Why Does Hulu Think It Can Charge More Money Than Netflix or Amazon For an Inferior Product?

The big news out of the streaming wars today is that Hulu now offers commercial-free streaming, which is a big deal since Hulu commercials were always hugely annoying, and at least anecdotally, there were a lot of people out there who avoided the service for that exact reason. And that’s great for the viewer—the more commercial-free options, the merrier.

Of course, the better plan comes with a price, which in this case is $11.99 a month, up from $7.99 from the previous incarnation. Let’s see how that compares to the other streaming services:

Hulu: $11.99/month
Netflix: $7.99/month, or $8.99/month for HD
Amazon Prime: $99/year, or $8.25/month, plus free shipping on Amazon goods

Hmmm…

The only way this makes sense, of course, is if Hulu offers much better programming than the other two services. That might justify a price that’s about $4 higher per month. In fact, as most of us know, Hulu is actually worse than both Netflix and Amazon. It’s not that they haven’t made huge strides lately—recent additions like Seinfeld, Empire, and Fargo, plus deals with networks like AMC and FX, a slate of blockbuster EPIX films poached from Netflix, and the first forays into original programming that involves the likes of Amy Poehler, all indicate a service on the rise. Still, there’s no denying reality, and the truth is that they suffer by comparison to Netflix and Amazon in every category, from TV to movies to the enormous gap in quality original programming. Until that changes, the higher price for an inferior service is a little baffling.

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Even more baffling is the so-called alternative. For those who can’t spend $12 a month, Hulu offers a reduced service, complete with commercials, at $7.99/month. Those paying close attention will notice that this represents exactly zero savings over Netflix, and mere pennies over commercial-free Prime. Granted, nothing has really changed in that plan, but wouldn’t it make sense when elevating the commercial-free price (and theoretically generating more income) to offer a commercial-heavy plan that actually lets people save in comparison to the other services? Otherwise, what’s the allure?

At the moment, 41 million people subscribe to Netflix, and Prime has even more. Hulu has nine million, and although there are probably some people who will subscribe to all three services, there’s no denying that from a broader business angle, there’s a zero-sum game happening—one streaming service’s loss is another’s gain. In other words, Hulu can’t just count on accruing new subscribers now that the commercials are gone; they’ll have to convince customers why they should actually leave Netflix and Prime.

So what’s the pitch? Why should anyone pay more money for Hulu, especially while the other services are far from complacent as they develop newer and better technology and bolster their programming?

On the surface, it makes no sense. But what’s really happening here can be summed up in the following paragraph from the New York Times story:

Recent developments signal that Hulu’s owners think of the site as a defense against the rise of Netflix and Amazon, which have contributed to sharp TV ratings declines, some media industry analysts have said. Building a stronger streaming competitor of their own could help traditional TV companies fight back.

And, for context, this bit from Wikipedia:

Hulu is a joint venture of NBCUniversal Television Group (Comcast), Fox Broadcasting Company (21st Century Fox) and Disney-ABC Television Group (The Walt Disney Company).

These are gigantic companies attempting to protect themselves in the midst of an uncertain era, but they’re fighting on turf they don’t quite understand—at least not as well as Netflix and Amazon. Those services have the sort of robust freedom Hulu can never match, tethered as it is to the country’s entertainment giants.

To Hulu’s credit, they’ve done a fine job acquiring content in the last two years, despite starting off at a huge deficit, and it’s likely they’ll continue to improve in that department with a huge war chest behind them. And though it took an absurdly long time, offering a commercial-free option is a good move. But the price is laughable—setting a more expensive rate than your rivals is something you do when you’re already on the top, and have the product to justify the hike. Hulu is at the bottom, with the third-best product, and it looks like the big plan to take a bite out of the competition is to ignore the oldest wisdom in the book and offer less for more.

Related fact: The word “Hulu” comes from a Mandarin word meaning “bottle gourd” and “interactive recording.” A clever choice, but it’s likely the founders didn’t know that the Sumerians had the same word, with a very different meaning: “One with vision problems.”