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About half of all Hulu subscribers pay for the ad-free version, 21st Century Fox CEO James Murdoch says

But does he think Facebook could one day offer an ads-free version? Maybe not.

James Murdoch, 21st Century Fox Asa Mathat

Hulu has three principal owners at the moment, including 21st Century Fox, and, according to the company, about half of Hulu’s 20 million subscribers pay for the ad-free version.

“There’s an option for the limited-ad experience, and it’s about evens, I think,” Fox CEO James Murdoch explained onstage at Code Conference in Rancho Palos Verdes, Calif. The ad-free service costs $11.99 a month. (Update: insiders say a more recent figure for the proportion of subscribers paying for the cheaper, ads version is at more than 60 percent.)

Murdoch was responding to a question about the rapid rise of online video competitors, particularly Netflix, which now has over 125 million subscribers.

“If you look at the kind of investment Netflix is required to make, there are huge costs and huge barriers,” he said. “I think they’ve done a great job and raised the bar for competitors.”

The lack of ads plays a part in Netflix’s appeal, and that also explains the high proportion of Hulu subscribers who pay 50 percent more to watch shows without any advertising, Murdoch said. (While it’s marketed as having no commercials, a few ads still appear for certain shows due to contractual agreements.)

The stark advance of Netflix and the growing dominance of online networks like Facebook have eaten into traditional TV businesses and shaken up the media landscape. That’s led to a few major mergers, including Disney’s $52 billion deal to buy most of Fox’s business.

But, to be clear, that’s not the reason those businesses are merging, according to Murdoch.

“We’re competing really well,” he said, citing as an example the company’s nearly $1 billion winning bid for the rights to India’s cricket league, successfully fending off interest from potential internet rivals Facebook and Google.

“It’s not a question of not being able to compete,” he said. “The reason for the combination is, we think the resulting firm is a very attractive business ... and the combination will be that much more competitive going forward.”

Even so, it’s clear the internet giants have pushed aside traditional media players with consumers, developing direct relationships through ad-driven services.

James’s father, Fox executive chairman Rupert Murdoch, has prevailed on Facebook and Google to consider adopting the cable model as a way to reinforce good content on the service, especially as bad actors have learned to exploit digital networks for political purposes. Facebook and Google could pay content providers like Fox a monthly fee for carrying its shows.

The younger Murdoch doesn’t think that’s likely to happen.

“I would doubt it,” he said. “We work closely with Google and Facebook, more or less successfully depending on the week. But that said, YouTube Live TV has been great.”

YouTube TV is Google’s over-the-top service, which replicates a small bundle of live TV channels for a monthly fee and includes Fox’s networks such as FX.

On whether Facebook could one day offer an ads-free version, Murdoch wasn’t sanguine.

“The question should be more about if the ad model in the network is driving the right behaviors,” he said, going on to describe social networks like Facebook as more of an “attack surface” for foreign adversaries.

“You can buy people’s accounts from these farms,” he pointed out. “It hasn’t been great.”

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