By Ben Fritz and Joe Flint
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (December 16, 2017).
More than a decade ago, big Hollywood players created Hulu in a
joint bid to fend off the threat from piracy on websites like
YouTube.
Now one of Hulu's owners, Walt Disney Co., is taking control of
the subscription video-streaming service in the face of a newer
rival: Netflix Inc.
Disney's deal to purchase a large portion of 21st Century Fox
Inc.'s assets, announced Thursday, would double its 30% stake in
Hulu. For the first time, a single company would control the
streaming service's direction. Comcast Corp.'s NBCUniversal and
Time Warner Inc. are the other joint owners, with 30% and 10% of
Hulu, respectively.
With one majority owner, Disney Chief Executive Robert Iger said
Thursday, managing Hulu will be "a little more clear, efficient and
effective" than with equal partners.
The acquisition, he added, "will enable us to greatly accelerate
Hulu...and become a more viable competitor to those already out
there."
Disney believes Hulu fits into its larger strategy of selling
content to consumers directly, instead of solely through
distributors like cable companies. The entertainment giant already
has plans to launch a family-friendly streaming service in 2019
that would include its feature films and children's TV content,
including new Star Wars and Marvel series.
Disney would tailor Hulu to complement that service by focusing
on more mature content, Mr. Iger said on a conference call. Hulu
would be "a more adult-oriented offering," likely using content
produced by the Twentieth Century Fox movie and TV studio and the
FX cable network, as well as other sources, he said.
Together, the streaming services could form a two-pronged attack
on Netflix. Consumers could subscribe to them individually or
possibly as a combined package. Disney's ESPN is also launching a
sports-streaming service next year, although the highest-profile
games would remain exclusively on cable.
Building direct-to-consumer streaming services is becoming
increasingly important to every media company as subscriptions to
traditional pay-television bundles decline. Mr. Iger has
essentially staked his company and legacy on his ability to make
the shift, not only through the $52.4 billion Fox deal but by
reorienting his film and television operations to focus on it.
Disney is ending a deal to provide movies to Netflix next year
in favor of its own family-friendly streaming service, which will
also feature original series and films. More original content for
Hulu will be a priority as well if the acquisition successfully
closes, people close to Disney said.
Hulu said in May 2016 that it had more than 12 million U.S.
subscribers for its programming service, which offers a feed with
commercials for $7.99 a month and a noncommercial feed for $11.99.
It loses money, according to Disney regulatory filings.
Subscribers get access to episodes of current TV shows the day
after they air on a host of networks including ABC, NBC and Fox.
They can also watch original programming like "The Handmaid's Tale"
and the Disney-produced "Marvel's Runaways," plus a large library
of old shows, including classics like "Seinfeld."
Netflix had 62.3 million subscribers in the U.S. and 20.9
million overseas as of Sept. 30. Amazon.com Inc. doesn't disclose
how many people subscribe to its Prime service, which includes
video streaming.
Hulu also recently launched a live-TV service to compete against
traditional cable and satellite operators. It offers a package of
cable channels for $40 a month, including Disney networks such as
ESPN.
That streaming service could help Disney cushion the blow if
traditional pay-TV providers start aggressively selling packages
that don't include sports, Barclays analyst Kannan Venkateshwar
said in a research note.
Disney would be able to "control its own fate domestically which
is likely to change the narrative on ESPN," Mr. Venkateshwar wrote.
ESPN's subscriber numbers have been declining as a result of
cord-cutting
Because the Disney brand is premised on content and experiences
that parents can share with their children, the company isn't
likely to put shows on its family-oriented streaming service with
dark, mature or violent material -- the sort that would appeal to
fans of Netflix's "House of Cards" and "Bojack Horseman" or rival
Amazon's "Transparent." But such content could play well on
Hulu.
Hulu has been significantly increasing spending on original and
acquired content, increasing its budget from $500 million in 2012
to $2.5 billion this year. Netflix has said it would spend $7
billion to $8 billion next year and Amazon is spending about $4.5
billion this year on content, said people close to that
company.
Mr. Iger said Thursday that he wasn't sure whether Disney would
accelerate Hulu's content investment upon taking control. "If we
decide to increase spending," he noted, "we certainly have the
[intellectual property]-creating capabilities far more than we did
before this acquisition."
Hulu's content-licensing agreements with Disney, Fox and
Comcast's NBCUniversal, which allow it to stream shows from those
companies, expire in late 2019. Disney, upon completion of its deal
with 21st Century Fox, would own the Fox-produced content but would
potentially have to renegotiate with NBCUniversal if it wants to
continue offering its content beyond 2019.
Write to Ben Fritz at ben.fritz@wsj.com and Joe Flint at
joe.flint@wsj.com
(END) Dow Jones Newswires
December 16, 2017 02:47 ET (07:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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