There was a post on HN last week where the author provided a reasonable answer (or at least I think so) to this question.
The gist is that people who are willing to pay a subscription to disable ads are exactly the people that advertisers would like to target. When a service assembles a list of such people, the value of that list to the advertiser generally exceeds the sum of the individual payments provided by the subscribers.
You can increase the subscription fee, but then you'll have less subscribers and the ones who are left will be the most valuable to advertisers (i.e. they have the most disposable income). If you decrease the subscription fee, you will have more subscribers but not a lot more, because the primary obstacle for online subscription type services for most people is not the price but the idea of paying for something they are accustomed to getting for free.
So if you get 1000 people to pay $1.00 per month for your niche Swedish grunge music streaming service and double the price, a decent number of them will not like that and some of them will unsubscribe. But if you halve the price to $0.50 per month you won't see many new customers since many people aren't willing to pay even small amounts for music streaming. Advertisers, meanwhile, don't have these mental obstacles and just try to price things as objectively as possible. And they see a narrowly targeted list of people with a highly correlated list of interests and purchasing tendencies and value it appropriately.
This might explain why services like Hulu have gradually introduced more advertising into their paid subscription services. As long as two groups of people are are paying them (customers and advertisers) one will generally be willing to pay more. Economic forces on the internet seem to result in advertisers having more purchasing power here.
The gist is that people who are willing to pay a subscription to disable ads are exactly the people that advertisers would like to target. When a service assembles a list of such people, the value of that list to the advertiser generally exceeds the sum of the individual payments provided by the subscribers.
You can increase the subscription fee, but then you'll have less subscribers and the ones who are left will be the most valuable to advertisers (i.e. they have the most disposable income). If you decrease the subscription fee, you will have more subscribers but not a lot more, because the primary obstacle for online subscription type services for most people is not the price but the idea of paying for something they are accustomed to getting for free.
So if you get 1000 people to pay $1.00 per month for your niche Swedish grunge music streaming service and double the price, a decent number of them will not like that and some of them will unsubscribe. But if you halve the price to $0.50 per month you won't see many new customers since many people aren't willing to pay even small amounts for music streaming. Advertisers, meanwhile, don't have these mental obstacles and just try to price things as objectively as possible. And they see a narrowly targeted list of people with a highly correlated list of interests and purchasing tendencies and value it appropriately.
This might explain why services like Hulu have gradually introduced more advertising into their paid subscription services. As long as two groups of people are are paying them (customers and advertisers) one will generally be willing to pay more. Economic forces on the internet seem to result in advertisers having more purchasing power here.