It's interesting. They definitely feel they can "get away with it".
However they're likely building up a sizeable group of people who they've negatively affected and will return the favour in spades when opportunity presents.
Without any revenue they close up.
How many customers can they afford to lose? 5%,10%, 90%
If they don't support the free tier users they will lose them. At one point vimeo was making a serious run for global marketshare.. now it looks like they are in a different market..
Vimeo hasn't been going for global marketshare of video watching in well over a decade - it ceded that competition to YouTube very early on by policing content more actively (Viacom sued YouTube in 2007 for $1B because of its lax enforcement of rules).
Vimeo chose a different direction, launching a paid account in 2008: https://vimeo.com/1977937