Disney Offers $8.6 Billion to Take Full Control of Hulu

Disney is set to acquire complete ownership of Hulu after offering to pay Comcast $8.6 billion for its one-third share. The move is part of Disney CEO Bob Iger's strategy to reshape the company around streaming. This development marks a significant step towards a streaming future for Disney.

How Hulu Got Here

Since its launch in 2007, Hulu has evolved to compete with YouTube and has undergone various transformations. The original owners of Hulu were News Corp's 21st Century Fox, Comcast's NBCUniversal, and Disney. Together, they contributed a free library of their networks' shows to Hulu, which was one of the first platforms to feature ads.

In 2019, Disney acquired majority ownership and operational control of Hulu as part of its acquisition of Fox's entertainment assets. At the time, it was expected that Disney would seek full ownership of Hulu. However, Bob Iger, who had recently returned as Disney's CEO, hinted that he might consider offloading Hulu. He later changed his stance, recognizing the value of having general entertainment content combined with Disney+.

Analysts agree that a broader streaming offering is essential for Disney to compete with Netflix. While some argue that Disney should sell off Hulu, others believe that fully owning the platform will allow Disney to create a mini-bundle with Disney+, Hulu, and ESPN, covering kids and family, general entertainment, and sports.

What's Next for Disney

The key question now is how much Disney will have to pay for the remainder of Hulu. In 2019, Disney and Comcast agreed that Hulu was worth at least $27.5 billion. However, Comcast's CEO, Brian Roberts, believes that the platform is worth much more today.

To arrive at an exact price for Hulu, both companies have hired investment banks to determine valuations. If the final valuations are within 10% of each other, the average of the two will be the price at which Hulu is valued. Disney will then pay Comcast 33% of that value for its stake. If the valuations differ significantly, a third bank will be brought in to decide on a fair valuation.

One of the challenges in valuing Hulu is considering the benefits it brings to Disney when bundled with other streamers like Disney+ and Hulu + Live TV. The valuation also needs to account for the inclusion of Disney basic cable network FX on Hulu. Since no pure-play streamer has been sold before, there is no precedent to follow.

Estimates for Hulu's valuation range from $35 billion to $40 billion. If Disney needs to dip into its cash to buy out Comcast, the burden of payment could be offset by the potential benefits that Hulu brings to Disney's streaming business.

Implications for Disney's Streaming Business

Streaming has traditionally been a money-losing venture for media companies. However, analysts believe that the market will only support a few major streamers, making scale crucial for profitability. Consolidation has already begun, with companies like Paramount Global and Warner Bros. Discovery bundling their streaming services.

Hulu, along with Netflix, is one of the few streamers that is currently profitable. Disney expects that having Hulu on Disney+ will lead to better engagement, more advertising, lower churn, and reduced customer acquisition costs. This consolidation approach aims to grow subscribers and reduce churn.

Combining Hulu's mature ad business with Disney+ could generate an additional $750 million in ad revenue. Disney has also recently added self-serve advertiser tools, which will further enhance its ability to monetize Hulu. However, Disney will need to continue investing in content to compete with Netflix, which plans to spend $17 billion on entertainment content in 2024.

Despite the challenges, acquiring full ownership of Hulu will position Disney as a formidable player in the streaming industry. The move will likely bring relief to Hulu's staff and provide direction for its future within the company.

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By: lmoses@insider.com (Lucia Moses)
Title: Disney Offers $8.6 Billion to Take Full Control of Hulu
Sourced From: www.businessinsider.com/disney-bought-owns-hulu-valuation-explained-whats-next
Published Date: Sat, 11 Nov 2023 12:24:01 +0000