Neither Hulu nor Netflix (NASDAQ:NFLX) requires subscribers to commit to any sort of contract. That means customers can come and go as they will, dropping a subscription once they have watched a show or shows, then coming back when something else entices them.
That lack of contractual commitment creates a sort of Wild West environment. Streaming services like Netflix and Hulu not only compete for the people who don't subscribe to any video-on-demand offering, they also fight to get consumers to add a second, and to get existing subscribers of their rivals to switch.
Hulu, which is owned by Comcast, Time Warner, Walt Disney, and Fox, is targeting all three of those groups with a new offer to both new and eligible returning subscribers. The company also appears to be making an effort to one-up its rival by going cheap at a time when Netflix is raising prices.
What is Hulu doing?
Netflix plans to increase the price of its most popular plan, which allows two concurrent streams, from $9.99 to $10.99 a month. Its premium plan, which allows for four concurrent streams, along with HD and Ultra HD streaming, will go up by $2 to $13.99 a month. The new pricing goes into effect immediately for new customers and will roll out over the next few months for existing subscribers.
In theory, that price increase could cause some less dedicated Netflix customers to reconsider their subscriptions. That creates an opening for Hulu and the company plans to capitalize by offering its $7.99-a-month, ad-supported service to new and returning customers at $5.99 for a full year.
Hulu offered the same deal last year, but former subscribers were not included. The offer runs through Jan. 9 and it is only being offered to "eligible" returning customers. That term is not defined on the company's offer page, but it likely means that you can't cancel now and immediately get the cheaper price.
About two-thirds (64%) of all American households subscribe to a subscription video on demand (SVOD) service from Netflix, Amazon, and/or Hulu -- up from 47% in 2014, according to data from Leichtman Research Group (LRG). Over half (51%) of those people subscribe to more than one, but 83% of those who subscribe to a streaming service have Netflix.
That makes the streaming leader vulnerable to poaching if some of its members think it has pushed pricing too far. Hulu's cheaper price should also be enticing to any of the 36% of Americans who don't subscribe to a streaming service but are considering it.
Will Hulu hurt Netflix?
It's more likely that Hulu going cheaper will help it add customers and entice more people to subscribe to multiple services than it will hurt Netflix. Because these services are cheap in relation to paying for a traditional cable package, Hulu's offer may spur some people to cut the cord, and then add both Hulu and Netflix and possibly even other streaming services.
Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon, Netflix, and Walt Disney. The Motley Fool recommends Time Warner. The Motley Fool has a disclosure policy.
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