- Disney has offered to pay Comcast $8.6 billion to take full control of Hulu.
- The offer is part of CEO Bob Iger's strategy to reshape Disney around streaming.
It's official — Disney is taking control of Hulu.
The move kicked off a process to determine the value of Comcast's one-third share of Hulu.
Disney is already in the process of rolling out a unified app that'll make Hulu's general entertainment content available in Disney+.
Here's everything to know on how we got here and what's next for streaming at Disney.
How we got here
Hulu has gone through several phases since launching in 2007 to stave off then-ascendant YouTube. The company's original owners — News Corp's 21st Century Fox, Comcast's NBCUniversal, and Disney — united to contribute a free library of their networks' shows to the fledgling streamer, which was one of the first to carry ads.
In 2019, Disney took majority ownership and operational control over Hulu as part of its acquisition of Fox's entertainment assets, and had been expected to seek full ownership of Hulu.
But Iger, recently returned as Disney's CEO for the second time, said "everything is on the table" with Hulu, fueling speculation he might seek to offload Hulu. He also said he would pare down Disney's general entertainment content and focus on its family-friendly franchises like "Frozen" and Marvel.
Since then, he's changed his tune, saying there's "real value" in having general entertainment combined with Disney+.
Analysts have largely agreed that a broader streaming offering is the best way for Disney to compete with Netflix, though some have argued Disney might be better off getting rid of Hulu than waging the costly battle of trying to match the market leader in streaming.
Disney+ has 47 million subscribers in the US and Canada, and Hulu has 49 million, to Netflix's 77 million as of the quarter ended September 30.
"Rebundling is going to be a hallmark of the next phase in big media," said Jonathan Miller, a former Hulu board member and current CEO of Integrated Media, which focuses on digital media investments. "With Hulu firmly in the Disney fold, they can create their own mini-bundle with kids and family (Disney +), general entertainment (Hulu), and sports (ESPN). Thus begins the next phase for the industry."
What happens next
The big question hanging over the process is what Disney will have to pay for the remainder of Hulu.
Disney and Comcast agreed in 2019 that Hulu — which is known for dramas including "The Handmaid's Tale" and "The Bear," as well as comedy hit "Only Murders in the Building" — was worth at least $27.5 billion. Comcast chief Brian Roberts has said he thinks it's worth much more today.
Per a predetermined process to arrive at an exact price for Hulu, both companies have hired investment banks to come up with valuations. If their final valuations are within 10% of each other, the average of the two will be the price Hulu is valued at. Disney would then pay Comcast 33% of that value for its stake. If the banks' valuations are too far apart, a third bank would come in to decide on a fair valuation.
Among the challenges with coming up with a value for Hulu is that it has to take into account all the benefits it brings to Disney by being bundled with its sibling streamers like Disney+ and Hulu + Live TV, which in turn helps Disney's ABC network and cable networks, LightShed Partners wrote in a November 2 note. The valuation also has to take into account that Hulu contains an entire Disney basic cable network, FX on Hulu. No pure-play streamer has ever been sold, so there's also no precedent to point to.
LightShed suggested $35 billion was a good starting point for Hulu's valuation. Other analysts have put out their own estimates of as much as $40 billion, and suggested that Disney may have to dip into its cash to buy out Comcast if it doesn't raise enough through sales of assets such as its linear TV and India operations to cover the cost.
But any payment burden could be offset by the benefit that Hulu could bring to Disney's efforts to build its streaming business. Resolving the Hulu situation could also alleviate pressure on Disney's stock price, Bernstein analyst Laurent Yoon wrote October 5. Fully owning Hulu also will likely bring relief to staffers who have been in limbo about the streamer's future position at the company.
What it means for Disney's streaming business
Streaming is a massive money-loser for nearly all media companies. Content costs have soared as companies have poured money into original content to win over new subscribers. But revenue is unreliable since viewers can easily cancel when their favorite show ends. After encouraging streaming growth at any cost, Wall Street became more interested in profits in 2022.
Analysts widely agree the market will only support a few major streamers, so scale is the name of the game in getting to streaming profitability. Consolidation has already begun, with Paramount Global bundling Paramount+ and Showtime and Warner Bros. Discovery creating Max out of HBO Max and Discovery+. Streamers are moving to prop up their businesses with price increases and ads.
Hulu, along with its mature counterpart Netflix, is a rare streamer that's in the black, although Disney's overall streaming business continues to lose money; Disney predicted it would be profitable in a year. Disney expects having Hulu on Disney+ will lead to better engagement, more advertising, lower churn, and reduced customer acquisition costs, thereby increasing its profit margins. The prices of its current bundles are at least 37% lower than the combined cost of the standalone services.
Disney, like other media companies, has been raising prices and leaning on advertising to get to streaming profitability. (It's also looking for a partner or backer to help it take ESPN direct to consumer.) It's planning to roll out a beta version of a combined Hulu-Disney+ app in December, with a full launch to follow in the spring of 2024. The bet is that a consolidated approach can grow subscribers and reduce churn.
Just how much benefit will Disney reap from owning the rest of Hulu?
Considering the audience of each app, combining Hulu, a mature ad business, with Disney+ could make an additional $750 million in ad revenue, Puck wrote, citing a Parrot Analytics analysis. Disney recently added self-serve advertiser tools that will also better position it to monetize Hulu, Macquarie Equity Research wrote in a November 3 note.
But Disney also will need to invest a huge amount in content on an ongoing basis to keep up with Netflix, Puck noted. Netflix is set to spend $17 billion on entertainment content in 2024, while Disney is poised to spend $15 billion. "$15B gets close to Netflix's $17B content budget for '24 and positions Disney+Hulu as a formidable #2," Bernstein's Yoon wrote November 9.
That could not be enough given Disney may have other holes to plug. Hulu currently relies on content from networks that Disney has put up for sale, like ABC and Freeform, Puck wrote. And once it no longer has a stake in Hulu, Comcast could stop licensing whatever NBCUniversal content it still makes available to the streamer.