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Was the Netflix Price Hike a Mistake? Shares Fall as Hulu Slashes Rates

Last Updated September 23, 2020 12:23 PM
Kevin O'Brien
Last Updated September 23, 2020 12:23 PM

By CCN.com: Popular streaming service Netflix made headlines – and undoubtedly left some customers up in arms – after a round of price hikes that represented the company’s largest since its streaming service launch.

Is Netflix’s Rate Hike Coming Back to Bite the Streaming Giant?

As CCN.com reported, Netflix raised subscription fees by between 13-18%. The price of its cheapest basic plan jumped by $1 to $9. The 4K premium plan was raised by $2 up to $16. Analysts said  the rate hikes would help finance investments into original films and pay off accrued debt from competing with other popular streaming services.

Securing streaming rights and producing original content does not come cheap. Netflix spent around $100 million on securing the streaming rights to “Friends.”

Historically, Netflix price increases have usually bolstered the stock and resulted in marginal changes to subscriber growth. Netflix’s last rate hike in October 2017 sent the company stock up 3% for the day, according to CNBC.

However, some have speculated the streaming landscape might have taken a different turn due to the actions of Hulu, who said  it would be permanently lowering the price of its base ad-supported subscription plan by $2.

Can Hulu Snag Some of Netflix’s Subscribers?

hulu video streaming
Hulu, unlike Netflix, will reduce the price of its basic streaming service. | Source: AP Photo/Dan Goodman

Hulu often dangled its base subscription plan for $5.99 per month on a promotional basis. On Wednesday, the company said that price point would be permanent starting on February 26.

Even though Netflix still commands a massive share of the online streaming audience – with 58 million U.S. customers alone – Hulu had 25 million subscribers as of the end of 2018.

The Verge reported  that this figure represented a 48% increase in subscribers from the end of 2017. Hulu’s announcement caused Neflix shares to fall around 1% on Wednesday.

netflix share price
Netflix shares tumbled after Hulu announced a rate cut.

However, Hulu’s rate slash also came with a price increase of its own. The company indicated the cost of Hulu Live TV would increase from $39.99 to $44.99.

Hulu said the increase coincided with a greater number of available channels after it reached a September agreement with Discover Inc. and made other improvements to reliability and usability.

In an attempt to seemingly mitigate the increase, Hulu lowered prices for optional add-ons like enhanced DVR and expanded multiscreen viewing packages.

What Does the Future Look Like Now?

While Netflix seems to have made a shift from pure growth to a clearer focus on profitability, the future for Hulu is murkier due to the influence of Disney. It is set to become a majority owner  in Hulu after its acquisition of Twenty-First Century Fox.

The deal is said to close in the first half of 2019. Hulu staff members have been mum so far on what the acquisition will mean for the future of the streaming service and its prices.

Disney executives have indicated Hulu will remain a big part in streaming strategy.

However, Comcast said it does not plan on quickly selling its 30% stake in Hulu, and WarnerMedia still maintains control over 10% of the company.

This means a decision about Hulu’s path forward, at least for the short term, might be one with multiple angles in play.

Featured Image from Shutterstock. Price Charts from TradingView .