UPDATED with Bob Iger statement. Disney and Comcast announced today that Disney will assume full operational control of Hulu, adding a crucial chess piece in one of the most serious efforts by a traditional media player to take on Netflix.
The companies entered into a “put/call” agreement regarding NBCUniversal’s 33% ownership interest in Hulu. The deal puts a minimum future valuation on Hulu of $27.5 billion, with control transferring to Disney immediately and the financial transaction slated to take effect in 2024.
Reporters gathered in New York for the Disney upfront press conference were startled by the news, announced verbally by a Disney rep as the event was beginning and the press release was hitting the wire. At the same time, it had also been widely expected given Disney’s strategic push into streaming and its description of Hulu as one of “three legs of the stool” along with Disney+ and ESPN+. Disney+ is set to launch in November. The $7 price point of Disney+ and the lowering of Hulu’s basic, ad-supported service to $6 a month are both noteworthy moves in an industry-wide bid to slow the momentum of Netflix.
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“Hulu represents the best of television, with its incredible array of award-winning original content, rich library of popular series and movies, and live TV offerings,” Disney CEO Bob Iger said in a statement. “We are now able to completely integrate Hulu into our direct-to-consumer business and leverage the full power of The Walt Disney Company’s brands and creative engines to make the service even more compelling and a greater value for consumers.” (Iger later elaborated on the deal in an appearance at an investor conference.)
Hulu, which managed to evolve since its 2007 creation despite an unusual multi-company ownership structure, has seen dramatic subscriber growth of late, reporting earlier this month 28 million total subscribers across its live-TV and on-demand offerings. Its advertising revenue has also surged, with half of subscribers opting for the basic, ad-supported tier of Hulu on demand.
The $71.3 billion transaction that saw Disney acquire Fox’s Hulu stake along with studio and network assets, which closed in March, set things in motion for a full roll-up of Hulu. The streaming service’s original programming, highlighted by the Emmy-winning Handmaid’s Tale, and vast library of film and TV titles, including “catch-up” titles that hit the streaming service soon after linear premiere, make it a valuable chess piece for Disney. Given the family-friendly nature of Disney+, more adult-oriented fare created under Disney’s ownership — including potentially film franchises like Deadpool — will find a home on Hulu.
Under the put/call agreement, as early as January 2024, Comcast can require Disney to buy NBCUniversal’s interest in Hulu and Disney can require NBCUniversal to sell that interest to Disney for its fair market value at that future time, the companies said. Hulu’s fair market value will be assessed by independent experts but Disney has guaranteed a sale price for Comcast that represents a minimum total equity value of Hulu at that time of $27.5 billion.
Disney and Comcast have agreed to fund Hulu’s recent purchase of AT&T Inc.’s 9.5% interest in Hulu, pro rata to their current two thirds/one third ownership interests and, going forward, Comcast will have the option but not the obligation to fund its proportionate share of Hulu’s future capital calls and will be diluted if it elects not to fund.
Shortly after Disney bought AT&T’s stake in April and before the month was out, reports surfaced of talks with Comcast about consolidating the remainder. For Disney, the move makes strategic sense, as it looks to control its streaming destiny and explore bundling with ESPN+ and Disney+.
For Comcast, the decision to sell has no doubt been influenced by the company’s debt load, which swelled at the end of 2018 after the $40 billion acquisition of Sky.
In addition to the put/call agreement, Comcast has agreed with Hulu to extend the Hulu license of NBCUniversal content and the Hulu Live carriage agreement for NBCUniversal channels until late 2024 and to distribute Hulu on its Xfinity X1 platform. NBCUniversal can terminate most of its content license agreements with Hulu in three years’ time.
In one year, NBCUniversal will have the right to exhibit on its own OTT service certain content that it currently licenses exclusively to Hulu in return for reducing the license fee payable by Hulu. On Monday, at the NBCU upfront presentation, ad sales chief Linda Yaccarino said several recognizable titles would be “coming home” to NBCU as the company prepares the launch of a free, ad-supported streaming service in 2020.
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