Hulu’s Price Cut Will Boost Ad Revenues

Hulu’s Price Cut Will Boost Ad Revenues

Our updated forecast considers cheaper streaming and new ad units at Hulu

Hulu’s decision to reduce the price of its most affordable, ad-supported plan will help bring more users—and more ad dollars—to the popular streaming platform.

Our latest forecast shows that Hulu’s US gross ad revenues will grow by 22.7% between 2019 and 2020, surpassing $2 billion. This update is nearly double our previously anticipated growth of 11.4%.

In January, Hulu unveiled plans to reduce the cost of its ad-supported streaming service by $2 per month—just days after Netflix announced that it would raise subscription prices across the board. At the same time, Hulu raised the price of its linear over-the-top (OTT) service, Hulu + Live TV, by an additional $5 per month.

The adjustment is expected to bring more users to the platform, which in turn will help grow Hulu’s ad revenues.

“In such a competitive video streaming landscape, Hulu cutting prices for its low-tier ad-supported streaming subscription will almost certainly increase viewership, attracting those who had been on the fence about having the entry-level Hulu option,” said Monica Peart, senior director of forecasting at eMarketer.

Viewers generally respond favorably to advertisements when compensated. More than half (56%) of US video viewers don't mind seeing ads if they're paying a reduced fee, a study by the Interactive Advertising Bureau (IAB) found.

Hulu says its linear OTT business also contributes to its ad revenues. The company has claimed that Hulu + Live TV subscribers spend 50% of their time watching on-demand or recorded programming, which can contain ads.

New Ad Units

Earlier this year, Hulu announced a new static ad unit that will appear on its pause screen, which is expected to grow impressions and engagement, allowing for more ad opportunities on the platform.

The expansion of ad units demonstrates Hulu's commitment to driving growth via ad sales. The more revenues earned from advertising, the more Hulu's business model strays from those of its largest competitors, Netflix and Amazon Prime Video, both of which are subscription-only services.

In a Netflix-dominated market, ad-free streaming is still the preference among streamers in the US. The IAB report revealed that 44% of US internet users typically watched ad-free subscription services, while 17% viewed ad-supported subscription services.

But Hulu’s ad-supported business is growing quickly, and users could ditch the ad-free subscription model as cheaper options become available. Even before the price decrease, Hulu claimed that the number of its ad-supported subscribers were up 40% year over year in May 2018.