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18 April 2019

Disney to secure Comcast’s 30% Hulu stake before year is out

It took a little over a month for Hulu and AT&T to reach an agreement over the sale of AT&T’s minority 9.5% share back to the third-placed US SVoD service – coincidentally (or not) just days after majority owner Disney revealed pricing options for its November-due streaming service Disney+.

But rather than viewing Hulu’s ownership structure as Disney having a 60% share, with Comcast owning 30% and Hulu the remainder, it’s more accurate to see the situation following this week’s deal from the angle of Disney now owning 70% – and we reiterate that Disney must be pursuing Comcast’s stake for full ownership. Given the pace of events, we reckon Disney will have secured a deal with Comcast for the remaining 30% before Disney+ launches in November.

Hulu paid $1.4 billion for AT&T’s slice, valuing the whole company at $15 billion, and the transaction has closed without requiring any governmental approval. The announcement claims WarnerMedia will remain “a valued partner for years to come” but realistically there is no time for niceties in the streaming wars and with WarnerMedia set to launch a competing service, it throws the current licensing deals with Hulu into question. And as for DirecTV Now, it’s worth remembering how back in February AT&T was left red-faced after figures were published showing Hulu Live catching DirecTV Now for subscribers.

Of course, Hulu is still horribly loss making and it will take years for it to reach profitability. That said, a recent report from our research arm Rethink TV reckons between Disney, Comcast and AT&T, Disney is the one that will not see OTT/SVoD revenues close in on box office until the end of the forecast period in 2024, but it is also the one where the gap will narrow at the fastest rate. This is because Disney starts the period with the highest box office revenue while SVoD is only just getting going. It does not anticipate Comcast keeping onto its 30% either and projects Hulu respectably passing 40 million subscribers by 2024 from 25 million at the end of 2018.

Crucially, huge question marks continue to linger over the head of Hulu as to what Disney plans to do with the SVoD offering following the arrival of Disney+ later this year, should it acquire 100% ownership. Specifically, whether the Hulu approach of offering ad-supported and ad-free versions will carry across to Disney+. Some analysts are betting on this happening but, if so, the emphasis will be on a light ad load and greatest focus on the subscription only package in the US and Europe.

Many analysts have taken issue with the $6.99 a month Disney+ subscription fee as revealed this week (see separate story in this issue), as an unrealistic ARPU for profitability, yet Disney CEO Bob Iger 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.

AT&T will put the proceeds towards reducing debt following the mega 21st Century Fox deal and, like AT&T, Comcast has also recently completed a sizable acquisition. As of writing, the cable TV giant’s 30% stake in Hulu is valued at $4.3 billion and rising fast. Last summer, AT&T’s 10% was worth about $930 million – rising to $1.4 billion in under a year as Hulu recorded impressive subscriber uptake.