Comcast executives expect Disney to stick to its agreement to acquire the remaining stake in Hulu

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

But Comcast executives plan to buy them from Disney — even if they’d prefer otherwise.

Disney owns two-thirds of Hulu and has an option to purchase the remaining 33% of Comcast as early as January 2024. Some analysts and industry watchers have speculated that Comcast may try to buy Hulu from Disney rather than the other way around. Comcast CEO Brian Roberts has been a longtime believer in Hulu and has historically pushed to keep the original rather than sell it, including in 2013, when Roberts canceled talks with DirecTV, according to people familiar with the matter.

Comcast floated the idea of ​​buying Hulu entirely 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, two people said, who asked not to be named because discussions were ongoing. Special. People said Disney, which holds 66 percent of the ownership after acquiring a minority stake in Fox Hollow, rejected the idea.

Comcast was prevented from buying Hulu entirely, and Comcast’s continued belief in the business led to the unusual agreement the two companies reached in May 2019, in which Comcast agreed to sell its minority stake in Disney as early as 2024. As part of this deal, Disney secured a valuable sale Hulu has a minimum of $27.5 billion.

That amount rose earlier in the pandemic, two people said, giving Comcast some hope that Disney might choose to dump Hulu rather than pay Comcast a huge check for the rest. Unloading Hulu would have allowed Disney to primarily put its focus and money on Disney+.

“I think if Disney could turn back the clock today, I’m not sure they would get into that deal,” said Neil Begley, an analyst at Moody’s Investors Services. “Disney has this huge bill to pay in 2024 at a time when they are already investing a lot of money in Disney+.”

Getting Hulu from Disney will increase Comcast’s streaming efforts. Hulu will immediately become Comcast’s primary streaming asset, replacing NBCUniversal’s Peacock, which has only added 13 million paying subscribers in its nearly two years of existence. Hulu has 46.2 million subscribers. Peacock can live as a free, ad-supported NBCUniversal option. Peacock already has a free category, with millions of users.

Many senior Comcast executives also think Hulu makes no sense when paired with Disney assets as it does on NBCUniversal, especially with the recent announcement that Disney+ plans to launch an ad-supported category in December, according to people familiar with the matter. Hulu has been Disney’s ad-supported service for years. Disney could have had Hulu play its advertising role in the future, but CEO Bob Chapek chose to make copies of both Disney+ and Hulu with and without commercials.

Spokespeople for Disney and Comcast declined to comment.

Bob Chuck, CEO of The Walt Disney Company and former president of Walt Disney Parks and Experiences, speaks during a media preview of the D23 Expo 2019 in Anaheim, California, August 22, 2019.

Patrick T. Fallon | Bloomberg via Getty Images

Why Disney wants Hulu

Netflix’s slower growth this year has led to an overall decline in the value of the streaming sector. One Comcast executive said Hulu is valuing “significantly higher” than $27.5 billion, possibly as high as $50 billion. That’s less than about $60 billion during the pandemic, the person said. If Disney sticks to its plan to buy Comcast by January 2024, there is still time for significant valuation fluctuations.

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

It sent a signal to Comcast that Hulu will likely be in Disney’s long-term plans. Excluding Hulu with Live TV, Hulu’s average revenue per user is $12.92 per month. This is nearly three times the average worldwide ARPU of Disney+ of $4.35 and more than twice the average ARPU of Disney+ in the US and Canada ($6.27).

Disney has built a streaming strategy around bundling Disney+, Hulu, and ESPN+. While Disney raised the price of Disney+ by 38% and the price of ESPN+ by 43%, it only bumped its bundled offerings like Disney+, Hulu (with ads), and ESPN+ by $1, from $13.99 to $14.99. That suggests Disney’s preferred option is for customers to pay for the entire package, including Hulu.

Media and entertainment companies have begun focusing on building profitable subscribers, rather than just gaining subscribers, in recent months as industry-wide streaming growth has slowed. If Disney doesn’t trade on Disney+’s growth, Hulu becomes a more important part of its long-term strategy.

“People are getting wiser about their spending,” Kevin Mayer, the former head of Disney Live broadcasts, said on CNBC last month. “There is a renewed focus from Wall Street not just on the key subscriber number but on the bottom line. I think that’s healthy.”

Comcast vs Disney

There is also the issue of competitive dynamics. The main reason Disney kept Hulu and acquired other Fox assets was to keep it away from Comcast, according to people familiar with the matter. People said that turning Hulu over to Comcast would change the balance of power in the media world and weaken Disney, Bob Iger, CEO at the time, believed.

Comcast has already taken steps to weaken Hulu, assuming Disney will keep it. Earlier this year, Comcast made the decision to remove content like “Saturday Night Live” and “The Voice” from its streaming service and put it on Peacock instead. This change happens later this month.

Comcast has already earmarked some of the proceeds it will receive to pay off debt. Comcast executives said they don’t need the money and aren’t independently looking to speed up the schedule, two people said.

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Daniel Loeb

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Third Point Capital, activist investor Dan Loeb, bought a new stake in Disney last month, arguing that Disney should not only complete its deal with Hulu, but speed up its timing.

“We urge the company to make every attempt to acquire the remaining minority stake in Comcast before the contractual deadline in early 2024,” Loeb said in a letter to Entanglement. “We think it would even be wise for Disney to pay a modest premium to speed up the integration, but we understand that the seller may have an unreasonable price expectation at this time (noting that the seller has already made the decision to prematurely remove its content from the platform.) A priority for you and hopefully there’s a deal before Comcast is contractually committed to doing so in about 18 months.”

Disney has not publicly addressed the details of Loeb’s requests nor made a decision on whether it plans to accelerate a timeline for Comcast’s purchase of Hulu’s stake, according to people familiar with the matter.

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

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