Hulu offers user demanded content online free of charge to the user. This is following somewhat the Google model where everything is free, and revenue is supported from advertising. The difference is that Hulu is offering content that they did not actually create. They are offering content that is identical to the content on television. Cable companies offer a subscription based method and their value proposition is that users can have access to the content they are willing to pay for, and can watch original content live, on demand, or on DVR.
The difference with broadcast TV is that you have the ability to watch live. However the negative side with broadcast TV is that if the person doesn't have cable, they most likely don't have a DVR, and probably don't still have the VHS player hooked up. These providers offer content for free, if you have an antennae, and generate revenue off of advertising. Hulu becomes an extension of broadcast TV and extension of the advertising generated revenue.
Cable is different. It is a subscription service. The cable content may be offered on Hulu but in general it offers less episodes for less amount of time. FX for example makes you wait 2 weeks to watch a new episode. These cable networks need subscriptions so while they feel Hulu can generate buzz, they don't want to offer too much free content.
The difference that cable brings is the ability to watch programs live, and the ability if you own a DVR to watch any show you want at any time you want (so long as you are at home). Where Hulu gains its value is if someone does not have a DVR, they can watch on their computer whenever they want. This also helps people who aren't at home, as I (shhhh) watch Hulu at work all the time, or at the airport on my laptop.
Before Hulu, I was not unable to watch these shows at work. Each individual network usually had its own episode pages where you could watch the latest content. Hulu just puts it all in one place, and because it has gained such popularity, it encourages tv partners to offer even more content, it adds new network partners, and there are more episodes on Hulu.
If Hulu wants to continue the way they are going, their model is not bad. However if they want to expand more into the cable realm, they are going to have to add more Premium (Pay) services.
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