Comcast executives expect Disney to buy remaining stake in Hulu

Comcast executives expect Disney to buy remaining stake in Hulu
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Rafael Henrique | SOPA Pictures | LightRocket | Getty Pictures

Hulu’s future remains an open question comcast and Disney It still has not agreed on the terms that will determine the future ownership of the company.

But Disney plans to buy them, even if Comcast executives prefer otherwise.

Disney owns two-thirds of Hulu and the remaining 33% has an option to buy From Comcast as early as January 2024. Some analysts and industry watchers They speculated that Comcast might try to buy Hulu from Disney and not the other way around. Comcast CEO Brian Roberts has long believed in Hulu and has historically driven the asset to hold rather than sell. including 2013, when Roberts messed up talks with DirecTVaccording to people who know the subject.

Comcast came up with the idea to buy all of Hulu from Disney after Disney agreed to buy most of Fox’s assets as part of a $71 billion deal that closed in early 2019. The discussions were private. People said that Disney, which owns a 66% stake after Fox bought a minority stake in Hulu, rejected the idea.

Comcast’s belief in the business, which was prevented from buying all of Hulu, led to an unusual agreement between the two companies in May 2019, with Comcast agreeing to sell Disney a minority stake by 2024. As part of this transaction, Disney provided a sales guarantee. The price that puts Hulu at least $27.5 billion.

The two said that amount had increased earlier in the pandemic, giving Comcast hope that Disney might choose to dump Hulu instead of paying Comcast a big check for the remainder. Ditching Hulu would have allowed Disney to put its focus and money primarily on Disney+.

“If Disney could turn back time today, I’m not sure they would have made this deal,” said Neil Begley, analyst at Moody’s Investors Services. “Disney will pay this huge bill in 2024, at a time when they’ve already invested so much in Disney+.”

Buying Hulu from Disney will also strengthen Comcast’s streaming efforts. Hulu would instantly become Comcast’s flagship streaming asset, replacing NBCUniversal’s Peacock, which added just 13 million paying subscribers to its nearly two-year existence. Hulu has 46.2 million subscribers. Peacock can live on as NBCUniversal’s free ad-supported option. Peacock already has a free tier, millions of users.

Several senior Comcast executives feel that Hulu doesn’t make as much sense with Disney assets as it does with NBCUniversal, especially with the latest announcement that Disney+ plans to launch an ad-supported tier in December, according to people familiar with the matter. Hulu has been Disney’s ad-supported service for years. Disney could have positioned Hulu as the advertising game going forward, but CEO Bob Chapek chose to make both Disney+ and Hulu with and without ads.

Spokespersons for Disney and Comcast declined to comment.

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

Patrick T. Fallon | Bloomberg via Getty Images

Why does Disney want Hulu?

Netflix’s slowing growth this year has led to a general devaluation of the streaming industry. One of the people said that Comcast executives value Hulu “significantly higher” at $27.5 billion, and possibly up to $50 billion. The person said it fell from about $60 billion during the pandemic. There’s still time for significant valuation fluctuations if Disney sticks to its plan to acquire Comcast by January 2024.

Disney’s downgrade Disney+’s guide to 2024 and next move to raise prices He signaled to Wall Street that Chapek is no longer focused on adding subscribers at all costs.

A signal has been sent to Comcast that Hulu is likely to be in Disney’s long-term plans. Excluding Hulu with Live TV, Hulu’s average revenue per user is $12.92 per month. That’s nearly three times Disney+’s global ARPU of $4.35 and more than double Disney+’s ARPU in the US and Canada ($6.27).

Disney created a streaming strategy to bring Disney+, Hulu, and ESPN+ together. While Disney increased the price of Disney+ by 38% and ESPN+’s price increased by 43%, only increased the Disney+, Hulu (with ads) and ESPN+ bundle by $1 from $13.99 to $14.99. This shows that Disney’s most preferred option is customers paying for the full package, including Hulu.

Media and entertainment companies have begun to focus on generating profitable subscribers rather than simply acquiring subscribers, as industry-wide streaming growth has slowed in recent months. If Disney isn’t trading on Disney+ growth, Hulu becomes a more important part of its long-term strategy.

“People are getting more rational about their spending,” said Kevin Mayer, Disney’s former editor-in-chief. on CNBC last month. “Wall Street has a new emphasis on the bottom line, not just top subscribers. I think that’s healthy.”

Comcast vs. Disney

There is also the issue of competitive dynamics. According to people familiar with the matter, the primary reason Disney held Hulu and bought other Fox assets was specifically to keep them away from Comcast. People said handing over Hulu to Comcast would change the balance of power in the media world and weaken Disney, then CEO Bob Iger thought.

Comcast has taken steps to weaken Hulu, assuming Disney will continue. Earlier this year, Comcast has decided to remove content like “Saturday Night Live” and “The Voice” from its streaming service and put it on Peacock instead. This change will take place at the end of this month.

Comcast has already allocated some of the proceeds it will receive to pay off its debt. Two people said Comcast executives don’t need the money and don’t want to independently accelerate a timeline.

Dan Loeb’s wish

Daniel Loeb

Simon Dawson | Bloomberg | Getty Pictures

Activist investor Dan Loeb’s Third Point Capital bought a new stake in Disney last month, arguing that Disney shouldn’t just wrap up its deal for Hulu. speed up the timing.

“We urge the company to make every effort to acquire the remaining minority stake in Comcast before the contractual deadline of early 2024,” Loeb said. In a letter to Chapek, he said:. “We believe it would be prudent for Disney to even pay a modest premium to speed integration, but we are aware that the seller may have an unreasonable price expectation at this time (we note that the seller has already made the decision to prematurely remove their own content from the platform.) This is a priority for you. “We know it’s a good deal, and we hope there’s a deal to be had before Comcast is contractually obliged to do so in about 18 months.”

According to people familiar with the matter, Disney has not made the details of Loeb’s demands public and has not made a decision on whether it plans to accelerate a timeline for Comcast’s acquisition of its stake in Hulu.

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

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