Video streaming site Hulu LLC has become known as one of the premier online destinations to watch TV shows from the major networks, such as “30 Rock” and “Family Guy.”

But the L.A.-based Internet company faces both a tougher competitive landscape and the recession’s effect on advertising revenue. In that challenging climate, Hulu is taking a big step: becoming a distributor of an original, Internet-only show.

Hulu on Tuesday will debut a Web-based reality TV show “If I Can Dream,” which follows the lives of several budding musicians and singers as they try to make it in the music industry. A new episode will air on Hulu every week after that.

A Hulu spokesman did not return requests for comment.

Hulu’s push into distributing original Internet television comes as the once-booming Web site deals with some growing pains.

Founded in 2007, Hulu was a joint venture between News Corp. and NBC Universal Inc., and was one of the first to stream TV shows and movies under contract with the studios and major networks such as ABC. Viewers flocked to Hulu’s lineup of professionally produced shows, and in late 2008 at least one analyst predicted it would surpass YouTube.com as biggest revenue generator among Internet video streaming sites.

But since then, the industry landscape changed. More competitors emerged as other sites copied Hulu’s format. Cable giant Comcast Inc. introduced a service called Fancast, an online video streaming service that has deals with all the major studios. HBO Go will allow subscribers to the cable channel to watch shows online. In addition, the major networks have improved their Web sites and stream many of the same programming offered on Hulu.

At the same time, Hulu’s business model may not be as strong as once believed. While Hulu has successfully embedded ads in many of its videos, the site has to give a hefty portion of revenues – as much as 70 percent in some cases –to the major networks. Plus, the recession has diminished advertising business in general.

Hulu does not disclose revenue. A 2008 study by London-based analyst firm Screen Digest projected revenue of $180 million in 2009. But in June, Screen Digest revised that projection to about $110 million.

That has left Hulu looking for ways to differentiate itself from competitors and make more money. One way to do that is to air original shows.

“In an environment where there’s a lot of ways for viewers to get big branded TV shows online, the question platforms like Hulu struggle with is: How do they become competitive?” said Arash Amel, research director of digital media at Screen Digest. “And the answer is it’s the original programming.”

Dreaming on

Hulu is splitting “If I Can Dream” ad revenue with 19 Entertainment, the show’s production company.

This isn’t the first time that Hulu has distributed Web-only content. In 2008, the site helped popularize “Dr. Horrible’s Sing-Along Blog,” an Internet short film that developed a cult following.

But “If I Can Dream” is a much more ambitious effort. It has a few major corporate sponsors, including PepsiCo Inc. and Ford Motor Co., and some big names behind it: The show was created by Simon Fuller, who also created television juggernauts “American Idol” and “So You Think You Can Dance.”

19 Entertainment, Fuller’s company, seems to hope it can build the show into a major franchise. While it will start life on Hulu, producers said they would be open to moving it to television if it garners a big enough following online.

Executives with 19 Entertainment hope that launching their newest show exclusively online will differentiate it from competing reality shows that have cluttered up TV. While many online-only shows have struggled in the past, 19 Entertainment and Hulu are betting that viewing habits have changed enough that people will be more willing to follow a show that they can only find on the Internet.

“Kids aren’t watching TV anymore,” said Michael Herwick, the show’s executive producer. “People like us might still go home, crack open a beer, and sit down and watch TV. But kids are on Facebook, MySpace and YouTube. They need more. And they think TV shows are dinosaurs.”

But even if Hulu focuses more on distributing original programming, it will still need ways to generate more revenue. One way to do that is to form a subscription service where users would pay a regular fee to access premium content or all the content on the site.

Amel said he sees some sort of subscription service in Hulu’s future.

“At some point, maybe not this year but maybe next year, Hulu will have a subscription service,” he said. “The ad-supported system just can’t sustain them on the trajectory they want to be on.”

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