Will Streaming TV's Deep Discounts Devalue Platforms?

Randy Freer Hulu - H - 2018

Despite an aggressive effort to drive sign-ups, Wall Street worries about the long-term value of Hulu's promo push.

During a weekend of post-Thanksgiving sales, Disney showed its appetite for scale with a pair of discounts for streamers Disney+ and Hulu. On Black Friday and Cyber Monday, the company offered $10 off an annual subscription to the newly launched Disney+ and lowered the price of ad-supported Hulu to $2 per month for new and returning subscribers.

Though the offers are expected to help Disney reach aggressive goals for both services over the next five years (60 million to 90 million for Disney+ and 40 million to 60 million for Hulu), some analysts are questioning the long-term value of deep discounts.

"It is never a good idea to offer content for free or nearly free as it devalues your content in the eye of the consumer," says Pivotal entertainment analyst Jeffrey Wlodarczak, adding that it "sets the bar very low" on what customers believe they should pay.

For now, Disney appears focused on subscriber acquisition. The company amassed 10 million signups in the first day after the Nov. 12 launch of Disney+ through pervasive marketing and deals, including a discounted bundle that includes Hulu and ESPN+ and a one-year free offer for certain Verizon customers. 

Similarly, Hulu has been assertive about boosting its subscriber numbers, offering a limited bundle with Spotify and lowering the price of its ad-supported plan while competitors like Netflix raise their prices. Hulu "is a very strategically important asset," says MoffettNathanson analyst Michael Nathanson, noting, "it is impressive how much Hulu has scaled."  

The tactic has boosted the Randy Freer-run Hulu more than 300 percent in five years to 28.5 million paid members at the end of September. "Our outlook for Hulu remains relatively sanguine as we continue to believe Disney is comfortably on track to hit its long-term target of 40 million to 60 million Hulu subscribers in the U.S. by fiscal year 2024," says Tuna Amobi, analyst at CFRA Research. 

But Disney does plan to turn both services profitable as early as 2023, and Bernstein analyst Todd Juenger worries that "it seems Hulu has had to rely on (very) low price as part of growing subscribers." 

Hulu has a dual revenue model and can adjust pricing to attract subscribers, counters Parks Associates analyst Brett Sappington. "Hulu ran a similar $1.99 Black Friday / Cyber Monday offering last year. Doing so again this year allows those same subscribers to return at the same price level and potentially attracts new subscribers," notes Sappington. "It suggests that the ad-revenues that Hulu is producing is adequate to support the monthly consumer-paid price break." 

Other platforms also offer low-priced services as a means of competing in a crowded landscape. Amazon gives away video as an add-on for customers who sign up for Prime shipping. Apple is offering its TV+ upstart for free to people who upgrade to new devices. While discounts might help new entrants hit subscriber goals, Wlodarczak notes that it might be a short-term gain: "expect massive customer churn when they come off these promotions."

Georg Szalai and Alex Weprin contributed reporting. 

A version of this story first appeared in the Dec. 4 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.