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  OTT, Online Advertising , Online Video Advertising , SVoD

  Netflix, Hulu

Hulu’s price drop is a wise money move

Hulu will decrease the price of its ad-funded tier by $2 per month from $7.99 to $5.99, as it sees greater potential in advertising, with the announcement coming just a week after Netflix's price rise of the same amount. But far from reducing its revenue, the move is actually a clever strategy to add more of its highest value customers. In 2018, Hulu reported $1.5bn in ad revenue, and indicated that around half of its 25m subscribers were on the ad-funded tier. Assuming an even subscription distribution throughout the year, this implies that Hulu made as much as $12 in advertising revenue a month for every ad-funded subscriber (on top of the monthly subscription fee). Even with the just-announced price drop for the ad-funded SVoD tier, it is clear that an ad-funded subscriber is far more valuable to Hulu than an ad-free one, demonstrating why the price-slashing strategy makes sense. The timing of the announcement (just a week after news of Netflix's price increase) is the strategic (and PR) icing on the cake. In fact, at the current rates of advertising income, it could even stop charging consumers for its ad-funded tier and it would still make as much revenue per “subscriber” as from its ad-free tier, giving it even more room for manoeuvre in its battle with rival streamers.