Disney Takes Operational Control of Hulu in Comcast Deal
May 14 2019 - 11:48AM
Dow Jones News
By Joe Flint and Micah Maidenberg
Walt Disney Co. and Comcast Corp. have struck a wide-ranging
deal that turns operational control of Hulu over to Disney and
gives Comcast the option to sell Disney its stake in the
streaming-video service.
Under the deal, Comcast can require Disney to purchase the
one-third stake its NBCUniversal subsidiary owns in Hulu as early
as January 2024, the companies said Tuesday. Disney can require
NBCUniversal to sell that stake to Disney at a fair market value,
according to the companies.
Disney has guaranteed that Hulu's equity value at the time of a
deal will be at least $27.5 billion, which would value Comcast's
stake at about $9 billion. The streaming service was valued at $15
billion just last month, when AT&T Inc. agreed to sell its 9.5%
stake back to Hulu.
Comcast on Tuesday said it would give up its three seats on the
Hulu board. For Disney, the arrangement helps clear a path for the
entertainment giant to manage Hulu without having a competitor at
the table to weigh in on strategy. Although Disney already
controlled the Hulu board, the bylaws of the company gave some veto
power to Comcast.
Disney, which is launching its own direct-to-consumer streaming
service called Disney+, has ambitious plans for Hulu. Disney has
said its own streaming service would focus on content for families
and children, while Hulu, which has over 25 million subscribers,
would be an outlet for content aimed at adults. Disney now owns the
Twentieth Century Fox library as well as the FX cable channel, the
latter of which is known for edgier fare.
"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," said
Disney Chairman and Chief Executive Robert Iger in a statement.
For Comcast, the deal allows it to capitalize financially if
Hulu is successful over the next few years, even as the cable giant
pursues its own path in streaming video. NBCUniversal is launching
a direct-to-consumer service next year that will be free to cable
TV subscribers and available for a subscription fee to
cord-cutters.
Part of Hulu's value for consumers is its ability to show
programming from major networks including ABC, Fox and NBC during
the TV season. As part of the Disney pact, Comcast's current deal
to provide NBCUniversal content can end in three years -- and in
one year, NBCUniversal will be able to put some of that content on
its as-yet unnamed streaming service.
NBCUniversal Chief Executive Steve Burke said in a statement
that the deal is "a perfect outcome for us" and added that the
"extension of the content-licensing agreement will generate
significant cash flow for us, while giving us maximum flexibility
to program and distribute to our own direct-to-consumer
platform."
As part of the deal, Disney and Comcast said they would fund
Hulu's recent purchase of AT&T's stake in the streaming
platform. That deal increased Disney's interest in Hulu to 66% and
NBCUniversal's to 33%.
Hulu's owners have pumped billions of dollars into the company,
which is unprofitable. As part of their agreement, Disney and
Comcast agreed that future "capital calls" will be funded through a
combination of equity and debt. If Comcast doesn't participate, its
stake would be reduced, though never below 21%.
For Hulu management, the agreement will finally put the
streaming service under one roof. It launched in 2008 as a
joint-venture between NBC, 21st Century Fox and Providence Equity
Partners. Disney and Time Warner later became shareholders and
Providence sold out. When Disney acquired the bulk of the 21st
Century Fox entertainment assets, it became the controlling
shareholder.
In the past few years, Hulu has become known for its original
programming as well as being a place to catch up on shows from
other outlets. "The Handmaid's Tale" has been a critical and
commercial success for Hulu and the service is launching
"Catch-22," a new ambitious limited series starring George Clooney
based on the Joseph Heller novel.
Hulu has seen its subscriber reach grow dramatically in the past
year. The service in February cut the price for its least expensive
subscription plan and raised the cost of its live TV offering, in
an effort to bolster its subscriber numbers while increasing the
profit margins on its most expensive plan.
Write to Joe Flint at joe.flint@wsj.com and Micah Maidenberg at
micah.maidenberg@wsj.com
(END) Dow Jones Newswires
May 14, 2019 11:33 ET (15:33 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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