Tuesday, May 14, 2019, 11:20 AM ET|Posted by Will Richmond
Comcast and Disney have announced a deal under which Comcast can effectively transition out of its 33% ownership stake in Hulu beginning in January 2024. The exit can occur at either Disney’s or Comcast’s instigation and at an assessed market value of Hulu that won’t be less than $27.5 billion. That means Comcast’s 33% stake could be worth approximately $9.1 billion though that could be reduced to a minimum of $5.8 billion if Comcast doesn’t fund any of Hulu’s capital needs between now and January 2024.
Aside from the financial aspects of the deal, Comcast will continue to license NBCUniversal content for both Hulu’s SVOD and Live services through late 2024 and to carry Hulu on X1. However, Comcast can end most of these licenses in 3 years, and in 1 year can end the exclusivity on certain content so it can be carried on NBCU’s forthcoming OTT service.
The deal seems to accomplish critical things for both companies. For Disney it means immediate full control of Hulu so that it can guide the company’s programming strategy, services, investment levels and marketing. Disney can figure out how to optimize bundling of Hulu with Disney+ and how to leverage Hulu’s 28 million subscriber relationships. The Comcast agreement puts boundaries around what Disney’s outlay would be to take 100% ownership. Assuming a successful launch of Disney+, Disney is in an enviable position of potentially owning 2 of the 3 biggest DTC services (except Netflix) by this time next year.
For Comcast, the deal ensures significant content licensing revenue for the next several years while it gears up its own NBCU DTC service early next year. Figuring out how to bridge from current distribution models to DTC has been one of the biggest challenges facing established media companies. Nearly 2 years ago, Disney made arguably the boldest move, announcing a transition to DTC without detailing what its DTC service would be until just a month ago.
Comcast is clearly taking a more moderate approach, locking in critical NBCU revenues before testing the DTC waters. Those waters look significantly less profitable too, now that Disney+ will be offered at the ultra-low price of $7/month. Disney+ effectively nipped in the bud any dreams major media companies like NBCU or WarnerMedia had of launching $15 or $20/month DTC services. Consumer expectations will be far lower.
So over the next few years Comcast will transition out of Hulu and realize a strong financial return. The bigger question is strategic - looking ahead, the major U.S. DTC players will be: Disney (Disney+ and Hulu), Netflix, Google (YouTube), Amazon (Prime Video), CBS (CBS All Access) and Roku. It’s too early to tell whether Apple and WarnerMedia can break in, though they’re going to try hard.
Then there’s Comcast which has been the most reticent of the big media companies in embracing DTC. As the most recent quarter showed, Comcast’s broadband business continues to thrive, but the traditional MVPD business is pressured on all sides and subscriber losses are mounting as cord-cutting accelerates. Rather than investing aggressively in DTC (by say, acquiring the rest of Hulu, which I advocated for) in the U.S. (not pushing into the U.K. with Sky), exiting Hulu effectively pushes further out whether Comcast can become a big DTC player in the restructured video industry.
(Reminder, Hulu's SVP and Head of Advertising Sales Peter Naylor will be our keynote guest at the 9th annual VideoNuze Video Advertising Summit on May 29th in NYC. Register now!)