In early 2019, Disney (DIS -0.04%) made a deal to consolidate its control and (eventual) ownership of streaming platform Hulu. Up to that point, Hulu was owned and operated jointly by Disney, Fox, and Comcast (CMCSA 1.85%). Right after Disney acquired the assets from Fox (making it the majority stakeholder of Hulu) the House of Mouse inked a deal with Comcast (CMCSA 1.85%) to assume operational control of the streaming service.
In that 2019 deal, the two media companies also agreed to revisit the ownership issue within five years, with Disney potentially buying the remaining Hulu stake from Comcast in a deal that would value the company at a minimum of $27.5 billion, or its full market value at the time. If that valuation were to hold, Comcast's 33% portion of the company would be worth roughly $9.1 billion.
News broke Wednesday that Disney and Comcast agreed to speed up the final tallying of the deal from January 2024 to Sept. 30.
Image source: Getty Images.
Let the posturing begin
At Goldman Sachs' Communacopia and Technology conference, Comcast CEO Brian Roberts said that Disney CEO Bob Iger agreed to move up the date when the companies were required to begin negotiations. The process will involve independent appraisers working for each company to determine Hulu's value. If the estimates from the appraisers are too far apart, it's likely a third appraiser will be brought in as a tiebreaker.
The posturing of the two chief executives has already begun. Roberts said, "We are excited to get this resolved," though he was quick to point out that the $27.5 billion minimum was a "hypothetical" and that the company was "way more valuable today than it was then."
Not one to shy away from hyperbole, Roberts referred to Hulu as a "scarce, kingmaker asset." He even went so far as to draw comparisons to its largest rival, saying Hulu was in a great position within the industry, second only to streaming leader Netflix. In all, Roberts believes Hulu may be worth north of $30 billion.
Earlier this year, Iger said in an interview that "everything is on the table" as Disney contemplated the future of Hulu. At the time, the chief executive refused to speculate on future plans regarding the streaming platform and whether Disney planned to buy or sell its stake.
Disney has big plans
Iger's stance was short-lived, however. He soon announced plans to integrate some of Hulu's content into the Disney+ streaming service, the beginnings of what he called a "one-app experience" for viewers in the U.S. During Disney's fiscal second-quarter earnings call in May, Iger noted that the biggest benefit of the proposed move is the consolidation of advertising for the various streaming services, saying:
This is a logical progression of our DTC offerings that will provide greater opportunities for advertisers while giving bundle subscribers access to more robust and streamlined content, resulting in greater audience engagement and ultimately leading to a more unified streaming experience.
Iger went on to note that Disney would begin to roll out this one-app offering by the end of 2023.
Disney has added more than 1,000 advertisers over the past year, bringing the total to more than 5,000 across its streaming services, which represents an opportunity to boost its ad business with the consolidation of some of its content across its ad-supported streaming services.
Streaming growth is slowing
It seems it's no longer a question of if Disney will buy out Comcast's ownership of Hulu, but when. Only time will tell how much the streaming service will be worth, but it's clear that as penetration has increased, subscriber growth has slowed.
During Disney's fiscal 2023 third quarter (ended July 1), Hulu had total subscribers of 48.3 million (including 4.3 million with Live TV). The number of subscribers during the quarter increased by less than 5% year over year, or about 100,000 sequentially.
To give that some context, during Disney's Investor Day in early 2019, the company forecast that Hulu would have between 40 million and 60 million subscribers and reach profitability by the end of fiscal 2024.
It appears Disney is on track to achieve its subscriber benchmark. While the company has been mum regarding Hulu's bottom line, that hasn't stopped independent third parties from weighing in. Hulu was one of only two streaming services to make a profit in 2022, according to data compiled by film industry site IndieWire.
We'll hear much more about the progression of this deal in the weeks and months ahead. Investors will want to keep an eye on the negotiations, as the final outcome will be significant for Comcast and Disney investors alike.
