Week In Review: Hulu Raises/Lowers Prices, Viacom Buys Pluto

1.Hulu Raises/Lowers Prices

Busy week for the TV industry, made all the more notable by the series of layoffs at digital companies that were once considered threats.

Meanwhile, Hulu lowered prices on its core ad-supported service to just $5.99/month while raising them on its vMVPD by $7/month.

Why It Matters

The price drop on the core ad-supported product is a very smart and forward thinking move.

What’s happening in 2019? Three new Flixes are launching, NBCU-Flix is in the wings and CBS-Showtime-Viacom-Pluto-Flix might happen too.

That means there’s going to be a whole lot of churning going on. (At the Matrix Ad Sales Summit today, Jill Hill from Magid noted they estimate the rate to be as high as 40% on some services.) But with eight or nine Flixes in play, people are going to be bingeing and dumping, especially since these services are all month to month and no one is subscribing to all of them. (Talked about this issue on Cheddar yesterday.)

If all of the other Flixes are over $10/month (and we suspect the pricing models will wind up being something like $10 for ad-lite and $15 for ad-free), then Hulu, at just $6/month is going to seem like a pretty awesome deal and will avoid the "why am I paying so much for this service I'm not watching?" syndrome.

The new low price is also going to get them even more subscribers—they're already up to 25 milllion—and more subscribers means they can charge more money for ads, which will make up some or even most of the lost subscription revenue.

Now we think the end result of all this Flixing and Churning will be rebundling, but that’s not going to happen for another two or three years, and, here again, Hulu’s low price makes it will be easy to include them in these new bundles.

As for raising prices on the Hulu Live TV vMVPD, that's all but inevitable. The vMPVDs are all majorly underpriced, as, taking a page from the Silicon Valley playbook, they are looking to gain AMSAP (as many subscribers as possible) before they actually start worrying about profitability. So it's only a matter of time before all the competing services are at similar price points, and given what vast improvements they are over traditional pay TV, paying even $65/month for a 100-channel vMVPD is going to seem like a bargain too (provided they have the right 100 channels.)

What You Need To Do About It

If you’re one of the Flixes, you need to think about how price sensitive consumers are, will a dollar or two make a difference, is $10/month a psychological barrier, how many Flixes are too many?

If you’re a cable network, you probably want to come up with a Plan B, as the emergence of all these Flixes means that your ad-stuffed programming is going to have an even higher barrier. As we suggested last week, producing 10-15 hours of originals for VOD may be the way to go.

If you're a rival vMVPD now is the time to find out how much price sensitivity there is in the market. We're thinking it's not that much and that $5-$10/month won't make a huge difference, but it's such uncharted territory, so that assumption may turn out to be totally off base. 

2. Viacom Buys Pluto

Viacom, which has been on something of an acquisition spree as of late (WHOSAY, Awesomeness) bought PlutoTV, one of the leading FASTS (Free Ad-Supported Streaming TV Services) this week for $340MM.

Why It Matters

This seems like a smart move for Viacom, which has a world of library content that is perfect for FAST-land. All those MTV and VH1 reality series from the 80s and 90s. (Real World, anyone?) Plus the deep libraries on Nickelodeon and Comedy Central, all of which seem to be waiting for a new generation of viewers to rediscover them. Giving them a home on Pluto, where they can be monetized with ads (and where Viacom can get data about the types of people who view those shows) seems like a wise, no-downside move.

Then there’s the vMVPD thing: Viacom is one of the last major groups to strike deals with many of the rapidly growing vMVPDs, who now account for almost 10% of the pay TV market. If they can bring all the Viacom nets, plus Awesomeness and PlutoTV to the table, that’s going to allow them to negotiate more attractive rates than if they were negotiating for Viacom alone.

Then finally, there’s the specter of a merger with CBS and a giant CBS-Viacom-Showtime-PlutoTV Flix, where Pluto is the free ad-supported part and the others are some combination of ad lite and ad free.

What Pluto-the-standalone-app will wind up looking like post-merger will be interesting to see as well—will Viacom double down on Pluto's unique linear feed aspect, especially given that some ad-buyers don’t regard some of Pluto’s current digital channels as true linear given that they are often a bunch of 10 minute clips strung together? Viacom's ad sales staff may be able to clean all that up to make Pluto an even more marketable product.

What You Need To Do About It

If you’re a rival FAST, you might want to see about striking a similar deal: Roku Channel and Freedive are going to be major factors in their own walled gardens and it’s unclear just how many other FASTS the market will bear.

If you’re a cable networks that specializes in library content, you might want to rethink your ad load, as that (plus the VOD thing) are what sets the FASTS apart.

If you’re an MVPD, you might want to put some money into your own VOD library, so that consumers can, you know, actually find something there. Many MVPDs have huge movie libraries available on VOD, but good luck navigating their outdated UIs and lack of metadata to make discovery easier. Huge wasted opportunity there Mr. Vestberg.