Disney will purchase the remainder of Hulu and stick with the plan, Comcast executives anticipate

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Hulu’s future remains an open question, as Comcast and Disney have still not agreed on terms governing future ownership of the company.

But Comcast executives plan to have Disney buy them out — even though they’d prefer otherwise.

Disney owns two-thirds of Hulu and has an option to buy the remaining 33% from Comcast as early as January 2024. Some analysts and industry watchers have speculated that Comcast could be looking to buy Hulu from Disney, rather than the other way around. Comcast Chief Executive Brian Roberts is a long-time believer in Hulu and has pushed in the past to keep the asset rather than sell it, including in 2013 when Roberts paused talks with DirecTV, according to people familiar with the matter .

Comcast raised the idea of ​​buying Hulu outright from Disney after Disney agreed to acquire the majority of Fox’s assets in a $71 billion deal that closed in early 2019, two of the people behind the deal said asked not to be named because the discussions were private. Disney, which was armed after acquiring Fox’s 66% minority stake in Hulu, scrapped the idea, people said.

Comcast was stymied from buying Hulu outright, and Comcast’s continued belief in the deal led to the unusual deal the two companies reached in May 2019. Comcast agreed to sell Disney its minority stake as early as 2024. As part of this transaction, Disney guaranteed a sale price that values ​​Hulu at a minimum of $27.5 billion.

That amount rose sharply early in the pandemic, giving Comcast hope that Disney might choose to offload Hulu rather than pay Comcast a huge check for the remainder, two of the people said. The Hulu spin-off would have allowed Disney to focus its focus and money primarily on Disney+.

“I think if Disney could turn back the clock today, I’m not sure they would make that deal,” said Neil Begley, an analyst at Moody’s Investors Services. “Disney has to pay this huge bill in 2024, at a time when they’re already putting a lot of money into Disney+.”

Disney’s acquisition of Hulu would also accelerate Comcast’s streaming efforts. Hulu would immediately become Comcast’s flagship streaming asset, replacing NBCUniversal’s Peacock, which has added just 13 million paying subscribers in its nearly two years of existence. Hulu has 46.2 million subscribers. Peacock could live on as a free ad-supported option from NBCUniversal. Peacock already has a free tier with millions of users.

Several senior Comcast executives also think that Hulu doesn’t make as much sense in connection with Disney’s assets as it does with NBCUniversal, especially given the recent announcement that Disney+ plans to launch an ad-supported tier in December, according to those familiar with the matter Persons. Hulu has been Disney’s ad-supported service for years. Disney could have positioned Hulu as an advertising medium for the future, but CEO Bob Chapek has chosen to create both commercial and non-commercial versions of Disney+ and Hulu.

Disney and Comcast spokespeople declined to comment.

Bob Chapek, CEO of The Walt Disney Company and former head of Walt Disney Parks and Experiences, speaks during a media preview of the 2019 D23 Expo in Anaheim, California August 22, 2019.

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Why Disney wants Hulu

Netflix’s slowing growth this year has led to a broader devaluation of the streaming sector. Comcast executives value Hulu “significantly higher” than $27.5 billion and possibly as high as $50 billion, one of the people said. That’s less than about $60 billion during the pandemic, the person said. If Disney sticks with its plan to buy Comcast by January 2024, there’s still time for significant valuation swings.

Disney’s decision to lower Disney+’s 2024 projections and subsequent move to raise prices signaled to Wall Street that Chapek was no longer focused on adding subscribers at any cost.

It’s sent a signal to Comcast that Hulu is likely in Disney’s long-term plans. Excluding Hulu with Live TV, Hulu’s average revenue per user is $12.92 per month. That’s almost triple Disney+’s global ARPU of $4.35 and more than double Disney+’s ARPU in the US and Canada ($6.27).

Disney has built a streaming strategy around bundling Disney+, Hulu, and ESPN+. While Disney increased the price of Disney+ by 38% and the price of ESPN+ by 43%, it increased its bundled offering of Disney+, Hulu (with ads) and ESPN+ by just $1, from $13.99 to $14. $99. That suggests Disney’s preferred option is for customers to pay for the entire package, including Hulu.

Media and entertainment companies have begun to focus on building profitable subscribers rather than simply adding subscribers in recent months as industry-wide streaming growth has slowed. If Disney doesn’t bank on Disney+’s growth, Hulu will become a more important part of its long-term strategy.

“People are becoming more sensible about their spending,” Kevin Mayer, Disney’s former streaming boss, said on CNBC last month. “Wall Street is once again emphasizing not only topline subscriber count, but bottom line as well. I think that’s healthy.”

Comcast vs Disney

There is also the problem of competitive dynamics. One of the main reasons Disney stuck with Hulu and acquired other Fox assets was to keep them off Comcast, according to people familiar with the matter. Handing Hulu over to Comcast would shift the balance of power in the media world and weaken Disney, thought then-CEO Bob Iger, People said.

Comcast has already taken steps to weaken Hulu on the assumption Disney will keep it. Earlier this year, Comcast made the decision to remove content like “Saturday Night Live” and “The Voice” from the streaming service and put it on Peacock instead. This change will take place later this month.

Comcast has already earmarked a portion of the proceeds to pay down debt. Comcast executives say they don’t need the money and aren’t independently trying to accelerate a schedule, two of the people said.

And Loeb’s desire

Daniel Loeb

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Activist investor Dan Loeb’s Third Point Capital bought a new stake in Disney last month, arguing that Disney should not only finalize its deal for Hulu but also speed up its timing.

“We urge the company to make every attempt to acquire Comcast’s remaining minority interest before the contract expires in early 2024,” Loeb said in a letter to Chapek. “We believe it would be wise for Disney to even pay a modest premium to expedite the integration, however we recognize that the seller may have an inappropriate price expectation at this point (noting that the seller already has the made the decision to prematurely remove its own content from the platform.) We know this is a priority for you and hope to reach an agreement before Comcast is contractually committed to this in approximately 18 months.”

According to people familiar with the matter, Disney has not publicly addressed the specifics of Loeb’s inquiries and has not made a decision on whether it plans to accelerate its timeline to purchase Comcast’s stake in Hulu.

Disclosure: Comcast is the parent company of NBCUniversal, which owns CNBC.

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