There's no denying Hulu is a well-respected name within the streaming industry, serving as the initial alternative to pioneer Netflix (NFLX +3.23%). However, Hulu isn't exactly at the heart of any discussions regarding the future of the business.
But perhaps it should be.
That's the takeaway from comments recently made by Walt Disney (DIS +0.14%) CEO Bob Chapek and Comcast (CMCSA 0.41%) chief Brian Roberts, anyway. The top executives of the two companies that co-own Hulu both recently expressed interest in outright owning all of the streaming platform and its 46 million subscribers. Shareholders of either company may want to keep an eye on this developing story, since Hulu seems to represent the last chance to stake a sizable claim in the maturing streaming market.
And it's all coming to a head at a critical point for the industry's growth.
What Disney's Bob Chapek wants with all of Hulu
Bob Chapek stirred the pot again last week. Speaking at Goldman Sachs' Communacopia & Technology conference in San Francisco, Disney's chief executive laid out a vision of combining Disney+ and Hulu into a streaming super service after 2024. That's when Walt Disney will get a chance to buy the one-third of Hulu that Comcast currently controls. When the two platforms are united, the "friction" that millions of consumers contend with when navigating them will theoretically be eliminated; the new service will also likely command a higher subscription price than either component alone.
NYSE: DIS
Key Data Points
The (potential) deal in question was proposed back in 2019, before the launch of Disney+, before the launch of Warner Bros. Discovery's (WBD 0.62%) HBO Max, and, notably, before the launch of Comcast's Peacock. It was also before the COVID-19 pandemic catapulted the streaming industry forward. It's not a stretch to say the business has become much bigger than anyone expected just three years ago.
The terms of the deal are clear: It gives both parties the right to force a sale of Comcast's minority stake to Disney in 2024, but doesn't require a sale if neither party wants one. The price isn't etched in stone, either. The agreement simply says any purchase price will be based on a fair market value for Hulu at the time, with a minimum valuation of $27.5 billion.
Chapek's open to getting a deal done before 2024, though. In an interview with CNBC's David Faber after the Communacopia presentation, Disney's top executive went on to explain, "I would like nothing more than to come up with that solution for an early agreement" to buy Comcast's one-third stake in Hulu, and said he hoped the two parties could come to an agreement "tomorrow."
Comcast's CEO Brian Roberts sees the same opportunity
Comcast's Roberts isn't in any hurry to make such a deal, however, and may even be considering a completely different option. Speaking at the same Goldman Sachs conference, Comcast's Roberts plainly stated, "I believe if Hulu was put up for sale, Comcast would be interested." He's also made a point of questioning a recent comment from Chapek that valuations for streaming platforms have recently fallen.
Roberts may simply be looking to inflate Hulu's market value before any sale, knowing Disney is apt to exercise its purchase option. In light of lackluster interest in Comcast's Peacock, though, Comcast may genuinely be looking for a way to buy all of the bigger streaming brand.
NASDAQ: CMCSA
Key Data Points
Comcast subsidiary NBCUniversal launched its Peacock streaming platform back in mid-2020 with the highest of hopes, which haven't been fulfilled. The company reports a mere 13 million paying subscribers as of the end of June, making it one of the smallest services in terms of memberships. Even counting users who watch the free, ad-supported version, Peacock boasts only 27 million active monthly viewers. That's also relatively poor for an outfit of this ilk. Adding Hulu to the mix not only brings 46 million customers into the fold, but it also gives Comcast an asset with much better monetization potential than Peacock seems to have.
The clock is ticking too. Worldwide, only a little over 20 million new (net) streaming accounts were created during the second quarter of the year. That's the slowest customer growth the streaming industry has seen since 2019.
It's a sign of saturation, of course. In turn. it means future growth for streaming media companies is decreasingly going to come from market growth and increasingly going to be driven by co-option and partnerships. Recognizing this slowdown, Roberts and Chapek are positioning themselves for what will likely be their last chance to outright take control of 46 million streaming customers.
It's pretty clear where this is going
Connect the dots -- Comcast clearly needs Hulu more than Disney does.
See, Walt Disney also owns the ABC network, the sports media brand ESPN, a slew of theme parks and resorts, and more, all of which are successful as well as profitable. Walt Disney's Disney+ also currently boasts nearly 94 million subscribers, not counting its international Hotstar service. Indeed, streaming accounts for only about one-fifth of Disney's current revenue, and only about half of that fifth comes from Hulu. Conversely, although Peacock means even less to Comcast, Comcast's big broadband business is slowing, and in terms of customer counts, its cable television business is still shrinking. A streaming service that's a stronger draw than Peacock could be just the thing the company needs.
As it stands right now, though, that's the (far) less likely outcome. Deeper-pocketed Disney already owns most of the Hulu platform and is running all of it. Chapek's also likely correct that the pairing of Hulu and Disney+ could be a huge deal in terms of marketability, making Comcast's current stake worth whatever price it commands a couple of years from now.
It all adds up to one more reason to be bullish on Disney, and a little less bullish on Comcast.
