Think of it this way, assuming that most Hulu users have televisions, why is online content so popular? I can think of two primary reasons: mobile access (be it on a mobile device or on a desktop/laptop in a location without a TV) and the ability for viewers to catch up on missed episodes. Hulu Plus expands it offerings in both of these categories, but in the latter case it still misses the boat, providing access to most current shows only for episodes from the current season. Essentially, with the exception of series that are in their first season, Hulu Plus only helps viewers who already watch a particular show, not new viewers who want to catch up. And this is the problem.
Both DVD and on-demand content provide a means for those who "missed the boat" on a show to catch up and eventually become regular viewers of older shows. (This is what I did a couple of months ago with "Breaking Bad.") They also allow viewers who lost track of a series at some point to get back up to speed if they hear a show has gotten good again. (Earlier this year I did exactly that with the last two seasons of "Rescue Me.") The problem with DVD, however, is that it is a pricey option if a viewer chooses to purchase the discs, or requires waiting impatiently for new discs to arrive in the mail if he or she uses Netflix to rent them. On-demand, on the other hand, provides instant gratification and the ability to run extended marathons of episodes.
With Hulu Plus, one can only catch up on the current season, requiring reliance on DVD for any viewing lapse beyond that. This means the service provides no avenue whatsoever to attract new viewers to a show or bring back old ones. Those viewers, if they watch at all, will continue to do so via DVD, which they will probably rent, bringing no revenue to the network at all. Worse still, they may resort to more illicit means, like Bitorrent, to catch up free of charge on their computers when they would happily have paid $10 per month for a legal option.
I suspect Hulu Plus's current season only for most first-run programming is intended as protection of DVD sales revenue, as the market for "Modern Family" or "Glee" on DVD will be higher than older shows like "Arrested Development" and "Miami Vice." But just as Paramount realized last week that Redbox DVD rentals have zero impact on DVD sales, eventually maybe one of these networks will realize that on-demand availability doesn't affect DVD sales either, and that it could actually lead to increases in on-air viewership once new and lapsed viewers catch up.
Something else to be aware of with regard to Hulu's shift to a paid service option is that for all its prior assurances that nothing free would become paid content, "Arrested Development" is a show that was long available in its entirety for free on the site. Based on the company's press release about "Hulu Plus," that show seems to be headed behind a paywall.
In fairness to the networks, Hulu Plus is still an expansion of both content and viewing options for the site's users, and for those happy with the site's current structure, that will remain largely unchanged for now. And all flavors of Hulu remain preferable to HBO's totalitarian approach to its series, in which only old series/seasons are available on-demand at inflated prices (e.g., HBO offers old shows on Amazon VOD only as 24-hour rentals -- at the same price every other network SELLS its episodes).
Those ads are still a big disappointment, though.