Disney Is Raising the Price of Hulu By $1. Why It Could Cost the Company Billions

Disney’s announcement of its upcoming $1 monthly price increase of Hulu came as a surprise because it’s an admission that the company isn’t trying to generate new subscribers through product improvement. Rather, it is trying to generate more money out of existing subscribers without actually doing anything to make the product better.

Just two years ago, Hulu dropped prices to just $5.99 (down from $7.99) in light of Netflix increasing prices to $13 for its most popular plan (with HD streaming), effectively generating an uptick in new subscribers. The strategy attracted price-sensitive subscribers motivated by value and affordability. But this new announcement shows that Hulu is losing sight of its value in the eyes of its audience, and with that, traction in growth as it continues to increase membership fees.

For the most part, Hulu has been the cheaper, but not necessarily better product in the space. The service offers about 50% fewer titles than Netflix–yet ad-free viewing costs nearly 30% more than Netflix, illustrating a great degree of difference in terms of value for consumers who turn to the platform for entertainment choice. But Hulu’s limited library and its lack of quantity isn’t its only shortcoming compared to leading competitors. Its quality is also flawed.

A quick Google search typing “why is Hulu,” shows that the first suggested query is, “why is Hulu raising prices,” but the second and third are, “why is Hulu not working” and “why is Hulu so slow.” The prevalence of these questions won’t likely come as a surprise to Hulu users. It is in fact slow, and it is in fact janky. Not only does the user interface pale in comparison to Netflix with poorly designed libraries, but it doesn’t always pick up where you left off, it can be slow to load, and it does experience frequent service interruptions and errors.

It’s never a wise idea for a business to increase pricing without increasing its product offering or quality. Especially when the business gained market share by undercutting the competition. This is because this creates an audience that prioritizes affordability. To then turn around and jack up pricing, is a guaranteed way to lose customers.

But the core of Disney’s poor growth strategy is the highly flawed assumption that subscribers are loyal. It overlooks the fact that just someone has been a customer for some time, that doesn’t necessarily equate to loyalty–something that Disney is incredibly accustomed to. Because Hulu isn’t Disney. Hulu doesn’t have a cult following of die-hard fans the way Disney undoubtedly has. And yet it’s applying a pricing model as if it does.

In a market with little loyalty and much competition where alternatives offer a great breadth of products (in this case tv shows and movies) and a better quality product, Disney not only appears to not only be blinded by a mirage of loyalty but that Hulu is an inelastic service. And while at-home entertainment could be considered a must-have in the 21st century, it’s not the only option people have, and it’s not inelastic.

With a number of choices, Hulu’s price increase will send subscribers directly into the arms of its competitors–something no business ever wants. By milking existing subscribers by increasing prices without increasing its value, Hulu will see a drop in subscribers. People will always pay for Netflix and Disney+, but they’re not going to keep every service–and they’re not going to hold on to any services that squeeze them dry. From a growth perspective, this isn’t a revenue-generating strategy, but a guaranteed way to lose customers.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.

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