Just days after Netflix (NASDAQ: NFLX) announced a series of price increases for its subscription plans, Hulu announced its own move – in the opposite direction. The TV streaming service has slashed the cheapest ad-supported plan by $ 2, just $ 5.99 a month.
When industry leaders raise prices, it usually offers smaller competitors the opportunity to catch up and raise even more money. Hulu's decision to go back may seem confusing, but it's really an aggressive move to attract new subscribers at the expense of Netflix as the company seeks to extend its business to profitability. Hulu is not exactly the same kind of service like Netflix. While Hulu has ads on its $ 5.99 new budget-friendly entry-level TV plan, Netflix is ad-free for $ 8.99 (vs. $ 7.99) and does not include HD video. The ad-free version of Hulu remains unchanged at $ 1
Hulu also enables additional services from TV content manufacturers like HBO, another potential benefit that Netflix does not support. In addition, Hulu offers a live TV option that resembles a traditional cable package for news, sports and other traditional cable channels. This plan only increased by $ 5- $ 44.99 per month, which makes it more expensive than comparable services like Sling TV, which starts at $ 25, and YouTube TV, at $ 40 per month. However, Hulu's offer also includes access to exclusive series and classic on-demand shows such as Seinfeld and 30 Rock which are not available at some competitors.
It's all about the size of the audience
After the acquisition of is completed 21st Century Fox (NASDAQ: FOXA) Disney (NYSE: DIS) becomes the majority shareholder of Hulu. The entertainment giant recently reported that it lost $ 580 million in capital expenditures in 2018, mainly due to the creation of new content for TV streaming – and at that time, Disney owned only one-third of Hulu.
The losses could therefore be significantly higher in 2019, as Disney gains control of Hulu, not to mention the content it creates for its brand's Disney + service, which is due to be launched by the end of the year. So, what is Mickey Mouse in terms of lowering subscriptions?
Hulu boss Randy Freer has said that the streaming service needs to be in at least 30 million households in order to scale profitably. The company had reported exceeding the 20 million mark in the spring of 2018 and Freer has indicated that Hulu is now in the 23- to 24-million-subscription stadium and is entering the new year. So there is still a lot to do. Reducing the ad-supported subscription does not really improve the company's implied deficits, but it's not really the recurring subscription revenue that drives the service. It is the advertising revenue itself, and the more viewers on Hulu, the more money can be earned with these ads.
But will there be a $ 2 difference for cable cutters and Netflix users? It could. According to a recent Streaming Observer survey, 27% of respondents said they could cancel their Netflix subscription due to the price increase. Many said they were interested in a cheaper, ad-supported model. As Netflix has increased its costs in the past, only a small percentage of subscribers have actually complied with the cancellation threat. With more than 58 million subscribers in the US by the end of 2018, transforming just a small percentage of angry customers in Hulu could make a big contribution to the company and its new Taskmaster Disney.
Therefore, Hulu's price changes at the expense of Netflix look like an opportunistic move. It remains to be seen if price trolling will work, but if Disney takes the reins later this year, investors can expect a little more data about the company's streaming activity.