The subscription service makes sense from a timing and business standpoint. With the release of the iPad, Netflix recently announced a huge influx of new subscribers looking to utilize its on-demand streaming service, and consequently, a surge in earnings. While Hulu isn't a direct competitor to Netflix--its focus is television and you can only currently watch it on a computer -- they definitely want a share of those subscriber dollars. The sparse ads it's using to pay for current content covers operating costs and generates some profit (ads have brought in $100 million in revenue), but limits growth potential and is a far cry from how much networks are accustomed to making over broadcast television. With the current model, internet streaming is a supplemental business, not sustainable as the inevitable replacement for traditional television.
No Ads, PeriodIf Hulu is asking users to pay for content they can essentially get for free (either just by watching on TV or existing streams), they better not make us watch any ads with these videos. I don't want to see interstitials, banner ads, or preroll ads. Unfortunately, this is unlikely the case, as AllThingsD's Peter Kafka has already pointed out that $10/month isn't going to help Hulu pay its bills to networks, especially as they expand to include more content from different providers. Analysts also expect that Hulu's free service will get an ad-bump soon after a subscription service debuts to put it more on par with the ad loads on television as well as to push users toward monthly payment. Hulu won't dare further limit the content it offers with its free service--it's very difficult to take free features away from customers without public outrage--but they can make that experience more unbearable with more ads to make the paid service more attractive. This is a bad idea. The right way to go about using ads for a paid service, assuming they resort to that, is to develop a completely different ad experience for viewers.
HD VideoThere is no excuse for not having at least 720p resolution video for shows filmed in HD on Hulu. YouTube already offers 1080p streams, and HD video would be a fair differentiating feature between Hulu's free and subscription services. Hulu will need this if they want to compete with television piracy, as well, since most pirated shows are now distributed in HD formats.
No Windowed or Delayed Content"A comprehensive selection" should include not only the complete backlog of episodes for any given series, but also the most recent episode as soon as it airs on television (at least on the west coast). If Hulu is ever going to be on par with television, it needs to be a reasonable alternative to watching your favorite TV shows live. As long as it sticks to the "day after" model of updating content, Hulu won't be able to draw the same kind of simultaneous viewership that makes watching television a national ritual. Hulu has experimented with live broadcasts before, notably with press conferences, and it's a huge opportunity for future subscribers to enjoy a shared experience that is unique to their community. Watching the Superbowl is a experience enhanced by having millions of people watch the same ads and talk about them the next day at the office water cooler. Hulu needs to tap into that experience by removing windowed and delayed releases.
Mobile Device CompatibilityJust as the Netflix app brought tons of new users to its service -- I know many people who subscribe to Netflix's most basic $9/month service just to stream movies -- Hulu needs to get its platform onto mobile devices, and fast. Dell's recently leaked Thunder phone hinted at an "integrated web video Hulu app," which bodes will for Hulu porting to mobile phones and tablets. But note that Dell's Thunder is an Android phone with Flash 10.1, so it's not clear whether Hulu will be porting its video player to Apple-friendly HTML5.
Offline ViewingThis is a long shot, but what Hulu really needs is a way to watch its content while users aren't connected online. Yes, this would mean heavily DRM-ed video, but the option to pre-download video and queue it up for remote viewing would be a huge win for smartphone and tablet owners. It would also take a huge load off cellular networks and avoid buffering problems. Think of it as a digital version of Netflix's rental service-- you'd be able to pre-download one or more videos at a time and get more once you delete them off your device.
If all of these features were available with Hulu Plus, I would pay for the service in a heartbeat. Hell, even $20/month would be reasonable. What will likely happen over time is that Hulu will offer tiered subscription plans, with more features available for a higher monthly fee. But just as it would be bad business for Hulu to get rid of its already established free service in favor of a paid-only model, whatever expanded services debuting with the new $10/month plan will be the bare minimum for customers with room for improvement.
What would it take for you to pay for Hulu?