Why we love online video

Surprise: Sites like Hulu.com aren't just appealing because they're free. In fact, we'll probably end up paying for them.

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By Jia Lynn Yang, writer


NEW YORK (Fortune) -- There has perhaps never been a better time to drop your $60-a-month cable bill and subsist purely on free web video.

How else to explain the hoopla last week when News Corps' chief digital officer, Jonathan Miller, merely hinted that the video site Hulu, co-owned by News Corp (NWS, Fortune 500)., GE's (GE, Fortune 500) NBC Universal, and Disney (DIS, Fortune 500), might someday charge viewers for some of its content. As reported by the web site DailyFinance, Miller said: "In my opinion the answer could be yes. I don't see why over time that shouldn't happen."

Immediately, people questioned why they'd ever pay for something they were used to getting for free (by now a very familiar quandary for the media industry).

It might seen an anathema to how things are done these days, but it's not totally implausible that people would pay for web video. A recent report by Bernstein Research analyst Jeffrey Lindsay sheds light on why.

Lindsay surveyed online video watchers and found that 35% are thinking of switching from regular TV viewing to online video -- and not just because they're cheapskates. Out of those who said they might cut their cable, 28% wanted to save money, but 27% said they'd be interested because of the web's wider selection of content.

This means the popularity of sites like Hulu aren't just because the price (free) is right. People are getting something they can't get from cable -- at least not yet.

Time Warner Cable (TWC) recently tried an experiment in Milwaukee, Wisconsin in which HBO subscribers could download content from an HBO web site, a service exclusively for subscribers. (HBO, like Fortune's parent Time Inc., is a unit of Time Warner (TWX, Fortune 500).) Comcast has a Fancast site that streams TV shows.

On the sports front, Cablevision (CVC, Fortune 500) reportedly just agreed to a deal with the Yankees' YES Network and Major League Baseball Advanced Media that would let cable subscribers who already have YES watch on their computers as well.

This last scenario is a prime example of what the cable industry calls "authentication," where users would have to prove they're paying TV customers before gaining accessing to prime video sites.

Thankfully for the cable industry, most people still want to watch TV on a TV, not a computer monitor. Lindsay's survey found only 19% are streaming video onto a TV; most are still stuck on their monitors. This is why the start-up Boxee, which lets users watch web video on their TVs, is so threatening to the status quo. And Netflix (NFLX), with its Roku digital video player, also upends people's notions of how they get content onto their TVs.

The bottom line: TV is in an experimental phase. But all this increased competition is good news for TV lovers, even if Hulu doesn't stay free forever.

As Alec Baldwin said in the Hulu ad that debuted during the Super Bowl: "There's nothing you can do to stop it. I mean, what are you going to do, turn off your TV and your computer?" Unlikely. To top of page

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