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Hulu drops price of its most popular streaming plan

In a play for subscribers, Hulu is cutting the price of its most popular online streaming plan less than a week after Netflix moved to raise its own subscription costs.

Hulu will now charge $5.99 per month for its basic video-on-demand service, down from $7.99, with the company casting the service as an affordable option as more consumers abandon cable and satellite services in favor of streaming. 

"It makes sense to skim some of the market that is up for grabs and come in at the lower end of pricing," said Ivan Feinseth, director of research at Tigress Financial Partners.

Netflix shares fell just under 1 percent on Wednesday.

Hiking cost of other plans

While Hulu is lowering the cost of its entry-level plan, the company is hiking prices across its other subscription tiers. Hulu Live TV, a cable-TV like package that includes CNN and ESPN, will cost $5 more per month at $44.99. The new changes take effect Feb. 26. 

Hulu's advertising revenue grew more than 45 percent to nearly $1.5 billion in 2018, according to the company.

Along with potentially attracting budget-conscious viewers, lowering the price of its basic plan could benefit Hulu in another way, according to Raymond James equity analyst Justin Patterson. Since roughly 90 percent of Hulu users also subscribe to Netflix, Hulu's price cut will help consumers keep their monthly subscription costs for a streaming bundle to around $19 a month. 

"That mitigates the risk of churn from consumers re-evaluating their subscriptions; it is still the same cost for both," he said in a research note.  

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Netflix is the largest streaming service in the U.S., with 58 million subscribers, while Hulu has roughly than 25 million. Amazon, which offers streaming services though its popular Prime shopping club, ranks second in subscribers.

"Hulu is still in the same spot they would be, the No. 3 player in the states," said Neil Macker, analyst at Morningstar.

The streaming landscape is changing in 2019, as more media companies announce their own services. Later this year, AT&T is launching a three-tiered service, and the Walt Disney Co. will launch its eponymous Disney+. NBCUniversal also plans to the introduce a streaming product in 2020.

Hulu will be majority-owned by Disney after it closes its $71.3 billion deal for the entertainment division of Twenty-First Century Fox in a transaction announced last year.

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