The problem is that the world has changed significantly since Hulu was started 3 years ago, and launching a successful online subscription service now is far harder to do now than it would have been then. Here are some of the top reasons why:

Subscription competition - 3 years the online video subscription field was wide open, but now there’s Netflix to contend with. As the company’s blowout Q1 ’10 results amply demonstrate, Netflix is firing on all cylinders.  By providing unlimited streaming as a value add even for its $8.99/mo subs, Netflix has muddied the waters for any would-be online-only subscription competitor, which has to articulate a value prop to prospects of why they should pay the same or more for online-only access, for what will likely be a smaller catalog initially. Netflix also has the device partnerships, 28-day studio deals for more content, well-baked UI/recommendations and deep financial resources. 3 years ago it had none of this; back then it was still imposing confusing online usage caps and pursuing itsown set-top box with LG Electronics.

TV Everywhere - 3 years ago cable operators were contemplating their navels when it came to online video delivery, now with TV Everywhere they have a game plan (though admittedly not a lot of actual success just yet). For most cable networks, preserving their relationships in the cable ecosystem is paramount. Taking a leap by licensing content for a Hulu subscription service isn’t going to be very appealing. Absent cable content, Hulu will be pitching a monthly subscription to archived commercial free broadcast network programs; that’s a pretty narrow value prop.

Comcast-NBCU deal - 3 years ago Comcast was still licking its wounds from its ill-considered bid for Disney; now it has a deal to acquire NBCU, one of Hulu’s original partners and a top-tier cable network owner. While Comcast will say all the right things during the deal’s review process, I’ve wondered how long Comcast would even retain its Hulu stake once the deal is completed. Hulu’s free “ad-lite” model is antithetical to Comcast’s belief in subscriptions and bottom line accountability. A Hulu subscription service is unlikely to help either. Why would Comcast want another competing subscription offer in the market, much less one that would tempt would-be “cord-cutters?”

Lack of ownership will - 3 years ago, NBCU and News Corp were full of platitudes about their new online video baby. But in addition to NBCU’s changed status, News Corp has become the most vocal content provider for the paid online content model. MySpace’s travails are rumored to have soured Rupert Murdoch’s appetite for chasing fickle online users. Meanwhile, Disney, the last partner to the Hulu venture, is plenty interested in subscriptions, but it wants to offer them directly. Then there’s Hulu’s key financial partner, Providence Equity Partners. I’ve never quite understood their investment decision given Hulu’s limited exit opportunities, but one thing’s for sure – they’re unlikely to be motivated to help fund the considerable development and marketing expenses Hulu must undertake to make subscriptions succeed.

Retransmission consent - 3 years ago, the idea of broadcasters getting paid for their content still seemed like a stretch. But broadcasters are winning their chosen high-stakes battles, and given their success, are far more inclined to pursue a wholesale model (i.e. getting distributors to pay them monthly) than back a retail, subscription model. Plus, a Hulu subscription model departs from the message of free broadcast service that the broadcast lobby is using with the FCC and Congress to justify why it should retain its excess spectrum, rather than yielding it to mobile data providers under the National Broadband Plan’s reclamation program.

User expectations - As if these weren’t enough to contend with, the single biggest impediment Hulu faces is likely itself. Having invested its brand heavily in the free ad-supported positioning (and computer-based viewing only) Hulu lacks what experts would call “brand permission” to now pursue subscriptions. Companies are frequently chastened to find out what their customers really think when stretching for new products or business models. Moving customers from free to paid is one of the hardest things any company can do (just ask YouTube which is attempting to do the same); trying to pull it off from a cold start is nearly impossible in my mind. Hindsight is 20-20, but what Hulu probably should have done 3 years ago is offered a “freemium” model that would have immediately conditioned its users to thinking Hulu stands for both free and paid.

I’ve learned to never say never in this business, but to succeed, Hulu has to surmount the above challenges and more. If it can do so, it will be a significant win for the company. If it can’t it will be yet another reminder of how treacherous things are even for well-funded startups trying to navigate a quickly-shifting competitive landscape.