NEW YORK (TheStreet) -- Could an ad-free Hulu tip the subscriber scales in its favor?
In an attempt to shift the center of gravity away from Netflix (NFLX) - Get Netflix, Inc. (NFLX) Report, whose 65 million subscribers dwarf Hulu's 9 million, the online video streaming service has recently tried expanding original programming, beefing up its back catalog of feature films and brokering a deal with CBS (CBS) - Get CBS Corporation Class B Report-owned Showtime.
But its latest experiment would offer users something they have long been asking for: an advertisement-free alternative to its single-tier $7.99-a-month subscriptions.
The ad-less option is a gamble. In reaching for enough new subscribers to challenge its bigger competitor, Hulu risks poaching ad-viewing subscribers from its service.
And Hulu, a joint venture of 21st Century Fox (FOXA) - Get Fox Corporation Class A Report, Walt Disney (DIS) - Get Walt Disney Company Report and Comcast (CMCSA) - Get Comcast Corporation Class A Report, has much to lose if it sacrifices ad revenue. The company has made significant investments in so-called programmatic advertising, technologies that let companies collect data about consumers in order to make their ad-targeting more minute.
"They've got to be doing a lot of research to see how this is an opportunity to add incremental revenue," said Art Muldoon Jr., chief executive and founder of programmatic media marketing company Accordant Media. "So they must be thinking there's a different kind of consumer that could help them develop a subscriber-based model."
In other words, no two viewers are alike, as every person's tolerance for ads is different. The rumored service, first reported in The Wall Street Journal, is a bet that viewers Hulu isn't already reaching will pay a premium between $12 and $14 for the privilege of going ad-free.
As many as 14% of people can't think of a single reason to subscribe to Hulu, according to a recent survey of 2,500 consumers by iModerate and social data from Luminoso.
Many participants were frustrated that it charges a subscription fee and still has ads. By contrast, rivals Netflix and Amazon's (AMZN) - Get Amazon.com, Inc. Report Prime Instant Video both depend on subscriptions without advertisements.
Besides lacking ads, Netflix and Prime both have assets Hulu so far doesn't: original hits. Although Hulu is picking up The Mindy Project from Fox and debuting or renewing a roster of original series, none have the name recognition of Netflix's Orange is the New Black or the Emmy nominations of Amazon's Transparent.
But new content takes time. In the meantime, Hulu got some buzz from adding dependable television favorite Seinfeld to its menu this summer and this month unlocks Showtime programming on Hulu for an additional $8.99 monthly.