Netflix v. Hulu: Will the Ad-Free Service Win?

“We’re not getting into the advertising business, we’re not getting into content creation,” says Ted Sarandos, chief content officer for Netflix. “Cable companies got into content creation to differentiate themselves from other channels. We don’t need to do that. Our point of differentiation is our ability to provide discovery and personalization.”

Sarandos was speaking to PaidContent about how the streaming service differs from cable companies. But he might as well have been talking about how it differs from Hulu, the popular online TV platform. Hulu's business relies on advertising, and it has partnered with Simon Fuller for original programming. As Hulu gains more subscribers, and Netflix's instant streaming service becomes more popular than its DVDs by mail business, Hulu and Netflix are increasingly becoming rivals.

Sarandos also said Netflix is moving toward TV from movies. “It was almost four years ago that we started streaming content," he says. We did the deals we could get—in other words, we got junk. But that eventually led us away from movies and towards TV content. The outcome is that steaming TV content has become half of all the viewing hours on Netflix.”

So should Sarandos take a cue from Hulu -- and focus on ads and content after all?

Netflix's most recent earnings report shows it needs no help. The service posted $553 million in quarterly revenues (up 31%) thanks to its 16.9 million subscribers (up 52%). Meanwhile, Hulu is trying to get its subscription service, Hulu Plus, off the ground. The $9.99 Plus price is higher than Netflix's monthly cost, and doesn't include Netflix's extensive catalogue of movies and by-mail DVDs.

Hulu Plus also has advertising, what might be considered a deal-breaker for many potential subscribers. Though the service only went live last week, rumors have already been bubbling that the subscription price will drop to $4.95.

So perhaps it's Hulu that should be taking its cues from Netflix.

How much are you willing to pay for Hulu? $4.95? Would you pay $9.99 for an ad-free service? And how about on Netflix? Would you be open to watching ads if it meant Netflix was even cheaper -- or do you appreciate the lack of ads on the service?