November 3, 2023
Mickey Mouse outfit Disney is on the cusp of absorbing Hulu after agreeing to buy the final third of the popular streaming service from Comcast-owned NBCU.
This deal has been in the offing since 2019, when Disney and Comcast established an elaborate put-call agreement. Under the terms of the arrangement, Disney could exercise an option to acquire Comcast’s Hulu stake – the call side of the deal – while Comcast had the ‘put’ side – an option that would require Disney to buy it out of Hulu.
Their agreement had an original deadline of 1 January 2024, but Comcast decided on 1 November to exercise its option and cash in.
In a statement, Disney said it expects to pay approximately $8.61 billion for the stake, representing NBCU’s percentage of the $27.5 billion guaranteed floor value for Hulu that was agreed when the put-call deal was arranged, minus some outstanding capital call contributions payable by NBCU to Disney.
The next step in the process is to appraise Hulu’s value as of 30 September. If it is found to be worth more than the guaranteed floor value, then under the terms of the agreement, Disney will pay NBCU the difference.
“The acquisition of Comcast’s stake in Hulu at fair market value will further Disney’s streaming objectives,” Disney said.
Indeed, Hulu started out as a three-way joint venture between Rupert Murdoch’s old media conglomerate News Corp, NBCU, and Providence Equity. It was pitched as a means of accessing shows from multiple content owners via a single subscription. Disney later bought Providence’s stake and later took majority control of Hulu when it bought Murdoch’s 21st Century Fox for the princely sum of $71.3 billion.
At the end of Disney’s fiscal third quarter, dated 1 July, Hulu boasted 48.3 million members, compared to 146.1 million for Disney+.
However, this is an unfair comparison because Disney+ operates in Europe and India in addition to the US and Canada, and offers a selection of Hulu content in those markets via those platforms. Hulu only operates as a standalone service in the US and Canada.
Taking these two markets in isolation, Disney+ is actually smaller than Hulu, with 46 million subscribers at the end of Q3.
On that basis, the value to Disney of integrating Hulu fully into Disney+ is clear for all to see.
Comcast doubtless knows this too, and is presumably very keen to see whether its 33% stake is worth more than $8.6 billion following the appraisal.
Then again, maybe not.
This week’s deal comes at an interesting time in the streaming market. Free ad-supported TV (FAST) streaming services are emerging as an increasingly-popular alternative to streaming giants like Netflix, Prime Video, Disney+ and so-on. Some of these industry stalwarts have taken unpopular measures recently, such as price hikes, clamping down on password-sharing, and introducing adverts into their lower-cost tariffs.
Analyst firm Omdia reckons that this – combined with the knock-on effects of the ongoing SAG-AFTRA strike in Hollywood – will drive what it calls pay-to-free (P2F) churn, where cost-conscious consumers migrate to FAST services.
“We are expecting that streaming companies will manage ad loads in a sensible way, and so Omdia is still forecasting good growth for paid online video in 2024. The movement from free to pay will happen, although there will still be room for the paid services to continue to thrive,” said Maria Rua Aguete, senior research director in Omdia’s media and entertainment practice, in a research note. “But all of the factors we have highlighted mean that the balance is quite precarious, and the poor implementation of advertising, or the imposition of price increases too quickly and too steeply, could well threaten that expected growth.”
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