Hulu faces an existential crisis as Disney decides how to move forward

The sign will be seen at the 2019 Deadline Contenders Hulu Reception at Paramount Theater in Paramount Studios Lot on April 7, 2019 in Hollywood, CA.

Rachel Murray | Getty Images

Disney I have a problem with Hulu.

In 2019, the entertainment giant Comcast.. Two months ago, Disney took a 33% stake in Fox’s Hulu $ 71 billion The acquisition will acquire a majority stake in the streaming service.

That puts Comcast’s CEO, Brian Roberts, in a strange position. Comcast owned the remaining 33% of Hulu. Roberts believed that Hulu would become more valuable as the world moved to streaming video, but he didn’t have to own a passive stake.

Roberts and then Disney CEO Bob Iger Signed a contract Save billions of dollars in Disney temporarily after jumping into Fox while managing Hulu’s operations. Comcast has agreed to hold a stake in Hulu until January 2024. Comcast can then force Disney. 33% of Hulu The minimum total valuation is $ 27.5 billion. Price tags can be higher, depending on Hulu’s fair market value in 2024, determined by an independent third party.

At that time, Disney + was being built.that is Released in November 2019, eight months later. Hulu looked like a very strategic asset, as millions of Americans canceled cable TV in favor of free subscription streaming services.

Fast forward 3 years, and why it exists And the future Hulu is unclear to investors, analysts, media executives, and even Disney employees. Disney + has become Disney’s flagship subscription streaming service with 138 million global subscribers as of April 2. Hulu is in the United States alone and has just over 41 million subscribers.

Disney is now paying billions of dollars for seemingly annoying assets. There is little evidence that investors are concerned about Hulu’s quarterly results. In fact, the better Hulu’s performance, the more Disney will have to pay Comcast to buy the rest of Hulu in 2024.

“Disney has never declared Hulu’s strategy,” said John Miller, who served on Hulu’s board from 2009 to 2012. SVOD [subscription video on demand] service. Disney already has Disney +. Wall Street wants to know “how many chips can be successfully placed on the board at any time.”

This dynamics has allowed both Disney and Comcast executives to at least evaluate alternatives. Roberts and Disney CEO Bob Chapek are attending the annual Sun Valley Media Conference this week. According to someone familiar with the matter, the two executives haven’t talked for about six months. But the meeting Famous for big media trading discussionsCould be a place to update the discussion.

Rich Greenfield, a media analyst at Lightshed, has highlighted the idea that Comcast can buy Hulu from Disney.

“I don’t know why Disney + can’t be a wide range of entertainment services,” says Greenfield. I wrote in a memo to the client.. “Parental controls are now available to prevent children from accessing more mature content, which raises the multi-billion dollar question of why Disney wants to own Hulu. . “

Hulu’s strange story

Perhaps Hulu’s most important strategic goal is to support Disney + subscriptions.Do this by being part of it “Disney Bundle”. Disney + is Disney’s family and children’s service, Hulu is its broad Netflix-like service, and ESPN + is its sports service. Disney sells and sells all three for $ 13.99 per month, helping to increase Disney + subscribers and reduce churn.

Otherwise, Hulu’s fit at Disney is clumsy. Hulu is not an international product and cannot be sold globally on Disney +. Like Disney +, Hulu has kids programming — Thousands of hours license Movies, TV series, original programs, Like the restart of the old Warner Bros. anime series “Animaniacs”.. Hulu acts as a home for “Disney other than Disney” content. This may be easier for Disney to understand. Executives deciding whether to appear on Disney + or HuluBut it’s not always easy for customers.

In addition to the turmoil, Disney seems to be pushing the boundaries of Disney + viewers, adding the popular reality show “Dancing with the Stars.” For flagship service instead of Hulu. However, not all family-friendly reality shows are on Disney +. For example, chef Gordon Ramsay’s “Master Chef Junior” is only on Hulu.

The remaining four couples of the season will perform the final two rounds of dance at the finale of the live season, winning the coveted mirror ball trophy.

Eric McCandless | Disney General Entertainment Content | Getty Images

Hulu is also losing most of its popular shows during Comcast. Delete TV shows for the current season, “Saturday Night Live” and “The Voice” later this year. Comcast is introducing programming into its own flagship streaming service, Peacock.

Beyond programming challenges, Hulu with Live TV is a completely independent product that combines Hulu’s subscription video-on-demand service with a digital cable network bundle for $ 69.99 per month. The offering has more than 3 million subscribers and includes live sports broadcasting and programming on a linear network.

Hulu’s messy position within Disney is primarily due to the fact that it was not intended to be Disney-only service. It was launched in 2008 and was backed by News Corp., which owned NBC Universal and Fox, which was still owned by General Electric at the time. A year later, Disney invested.

