Hollywood Reporter: Hulu’s Value in Focus as Disney, Comcast Go Public With Negotiation Tactics

Story from Hollywood Reporter:

As Disney prepares to buy out the remainder of Comcast’s stake in Hulu by 2024, top executives at the two companies have increasingly taken their negotiating tactics public as they weigh the worth of the streaming service.

Speaking to a crowd of investors in San Francisco on Sept. 14, Disney CEO Bob Chapek said he’d like to integrate Hulu into Disney+ “earlier” rather than later, but doing so would require “reasonable terms” from Comcast, which still owns a 33 percent stake in the streaming service.

“We’d have to have full ownership of Hulu to integrate it into Disney+. We would love to get to the endpoint earlier, but that obviously takes some level of propensity for the other party to have reasonable terms for us to get there,” Chapek said. “And if we could get there, I would be more than happy to try to facilitate that.”

Meanwhile, Comcast CEO Brian Roberts volleyed back with the idea that the telecommunications company, which owns NBCUniversal and Peacock, would like to buy out Disney’s majority stake and own Hulu itself — even though the likelihood of Disney selling off one of its major streaming assets is highly unlikely.

“Hulu is a phenomenal business,” Roberts said. “It has wonderful content, and I believe if it was for sale, put up for sale, Comcast would be interested — and so would a lot of other tech and media companies. And you would have a robust auction.”

The volleying quotes, which were picked up by news outlets and on social media, served as a preview of the pending Disney-Comcast negotiations over Hulu that began back in 2018.

Disney originally became an investor in Hulu in 2009 and later retained majority ownership after acquiring the entertainment assets from 21st Century Fox, which had a founding stake in Hulu. But the acquisition didn’t come without competition; Comcast had also put in a $65 billion bid for 21st Century Fox in 2018, which forced Disney to raise its offer from $52.4 billion to $71.3 billion in order to seal the deal. Comcast, cutting its losses, pulled its Fox bid in order to turn its attention to the acquisition of British broadcaster Sky and soundly beat out Disney in that negotiation process.

But Comcast never fully turned away from Hulu. Executives at the telecommunications company reportedly approached Disney about buying Hulu from Disney as part of the 2019 Fox acquisition, but Disney — which had a 66 percent stake in Hulu after the Fox deal — was not interested.

Instead, Disney and Comcast, the parent company to NBCUniversal, entered into a put/call agreement in May 2019. The agreement stipulated that as early as January 2024, Comcast can require Disney to buy out NBCUniversal’s interest in Hulu, and Disney can require NBCUniversal to sell its stake to Disney for its “fair market value at that future time,” according to a press release issued when the agreement was made.

At the time of sale, independent experts will assess Hulu’s fair market value. Disney has guaranteed a sale price that would value Hulu at a minimum of $27.5 billion and make Comcast’s stake worth at least $9 billion.

However, since the deal with Comcast was struck, streaming valuations have fallen and the market has faced greater scrutiny in light of slowing subscriber numbers at giants like Netflix. That may be one reason why Roberts is seeking to talk up the value of his Hulu stake, according to analysts — though how much that will actually play into its monetary determination is unclear.

This is the first time the two parties have argued publicly over the stake, but, according to a 2021 report in The Information, Disney and Comcast have privately feuded over Disney’s decision to not launch Hulu overseas, opting instead to create the Star streaming brand with general entertainment, and took the matter to arbitration. Comcast had argued that expanding the platform internationally would not only increase its scale, but also its value, according to the report.

Comcast already has a streaming service in NBCU’s Peacock platform, which has seen stalling numbers for paying subscribers (about 13 million) and has not reached a level to seriously compete with Netflix or Disney+. Roberts clearly sees Hulu, which commands a high average revenue per user and has an established subscriber base, as a means to help broaden Peacock’s library and bring in more subscribers, pushing the platform toward more of a first-tier status. However, reaching that status would also require a larger and continued investment in content, and it is unclear whether Comcast is prepared to do that, said Moody’s analyst Neil Begley.

While Disney may not necessarily need Hulu to drive future growth, the company has already agreed to the deal with Comcast; Hulu serves as a key offering in Disney’s streaming bundle with Disney+ and ESPN+ and, as mentioned earlier, brings in an average monthly revenue per user that is currently more than double the amount for Disney+ in the U.S. and Canada for its SVOD tier alone.

As for moving up the timing, Disney has been focused on bringing its balance sheet back to where it was pre-pandemic, which has included buying back stock, and Chapek may want to get this deal done sooner, rather than later, to refocus on that.

“Doing this transaction is going to make it take longer for them to do the things that they would probably like to do,” Begley said.

Once this deal is resolved, Roberts signaled that he would keep competing with Disney in other ways.

“Clearly, there’s one other company, Disney, that has a fabulous parks business. We’re gaining share. The ingenuity and the service and the customer satisfaction, it has never been better,” Roberts said.

© 2022 The Hollywood Reporter, LLC.