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7 March 2019

Disney embarks on hunt for 100% Hulu stake

One of the most compelling facets of the Disney-Fox saga has been what the future holds for third-placed US SVoD service Hulu under a majority 60% Disney ownership – sparking all sorts of rumors about whether AT&T and Comcast will continue as shareholders or jump ship. This week a report shone some light on the situation, revealing that discussions are underway between Disney and AT&T regarding a deal for the operator’s 10% stake in Hulu, implying the house of mouse will soon get to work on grabbing the additional 30% from Comcast it needs for full ownership.

But then what? The previous expectation was that Disney would eventually take full control of Hulu and proceed to fold the service into the highly anticipated Disney+ OTT video service to avoid any potential conflict of interest between the two. However, Disney CEO Bob Iger only recently countered this by backing its three pronged streaming strategy of ESPN+ for sports, Disney+ for family programming, and Hulu for general entertainment. Our issue here is that the latter two are far too similar. Of course, ARPU is the key element here as the plan is to allow users to sign up for all three with the same credentials and payment details – with discounts for taking two and three services.

Iger has also pledged increased programming investment in Hulu. We note though that even the 30% stake in Hulu lost Disney over $500 million in the last fiscal year, so that is yet another cost associated with the group’s grand streaming strategy. That makes it look like Disney’s plan to create yet more content for Hulu, rather than its forthcoming Disney+, is a case of throwing good money after bad.

So, according to Variety, Disney is well on the way to becoming

a 70% owner in Hulu, pending of course the completion of its mega deal with 21st Century Fox. AT&T will be keen to ease its debt with a sale following the Time Warner deal, as would Comcast fresh from buying Sky. The overwhelming factor though could be that Comcast would be less inclined to invest in expanding Hulu into Europe as Disney intends, in markets where it plans to expand its own Now TV streaming service.

AT&T’s 10% would be worth $930 million going by Disney’s $9.3 billion valuation of Hulu last summer, but that could easily be north of $10 billion with Hulu’s recent subscriber trajectory, growing by 48% in 2018, its best year ever, to reach the 25 million subscriber milestone, while it was reported the live TV service had 1.6 million subs as of last month.

Granted, $930 million might be considered a drop in the ocean as far as AT&T’s $108.7 billion Time Warner deal is concerned, assuming debt, but every little helps in reducing its current debt mountain of $176.5 billion. Although it’s worth noting again that Hulu is a long way from profitability, reporting a $469 million operating loss last year. This is despite revenue growth of 22% to $1.5 billion for Disney’s whole D2C sector, of which Hulu accounts for the lion’s share.

In related AT&T news, it has been announced that the WarnerMedia division will undergo a restructuring and reorganization process – split into the four areas of entertainment networks, live programming, content production, and affiliate and advertising sales. NBC Entertainment’s Robert Greenblatt will head up WarnerMedia Entertainment as Chairman, including responsibility for the D2C business, HBO, and cable networks.