Comcast executives expect Disney to buy remaining stake in Hulu

Hulu’s future continues to be an open question as Comcast and Disney have yet to agree on terms that will settle future ownership of the company.

But Comcast executives plan to buy them from Disney, even if they prefer the opposite.

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Disney owns two-thirds of Hulu and has an option to buy the remaining 33% from Comcast as early as January 2024. Some analysts and industry watchers have speculated that Comcast may be trying to buy Hulu from Disney rather than the other way around. Comcast CEO Brian Roberts has long believed in Hulu and has always pushed to hold the asset rather than sell, including in 2013, when Roberts broke off talks with DirecTVaccording to people familiar with the matter.

Comcast broached the idea of ​​buying all of Hulu from Disney after Disney agreed to acquire the majority of Fox’s assets in a $71 billion deal that closed in early 2019, they said. two of the people, who asked not to be named because the discussions were private. Disney, armed with a 66% stake after acquiring Fox’s minority stake in Hulu, rejected the idea, the people said.

Blocked from buying all of Hulu, Comcast’s continued confidence in the company led to the unusual deal the two companies reached in May 2019, with Comcast agreeing to sell Disney its minority stake as early as 2024. As part of of this transaction, Disney guaranteed a sale price valuing Hulu at a minimum of 27.5 billion dollars.

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

“I think if Disney could go back today, I’m not sure they would make this deal,” said Neil Begley, analyst for 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+.”

The acquisition of Hulu from Disney would also boost Comcast’s streaming efforts. Hulu would instantly become Comcast’s flagship streaming asset, replacing NBCUniversal’s Peacock, which added just 13 million paid subscribers in its nearly two-year existence. Hulu has 46.2 million subscribers. Peacock could live on as a free, ad-supported option from NBCUniversal. Peacock already has a free tier, with million users.

Several senior Comcast executives also believe Hulu doesn’t make as much sense associated with Disney assets as it does at NBCUniversal, especially with the recent announcement that Disney+ plans to launch an ad-supported tier in December, according to reports. people close to the subject. Hulu has been Disney’s ad-supported service for years. Disney could have positioned Hulu as its advertising game going forward, but CEO Bob Chapek opted to create versions of Disney+ and Hulu with and without ads.

Spokespersons for Disney and Comcast declined to comment.

Netflix’s slower growth this year has led to an overall devaluation of the streaming industry. Comcast executives value Hulu “significantly higher” than $27.5 billion, and possibly as high as $50 billion, one of the people said. That’s 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 swings.

Disney’s decision to lower Disney+’s forecast for 2024 and its subsequent decision to raise prices signaled to Wall Street that Chapek is no longer focused on adding subscribers at all costs.

This sent a signal to Comcast that Hulu is likely 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 triple Disney+’s worldwide ARPU of $4.35 and more than double Disney+’s ARPU in the US and Canada ($6.27).

Disney has built a streaming strategy around bringing together Disney+, Hulu, and ESPN+. While Disney increased the price of Disney+ by 38% and the price of ESPN+ by 43%, it only increased its bundle of Disney+, Hulu (with ads) and ESPN+ by $1, from from $13.99 to $14.99. This suggests Disney’s most preferred option is for customers to pay for the entire package, including Hulu.

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

“People are getting smarter with their spending,” Kevin Mayer, Disney’s former head of streaming, told CNBC last month. “Wall Street is putting a renewed emphasis on not just top subscriber counts, but the bottom line. I think that’s healthy.”

There is also the issue of competitive dynamics. According to people familiar with the matter, one of the main reasons Disney retained Hulu and acquired other assets from Fox was specifically to keep them from Comcast. Handing Hulu over to Comcast would shift the balance of power in the media world and weaken Disney, then-CEO Bob Iger believed, the people said.

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

Comcast has already earmarked a portion of the proceeds it will receive to pay down debt. Comcast executives say they don’t need the money and aren’t independently looking to accelerate a schedule, two of the people said.

Activist investor Dan Loeb’s Third Point Capital bought a new stake in Disney last month, saying Disney shouldn’t just close its deal for Hulu, it should speed up his pace.

“We urge the company to make every effort to acquire Comcast’s remaining minority stake before the contractual deadline in early 2024,” Loeb said. said in a letter addressed to Chapek. “We believe it would be prudent for Disney to even pay a modest premium to expedite the integration, but we are aware that the vendor may have an unreasonable price expectation at this time (while noting that the vendor has already taken the decision to prematurely remove its own content from the platform.) We know this is a priority for you and hope there is a deal to be done before Comcast is contractually obligated to do so in about 18 months. “

Disney has not publicly addressed the details of Loeb’s demands and has not decided whether it plans to accelerate a timeline to buy Comcast’s stake in Hulu, according to people familiar with the matter.

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

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