The problem is multi-facted. It is not just about advertising dollars versus subscription fees. It contains a psychological element that their models cannot take into account.

In the short term they may make more in subscriptions fees but in the long term they will not only run off a large segment of their current viewers back to piracy but they will ultimately undermine their ability to get new membership because pirating will simply be cheaper and just as convenient.

Using the advertising model they currently use allows for people to view TV shows and movies they want to view for, in essence free, while also saving them the time of downloading. But, once people see that what was once free will now cost them something more than the time spent watching the commercials they will simply revert back to what they did before.

History tells us the subscription method does not work and that people do exactly as I have just said. Just ask Napster or Kazaa or the myriad of others who have tried subscription services and failed miserably at it.

Subscription services grow stagnant after initial interest because there are just too many ways to get the stuff for free. If you would like a perfect example I will give you one. I do not download Family Guy or Dollhouse because I can watch them at Hulu for free. I am willing to watch the little commercials because they aren't constant, they are fairly well spaced out and it is simply more convenient to use Hulu then downloading them which depending on seeds, peers, etc. can take some time (the more popular shows are typically faster to download).

Subscription service? Nope, no thanks. I'll simply get a copy from a friend or download it myself (even if it is slow I can always let it go in the background while I do other stuff). But what about new members like my mother or brother? They might hear about Hulu, go to the site and see it is a subscription service. Then, when they ask me what I know about it I will simply give them the copy that I obtained through any one of multiple ways.

So, now instead of having one person (me) watching the advertising for sure they will also lose my brother and my mother whom I would have otherwise just told to watch Hulu. Over time who long will it be before they lose people who otherwise would have stayed and their new subscription rate grows stagnant. History says they'll be on the verge of going under within a few years of their subscription service.

Hulu needs people, people do not need Hulu.