Hulu Lowers Price For Ad-Supported Tier

Hulu is making a new bid to lure more subscribers to its ad-supported entry-level tier.

The company says it will lower the price for its base tier from $7.99 per month to $5.99 per month, starting Feb. 26.

At the same time, the company will be raising the base price for its streaming pay-TV service, Hulu with Live TV. The service starts at $39.99 per month, but will be rising to $44.99 per month starting Feb. 26.

The company’s ad-free on-demand tier will remain priced at $11.99 per month.

The price changes mark a divergence in pricing strategy for Hulu’s core streaming video on-demand product and its Live TV offering.

While Hulu now has more than 25 million subscribers in the U.S., it is still far behind Netflix, which has nearly 60 million subscribers in the U.S. and even more abroad. Netflix raised the prices on its base tiers earlier this month.

With its advertising business spinning into high gear with programmatic options, direct-sales and new types soon-to-be-available inventory (such as ads in downloaded videos), Hulu has been pricing its ad-supported tier aggressively to build up scale quickly and differentiate from Netflix.

That includes the new lower price, as well as the promotional “Black Friday” price late last year, which saw Hulu offer subscriptions for $0.99 per month for one year. The company also has a bundle with Spotify Premium, which offers both services at a discount.

The thinking is that the ad revenue generated from those subscriptions can more than make up for the lost subscriber revenue. Consumers that don’t want ads can always opt for the ad-free tier.

At the same time, the company is raising prices on its Live TV offering in a bid to stabilize its margins. Live TV products have razor-thin margins, with JPMorgan estimating that essentially, all existing products are losing money on each subscriber they sign up.

The hope is that prices can be raised while minimizing churn and building out advanced advertising businesses. Both can stem losses, and hopefully make these services profitable.

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