Comcast agrees to give Disney sole control over Hulu

To no one’s particular surprise, the Walt Disney Company has taken full control of the Hulu streaming service. Following the completion of its acquisition of 21st Century Fox last month, Disney held a controlling 66% ownership share of the service which had started out as a joint venture 12 years ago between itself, Fox, NBC and Warner Brothers.

Disney’s plans for Hulu had become increasingly clear in the months between the announcement of the sale in November and its final completion. In an earning call with Disney shareholders a year after announcing the deal, Disney CEO Robert Iger stressed that Hulu would not be left to languish. Stating that plans were to “invest heavily” on original content, he also made a point that the other partners would benefit from their continued relationship, “Anything we do with Hulu will be done with an eye towards being fiscally responsible to the other shareholders.”

Barely had the ink dried on the Disney/Fox deal when AT&T sold its 9.5% share back to Hulu in April, exiting the partnership. AT&T inherited its stake in Hulu with its acquisition of Warner Brothers. Like Disney, AT&T plans its own streaming service with a goal of offsetting the losses in subscribers to its Uverse cable operation and DirecTV satellite service. This left Comcast as the sole other partner with a 33% stake thanks to its ownership of NBC. Comcast had vied for Fox with Disney, in fact offering more money. The two conglomerates had also been competing for ownership of the European satellite service, Sky which Comcast purchased after Fox’ Rupert Murdoch turned down their offer.

The Long Goodbye

Disney announced the agreement in a press release on May 14th. The deal is known in financial circles as a “put/call option”. It grants Comcast the right – but not the requirement – to sell their stake at a set price as early as late 2024. Disney has promised that their equity will be valued at no less than $5.8 billion based on an estimated valuation of Hulu at $27.5 billion when 2024 rolls around. Similarly, Disney has the option to buy that stake – essentially having the right of first refusal. In return, Comcast cedes total control of Hulu to Disney’s management team.

In the meantime, content from NBC and Universal will remain available for viewing on Hulu. Under the original deal, NBCUniversal gave Hulu exclusive license. The new arrangement allows Comcast to make some of that content available on other services for a reduction in the carriage fees Hulu pays to it in 2020. As Comcast will be launching its own, as yet unnamed, streaming service in mid-2020, the company will essentially be paying Hulu for the right to put its own library on this service. In 2022, it cancel most of its licensing agreements with Hulu and eventually remove them. Also included in the agreement is the commitment by Comcast to carry Hulu on its Xfinity X1 platform, thus giving Disney access to customers and possibly enhancing the appeal of Disney+.

Joined at the Hip

For his part, Iger sees Hulu as an integral part of its quest for viewers. When he announced the Disney+ service, he made it clear that it was for family-friendly content only. With a comprehensive slate of children’s shows plus the Disney, Marvel, Pixar, ABC and Lucasfilm libraries and similar original content, the plan is to provide a single source of entertainment for family members regardless of age. The more mature content, like Hulu’s Handmaids Tale, Deadpool and other R-Rated content, would be available on Hulu. And, while pricing has not been announced, it has been stated that Disney will offer Disney+, ESPN+ and Hulu in various bundled formats.

Iger stated in the press release, “Hulu represents the best of television, with its incredible array of award-winning original content, rich library of popular series and movies, and live TV offerings. We are now able to completely integrate Hulu into our direct-to-consumer business and leverage the full power of The Walt Disney Company’s brands and creative engines to make the service even more compelling and a greater value for consumers.”

Cable Cutting and Binge Watching

At least for the next five years, fans of Saturday Night Live, Quantum Leap, seaQuest and others will still be able to get their fix on Hulu. The agreement between the two media giants avoids a repeat of the abrupt cancellation of the Netflix/Marvel programming last year.

Media industry experts believe that the average household will go with three streaming services as they essentially build their own “cable package.” Of course, Disney wants to be one of those services for as many households as possible. With a $6.99 per month ($69.99 yearly) subscription, Disney is directly targeting its giant rival, Netflix, which is available for $8.99 to $12.99 a month depending on video quality and viewing limitations.

Not a Monopoly

Given that it won’t launch until November, Disney+ has exactly zero subscribers. Hulu’s current subscriber base is in the region of 27 million, putting it at number three in terms of viewers. It is also only available in the US. By comparison, Netflix and Amazon dominate the market with nearly 150 million and 100 million subscribers respectively and both are available to global audiences. However, given the strength of the Disney brand and the very deep content available from the studios it owns, plus the planned content, the Disney/Hulu duo cannot be expected to stay small for long. But subscription base is only one measure of success as the shows could be seen as marketing vehicles for the company’s theme parks, cinematic motion pictures and extensive licensed consumer products. The numbers that really tell the tale will be seen in the quarterly reports issued to stockholders.

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