We have reached the end of a drama that began last year, when news broke about Disney's (NYSE:DIS) acquisition of 21st Century Fox. Disney took Fox's share of Hulu in that deal, adding to its own and giving it majority control (60%) of Hulu. And now it has full control and is on track to take full ownership of the streaming service from remaining co-owner Comcast (NASDAQ:CMCSA).
Disney and Comcast have agreed to a deal that gives Disney full control immediately and will send Comcast's stake in Hulu to Disney for at least $5.8 billion. The agreement is structured such that Comcast or Disney can demand to complete the sale in five years, though the price could be higher if Hulu's "fair market value" rises.
From the start, Hulu was founded as a joint venture to be a Netflix competitor and an attractive landing spot for content produced by the studios of its parent companies (Disney, 21st Century Fox, AT&T, and Comcast). Even before Netflix's push into original content, it was clear that vertical integration like this made streaming more efficient: If one company owned both the content and the platform, it would have a leaner operation.
But with Disney as the new majority owner, Hulu looked less appealing to its other owners. And Disney itself was focusing on its plans for Disney+, a new all-Disney streaming service that will debut this year.
The co-ownership situation at Hulu was getting stickier. But that's in the past now.
Disney can now treat Disney+ and Hulu as equals, while Comcast is free to focus on its own streaming service, set to debut in 2020. AT&T, having already sold its 10% Hulu stake back to Hulu, can focus on HBO and its other streaming holdings (including its own planned subscription video on demand, or SVOD, streaming service).
The price is right
Another consequence of the Hulu deal is that Comcast is going to get a nice injection of cash in what could be as little as five years.
Remember, Comcast was in no rush to sell just a few months ago. The best argument for not selling was that Hulu's valuation might go up under Disney control. And when Hulu was valued at $9.6 billion in a November 2018 SEC filing, Comcast's wait-and-see approach seemed pretty reasonable.
But then came the AT&T deal in which AT&T sold its share back to Comcast and Disney. Hulu was valued at a whopping $15 billion in that process. Comcast's then-30% share of Hulu would have gotten it $4.5 billion of that figure.
In the Disney-Comcast deal, the parties agreed that Comcast is guaranteed to receive at least $5.8 billion as its stake of Hulu won't be allowed to dip below 21% and minimum total equity value is set at $27.5 billion.
Disney's streaming future is now -- and Comcast's is, too
This latest Hulu deal has set the stage for Disney's big streaming plans and Comcast's 2020 entry into the SVOD market. With control of Hulu in just one party's hands -- and with some extra cash destined for Comcast's pockets -- we'll get to see exactly what each company has in mind for its future.
Among other things, this deal validates Disney's decision to invest in Hulu with content featuring major intellectual property, like that owned by its own Marvel Studios. It also makes bundling Disney+ and Hulu simpler and more cost-effective.
If Disney convinces Disney+ customers to get Hulu, too (or vice versa), it will be helping only itself. Meanwhile, Comcast will be racing to catch up to the other streaming services set to debut in the next few years.