iYogi Insights just put out some research in regards to the effectiveness of the Freemium business model and I combed through it and pulled out all the bits that had to do with online video for you. There's loads of other info available as well if you want to read the Consumer Adoption Of Freemium Products And Services research. Hulu is probably the world's largest freemium site in the realm of online video but even they are considering the evil plan of requiring pay TV subscriptions soon (BOO!!!). Perhaps this research might show them that is a very, very bad idea.
Freemium Content Models and the Power of Video
First, what is Freemium? Wikipedia states;
"Freemium is a business model by which a product or service (typically a digital offering such as software, media, games or web services) is provided free of charge, but a premium is charged for advanced features, functionality, or related products and services. The word 'freemium' is aportmanteau combining the two aspects of the business model: 'free' and 'premium'."
Conversion rates for movies and video online using a freemium model ranged from 57 to 65%. That's a pretty large chunk of consumers for sites like Netflix and Hulu (both included in this survey). Even video/images sharing services saw a decent 24% conversion rate at places like Flickr and Shutterfly. Overall iYogi found that the conversion rate was 42%. So, while the sharing sites didn't do extremely well, considering YouTube is totally free it's no surprise, the freemium model was far more impressive for movies/TV/video topping the average by 15% or more.
The research mentioned that "if it can't be sold for free, it can't be sold at all," in terms of using freemium as a way for brands to check receptiveness and increase conversions. Some think it odd that sales would see a jump after letting users in for free but it makes sense. Video games have done it for ages, offering a small demo of a game for players to get a taste of the action and hooking them in. There was some debate about the effectiveness of game demos some time back because it seems like they don't have a very well-oiled research industry in place.
For me, it works. If I get a game demo and I like it, I'm more likely to pick up the game at a later date. Plopping down a stack of cash for a game which I haven't played at all is hard. That's what makes game rental services so good for gamers. You can get the game, try it out and then decide if you want to shell out for the full game.
I imagine it works well for Hulu also. Get people used to viewing some TV content online but don't offer the latest, or an entire season for free... No, no couch potato, you need to pay for Hulu Plus to access every last juicy bit of the latest season of Desperate Housewives.