Comcast executives expect Disney to buy the remaining stake in Hulu

The future of Hulu continues to be an open question as Comcast and Disney still haven’t agreed on terms that will determine the company’s future ownership.

But Comcast executives plan for Disney to buy them out — even if they prefer otherwise.

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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 try to buy Hulu from Disney rather than the other way around. Comcast CEO Brian Roberts has long been a believer in Hulu and has historically pushed to keep the asset rather than sell, including in 2013, when Roberts held talks with DirecTV, according to people familiar with the matter.

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

Blocked from buying all of Hulu, Comcast’s continued belief in the business 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 that transaction, Disney guaranteed a sale price that values ​​Hulu at a minimum of $27.5 billion.

That amount increased earlier in the pandemic, giving Comcast some hope that Disney may 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 put its focus and money primarily on Disney+.

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

Acquiring Hulu from Disney would also bolster Comcast’s streaming efforts. Hulu will immediately become Comcast’s flagship streamer, replacing NBCUniversal’s Peacock, which has added just 13 million paid subscribers in its nearly two years. Hulu has 46.2 million subscribers. Peacock may live on as NBCUniversal’s free ad-supported alternative. Peacock already has a free tier, with millions of users.

Several Comcast executives also believe Hulu doesn’t make as much sense alongside Disney’s assets as it would with NBCUniversal, especially with the recent 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 its advertising game going forward, but CEO Bob Chapek has chosen to create versions of both Disney+ and Hulu with and without commercials.

Spokesmen for Disney and Comcast declined to comment.

Netflix’s slowing growth this year has led to a general devaluation in the streaming sector. Comcast executives value Hulu “significantly higher” than $27.5 billion, and possibly up to $50 billion, one of the people said. That’s down from about $60 billion during the pandemic, the person said. If Disney sticks to its plan to buy out Comcast by January 2024, there’s still time for significant value swings.

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

That has 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 global 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 bundling Disney+, Hulu and ESPN+. While Disney raised Disney+’s price by 38% and ESPN+’s price by 43%, it only increased its Disney+, Hulu (with ads) and ESPN+ bundle by $1, from $13.99 to $14.99. That 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 growth has slowed. If Disney doesn’t trade on Disney+ growth, Hulu becomes a more important part of its long-term strategy.

“People are getting more reasonable about their spending,” Kevin Mayer, Disney’s former streaming chief, said on CNBC last month. “There’s a renewed emphasis from Wall Street, not just on top-line subscriber numbers, but on the bottom line. I think that’s healthy.”

There is also the question of competitive dynamics. A primary reason Disney held on to Hulu, and bought other Fox assets, was specifically to keep them from Comcast, according to people familiar with the matter. Handing Hulu over to Comcast would change 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 wants to 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 will take place later this month.

Comcast has already earmarked some of the revenue it will receive to pay down debt. Comcast executives say they don’t need money and don’t independently want to accelerate a timeline, two of the people said.

Activist investor Dan Loeb’s Third Point Capital bought a new stake in Disney last month, arguing that Disney should not only complete the deal for Hulu, it should speed up the timing.

“We encourage the company to make every effort to acquire Comcast’s remaining minority interest before the contractual deadline in early 2024,” Loeb said in a letter addressed to Chapek. “We believe it would be justifiable for Disney to pay even a modest premium to accelerate the integration, but are aware that the seller may have an unreasonable price expectation at this point (while the seller has already made the decision to remove its own too soon. content from the platform.) We know this is a priority for you and hope there’s a deal to get before Comcast is contractually obligated to do it in about 18 months.”

Disney has not publicly addressed the details of Loeb’s requests and has not made a decision on whether it plans to accelerate a timeline for buying Comcast’s stake in Hulu, according to people familiar with the matter.

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

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