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Comcast executives hope Disney will buy remaining stake in Hulu

Hulu

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Hulu’s future remains an open question, as Comcast and Disney have yet to agree terms to settle the company’s future ownership.

But Comcast executives are planning to buy it for Disney.

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Disney owns two-thirds of Hulu, with an option to purchase the remaining 33% from Comcast as early as January 2024. Some analysts and industry watchers have speculated that Comcast may try to buy Hulu from Disney rather than buying it from Disney. Comcast chief executive Brian Roberts has believed in Hulu for years, and in 2013 he sold Hulu, including when Roberts dropped his deal with DirecTV, according to people familiar with the matter. I have advocated maintaining rather than doing.

Comcast has pitched the idea of ​​buying all of Hulu from Disney after Disney agreed to acquire a majority of Fox’s assets as part of a $71 billion deal that closed in early 2019, according to 2. a person official said. private. Disney, whose acquisition of Fox’s minority stake in Hulu gave him a 66% stake, has dismissed the idea, according to people familiar with the matter.

Although the acquisition of all of Hulu was blocked, Comcast’s persistent belief in the business led to the unusual agreement the two companies reached in May 2019, in which Comcast will acquire a minority stake in Disney in 2024. agreed to sell. As part of the deal, Disney guaranteed the sale. A price that would value Hulu at a minimum of $27.5 billion.

That amount skyrocketed early in the pandemic, giving Comcast hope that Disney might choose to let go of Hulu rather than pay Comcast the rest of its huge check, the official said. two of them said. By offloading Hulu, Disney would have been able to direct its focus and funding primarily to Disney+.

“Even if Disney were able to turn back time today, it’s unclear if they would close the deal,” said Neil Begley, an analyst at Moody’s Investors Service. “Disney will have to pay this huge bill in 2024 when it has already invested heavily in Disney+.”

Acquiring Hulu from Disney also strengthens Comcast’s streaming efforts. Hulu quickly became Comcast’s flagship streaming property, replacing Peacock on NBCUniversal. Peacock has added just 13 million paying subscribers in its nearly two-year existence. Hulu subscribers he has 46.2 million. Peacock may continue as a free ad-supported option on NBCUniversal. Peacock already has a free tier and millions of users.

Some Comcast executives don’t think it makes as much sense to combine Hulu with Disney’s assets as it does for NBCUniversal, according to people familiar with the matter. Hulu has been Disney’s ad-supported service for years. Disney could have positioned Hulu as an advertising strategy going forward, but CEO Bob Chapek said he chose to create both versions with and without commercials for both Disney+ and Hulu. .

Spokespeople for Disney and Comcast declined to comment.

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

Patrick T. Fallon | Bloomberg via Getty Images

Why Disney Wants Hulu

Netflix’s slowing growth this year has led to an overall devaluation in its streaming division. could reach as high as $50 billion. That’s down from about $60 billion during the pandemic, the person said. If Disney sticks to his plan to acquire Comcast by January 2024, there’s still time for significant swings in valuations.

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

This sent a signal to Comcast that Hulu is likely to be included in Disney’s long-term plans. That’s almost triple Disney+’s global ARPU of $4.35, and more than double his Disney+ ARPU in the US and Canada ($6.27).

Disney has built a streaming strategy that bundles Disney+, Hulu and ESPN+. Disney increased the price of Disney+ by 38% and ESPN+ by 43%, but only increased the Disney+, Hulu (with ads), and ESPN+ bundled service from $13.99 to $14.99. This suggests Disney’s most preferred option is for customers to pay for the entire bundle, which includes Hulu.

Media and entertainment companies have started to focus in recent months on building profitable subscribers, rather than simply acquiring subscribers, as industry-wide streaming growth slows. If Disney doesn’t capitalize on Disney+’s growth, Hulu will become a more important part of the company’s long-term strategy.

Kevin Mayer, Disney’s former head of streaming, told CNBC last month, “People are becoming more cautious about their spending.” We’re focused. I think that’s a healthy thing to do.”

Comcast vs. Disney

There is also the issue of competitive dynamics. Disney’s main reason for retaining Hulu and acquiring other Fox assets was specifically to keep them away from Comcast, according to people familiar with the matter. , would change the balance of power in the media world and undermine Disney, said then-CEO Bob Iger, the people said.

Comcast has already taken steps to undermine Hulu, assuming Disney will keep it. Earlier this year, Comcast decided to remove content such as “Saturday Night Live” and “The Voice” from its streaming service and instead distribute them on Peacock. That change will come later this month.

Comcast intends to use a portion of the proceeds to pay down its debt. Comcast executives have said they don’t need the cash and aren’t looking to advance the timeline on their own, two of the people said.

Dan Loeb’s Wish

Daniel Loeb

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Activist investor Dan Loeb’s Third Point Capital last month bought new shares in Disney, arguing that Disney should not only complete the Hulu deal, but expedite its timing.

“I urge the company to make every effort to acquire the remaining minority stake in Comcast by the early 2024 contract deadline,” Loeb said in a letter to Chapek. “While we believe it is prudent for Disney to pay a modest premium to accelerate the integration, we recognize that sellers may be expecting unreasonable prices at this time. has already made the decision to remove their service prematurely. We know this is a priority for you and Comcast is contractually obligated to do so within about 18 months. I hope that the contract will be made before I owe the debt.”

Disney has not publicly commented on the details of Loeb’s request, nor has it decided whether it plans to accelerate the schedule to buy Comcast’s Hulu stake, according to people familiar with the matter.

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

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