Hulu Earned Itself a Live TV Price Hike

Hulu's Live TV subscribers will see their bill go up about $10 per month within a couple months. The Disney-controlled (NYSE: DIS) streaming platform is raising the price of its Hulu and Live TV subscription to $55 per month. That follows a $5 price hike in January, as well as price increases from AT&T's (NYSE: T) AT&T TV Now and Alphabet's (NASDAQ: GOOG) (NASDAQ: GOOGL) YouTube TV earlier this year.

Unlike the price increases from AT&T, however, Hulu's price uptick appears to come from a place of strength. While AT&T is bleeding subscribers and removing networks from its streaming platform, Hulu's growing subscribers quickly and steadily increasing the value of its service.

Hulu's logo made out of succulents on a wooden background

Image source: Hulu.

The largest, fastest-growing virtual TV provider

Hulu with Live TV edged out DISH's (NASDAQ: DISH) Sling TV to become the largest virtual pay-TV provider in the U.S. last quarter. Hulu ended the period with 2.7 million subscribers, according to an estimate from analysts at MoffettNathanson. That just tops the 2.69 million Sling TV subscribers reported by DISH.

Importantly, Hulu is growing faster than the competition, adding an estimated 400,000 net new subscribers in the third quarter. Sling TV added 214,000 and AT&T lost 195,000. YouTube TV added an estimated 200,000 subscribers.

Outcompeting everyone

Hulu has been able to outlast the competition for the most part. One major competitor, Sony's PlayStation Vue, announced it's shutting down in January because it can't make a profit. And while AT&T is raising prices in order to try to make its service profitable, Hulu has been able to bide its time. That's because Hulu's strong ad-supported on-demand service has been able to subsidize its live TV service.

Hulu's competitive advantage from its on-demand service is getting even stronger. Disney launched Disney+ earlier this month, and it offers a bundle of Disney+ with Hulu and ESPN+. That adds value to the Hulu with Live TV service because it means subscribers can tack on both Disney+ and ESPN+ for just $7 per month. Additionally, Disney will use its FX property to bring new critically acclaimed content exclusively to Hulu.

Ready to take on Sling TV?

Sling TV has managed to attract a large audience in part due to its unique pricing structure. It offers two unique packages of channels, each for $25 per month. That's one of the lowest prices in the industry. Customers that want every channel can opt to pay $40 per month, which is more in line with the competition.

In its press release announcing the price hike, Hulu also said it's "actively exploring ways to provide additional, more tailored live TV options to you in the future." That could be a hint that it's looking at ways to offer a smaller bundle of channels priced competitively with Sling's offering. Its close relationship with Disney's media networks could give it an edge in negotiating a compelling package of channels for a skinny bundle. 

A price hike makes sense if Hulu is working to develop a lower tier of service. There needs to be a big enough gap in the pricing to influence consumers.

Sling TV is one of the earliest entries into the linear TV streaming market, but it's managed to keep growing despite the surge in competition since it launched. But if Hulu can copy its strategy, it might steal away subscribers with the help of its on-demand service.

Meanwhile, Hulu's decision to raise its price doesn't come out of necessity, but out of its capability to charge more without fear of losing many subscribers as Disney's entire streaming business strengthens its appeal to consumers.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Adam Levy owns shares of Alphabet (C shares) and Walt Disney. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Walt Disney and recommends the following options: long January 2021 $60 calls on Walt Disney and short January 2020 $130 calls on Walt Disney. The Motley Fool has a disclosure policy.

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