publishers are loath to introducing strict new pay models because you don't want to scare millions of readers away from your site forever by overpricing commoditized news and music. But with early iPad buyers, media publishers have something like an experiment group, a petri dish for pay models. Hulu and the Wall Street Journal and Esquire can dabble with prices and bundling and other payment options (here are five more) on the iPad to see which ideas stick. If users don't bite, who cares? The iPad universe is only a couple hundred thousand anyway and the failure is small-scale. That's why media publishers have every right to swing for the fences on the iPad. Never doubt that a small, upper-middle class consumer base can change the media world. Indeed, perhaps it's the only thing that can.


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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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