Edible Apple

The Los Angeles Times is reporting that Hulu is putting the final touches on a new subscription service that TV networks hope will bring in another stream of revenue to go along with Hulu’s current advertising based model.

According to people familiar with the company’s plans, the Hulu that we all know and love will remain the same in that the 5 most recent episodes from today’s most popular TV shows will still be available free of charge. But customers who sign up for the $9.95 subscription service, dubbed “Hulu Plus”, will have access to a much wider range of content, such as entire seasons of popular shows like Family Guy.

The LA Times report doesn’t explicitly mention the iPad, but with a seemingly firm deadline in place for a subscription service, an iPad app may soon be on the horizon as well.

Over the past few months, reports have circulated suggesting that Hulu was looking to make its content compatible with the iPhone OS, which as you might have heard, doesn’t support Flash playback. Still, there are a few issues that Hulu must first address before it lands on a device like the iPad.

Even though Hulu is reportedly interested in delivering a dedicated iPad app, they’re having a difficult time figuring out how to keep the main site free, while offering features attractive enough to entice subscribers who want a little something extra.

Another potential issue is that Hulu would need to attain additional licensing rights (for mobile devices) if it ever wants to migrate over to the iPad, and potentially the iPhone. This added cost could prove a troublesome sticking point because the idea for a subscription service was born out of the fact that Hulu, as it is today, isn’t much of a money maker for networks to begin with.

Notably, Hulu’s subscription service will only apply to the major networks and will not encompass content from popular cable channels like FX and AMC. So much for catching up on Mad Men and Breaking Bad.

Peter Kafka of All Things D details the challenging economics of a Hulu subscription app and notes that Hulu will have to pay $1 to $1.50 per subscriber to each participating network. The result? Hulu will have to hand over $3 to $5.50 for ever $10 it brings in. “And then,” Kafka writes, “it has to shoulder the streaming costs, billing costs, customer service costs, etc.–figure a couple bucks a month more for that stuff. That gets you something like a 30 percent gross margin, which is nothing to brag about.”

One final challenge to a Hulu subscription service is that ABC is already giving out the milk for free in the form of a very popular iPad app which lets users freely stream popular shows like LOST and Grey’s Anatomy. In light of that, a subscription-based Hulu app naturally seems like a less valuable proposition, so much so that Hulu CEO Jason Kilar reportedly “tried desperately to get ABC not introduce its free app for this very reason.”

But with ABC owned by Disney, where Apple CEO Steve Jobs happens to be the largest individual shareholder, there probably wasn’t much Hulu could do. Apple’s seemingly tight relationship with ABC was in full effect in the days preceding the iPad launch when the popular ABC comedy Modern Family ran an episode where the iPad was hyped up and featured prominently as part of the plot.