Hulu was initially a free streaming service supported by advertising and was primarily used as a means of watching episodes of television broadcasts. By 2016, Hulu Completely migrate to paid subscriptions, There is an ad price hierarchy and there are no ads. This shift happened at the same time as the big-money license agreements for both the movie and the television series such as “Seinfeld” and the move to the original show. Also that year, Comcast, which acquired NBCUniversal from GE, Disney, and Fox, sold over 3% of Hulu to Time Warner, bringing more to Hulu.

In 2017, Hulu’s “The Handmaid’s Tale” First streaming show Win an outstanding drama series at the Primetime Emmy Awards.

Hulu’s role in the streaming war

When Disney acquired most of Fox in 2019, Disney became the majority owner of Hulu. Time Warner has agreed to sell Hulu’s stake to Disney and Comcast, 66% to Disney and 33% to Comcast.

That same year, global media companies began shifting their business model to focus on streaming video. Instead of relying on Hulu, Disney launched Disney +. Comcast After a three-month test run, we announced Peacock in July 2020.

Boosted by providing users with access to almost every important Disney movie ever created for just $ 6.99 a month, Disney + was an immediate success. Over 10 million subscribers in the first 24 hours. By the end of 2020, Disney has pushed Disney +’s 2024 forecast to 230-260 million global subscribers. Every quarter over the last 2.5 years, Disney’s share fluctuates significantly based on the number of subscribers reported by the company.

Comcast Brian Roberts CEO will arrive at the Allen & Company Sun Valley Conference on July 6, 2021 in Sun Valley, Idaho.

Kevin Deechu | Getty Images

Chapek has signed a new contract with Disney and will be CEO until 2025. He will be judged by whether Disney has achieved the Disney + goal of 2024. It is no exaggeration to say that he is not judged by the total number of Hulu subscribers.

As Hulu became a Disney + figurative appetizer, we also experienced a change in leadership. Randy Freer was Hulu’s CEO from 2017 to 2020. In February 2020, Kerry Campbell replaced Freer with Hulu’s head. Less than two years later, Campbell left Hulu for Peacock.

Still, Hulu has doubled its total subscriber base since 2018. Streaming service is “Pen15,“”“Dopesick” and “The Dropout”.

“The irony of Hulu is that if programming fails, this will actually be an easy problem to solve,” said Miller, a former Hulu board member.

The future of Hulu

Due to its 15-year presence, Hulu has valuable brand awareness, especially compared to its predominantly existing competitors within 3 years. More than any other streaming service, it has a $ 2.7 billion built-in advertising business this year, according to Moffett Nathanson.

Disney executives see Hulu as a way to keep Disney + pricing and value propositions clear.Some of Disney saw Netflix’s recent struggle Evidence that the world’s largest streaming platform is offering large amounts of content at too high a price is similar to millions of people canceling cable TV, according to people familiar with the matter. If Hulu is integrated into Disney +, if Disney inevitably raises prices, some executives are concerned that users may see Disney + as a bloated product rather than a relatively cheap niche product. I have stated.

One of Chapek’s missions at Disney is the company’s Different departments swimming in the same direction.. Part of that goal seems to be to further integrate Hulu with Disney +. In particular, Disney is preparing to launch ad-supported Disney + later this year. Disney is rolling out Disney Streaming Services (formerly known as Bamtech) to all streaming properties for better integration of technology. Selling ads on Disney + and Hulu with the same sales staff using a unified technology stack clearly provides a synergistic cost savings.

But like HBO in HBO Max, it’s only natural to question the long-term value of the service if Hulu simply becomes a tile in Disney +. As Greenfield pointed out, Disney can already set parental controls on Disney + adult-themed content.

That’s why Comcast makes more sense as the ultimate owner of Hulu, Miller said.

“Disney has built one of Disney +’s top global streaming platforms,” Miller said. “Hulu may be Comcast’s answer.”

If Comcast acquires Hulu, Miller said Peacock could be used as a free ad support platform, much like Paramount Global combined Pluto and Paramount +. Comcast can also transfer premium content spending to Hulu and build it as an aggregate delivery platform.

“Hulu’s third-party distribution business is much better suited for Comcast,” Miller said. Comcast has been selling cable TV for decades, but Disney isn’t essentially a distributor.

The problem is that Comcast is likely to have to repay billions of dollars to Disney, and it’s not yet clear if Hulu’s original programming and NBCUniversal’s content are powerful enough to compete. .. Netflix, Amazon, Apple And Disney all over the world. If that isn’t possible, Comcast will double the business that potentially loses money.

In addition, Comcast already has over $ 10 billion in checks guaranteed by Disney, so you can use whatever you need.

Hulu is stuck in the middle.

No, it’s not “stuck in the middle” Children’s television series starring Jenna Ortega.. It’s in Disney +.

Disclosure: CNBC is part of Comcast’s NBC Universal.

See: Media mogul meets in Sunvalley to focus on integration

Hulu faces an existential crisis as Disney decides how to move forward

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