The Future of TV: The 'NEW' Premium Content Networks

The race is on: Hulu and Netflixbroke new ground when they offered consumers streaming content on demand. But now they're facing more competition than ever.


Hulu Plus on an iPad
Hulu Plus on an iPad

, Verizon, Redbox, and even Wal-Mart all have streaming video services. Even Apple, which sells individual show downloads, is working on services to let you stream content. Subscribe to HBO? Now you can watch all the shows you want, anytime, anywhere, through the HBO Go app.

All these companies aren't just vying for consumers' time or subscription dollars — they're also competing for content. And more buyers are driving up prices. So as cable channels like HBO become more like apps, apps like Netflix and Hulu are becoming more like cable channels. They're both investing in original content.

Ted Sarandos, Netflix's chief content officer, says if its original programming draws viewers, they're more cost-effective than licensing premium shows. The idea is that original shows will play a role in people's decision to keep paying their monthly Netflix bill. Or ideally, a lot of buzz about a new program will drive new people to sign up, the way "Sex and the City" and "The Sopranos" attracted new subscribers to HBO.

In February, Netflix debuted its first original show called Lilyhammer, about a mobster relocated by witness protection to Lillehammer, Norway. Instead of offering the show in weekly installments like a cable channel would, it offered all eight episodes at once, for what Netflix likes to call "binge viewing," referring to its subscribers' habit of hunkering down and working through a bunch of episodes over a few days. The company doesn't release ratings, per say, but said that it is aiming for "engagement over the long haul," and so far the show has exceeded expectations.

Hulu's first original scripted series is called "Battleground," about a campaign staff trying to help an underdog running for Senate. CEO Jason Kilar says that the company mined its data of what and how people watch to decide which original programs to develop and produce. Instead of going for shows with broad appeal, as the TV networks do, Kilar says he's going for a smaller, but more devoted audience — programming that he says are "beloved" rather than "beliked."

Stay Tuned: The Future of TV
Stay Tuned: The Future of TV

Kilar hopes Hulu's lineup of seven original shows will persuade more people to pay for a premium version of the free, ad-supported service. Hulu Plus, which costs $8 a month, gives access to even more TV shows, plus most importantly, access to all Hulu content on an app on your TV set. Hulu has more than 2 million paying subscribers.

Kilar says the company will spend over $500 million to create and license programming in 2012. That's key for drawing the viewers that made its advertising valuable, but the more people want to watch its shows, the more likely they are to subscribe to the premium service.