Should Comcast Divest Its 30% Stake in Hulu to Disney?Wednesday, September 26, 2018, 11:23 AM ET|Posted by Will Richmond
In the wake of Comcast’s winning $39 billion bid to acquire Sky over the weekend, CNBC has reported that Comcast may be looking to swap its 30% ownership stake in Hulu (plus other consideration TBD), for Disney/Fox’s 39% ownership in Sky (a deal for Comcast to buy that was reported this morning). CNBC said that Comcast sees “only limited value in owning a non-controlling stake in Hulu” given Disney’s 60% share once the Fox deal closes.
This logic is understandable and in addition, divesting the stake would also relieve Comcast of partly funding Hulu’s losses (reportedly almost $1 billion in 2017). On the other side of the coin, Disney would own 90% of Hulu and give up its non-controlling stake in Sky as Comcast takes control of it.
However…if Comcast were to swap its 30% share in Hulu to Disney, it would be giving up its front row seat to how many of the most important industry trends are playing out in the U.S. which Hulu, almost uniquely, provides. Hulu is not only a massive SVOD provider with 20 million+ subscribers, it is also now a vMVPD with its Live service. It is also one of the leading providers of OTT service to connected TVs, by far the fastest-growing device on which to watch OTT content (Hulu has said that approximately 80% of its consumption is on CTV). Hulu has the most experience in selling hybrid subscription/ad-supported SVOD services. Finally, Hulu is a leader in selling OTT video ads, including innovating the traditional TV ad model.
Given all of that, it is likely that there is no other company that offers insiders as many opportunities to learn about current and future market dynamics than Hulu. In fact, Comcast seemed to at least partly recognize this when it recently placed 3 of its most senior executives on Hulu’s board, Jeff Shell (Chairman, Universal), Linda Yaccarino (Chairman of Advertising and Client Partnerships, NBCUniversal) and Matt Bond (Chairman of Content Distribution, NBCUniversal) as soon as the FCC’s restriction on Comcast’s involvement in Hulu expired.
In fact, Hulu’s unique position in the industry and the optionality that it offers in so many different areas are what prompted me to recommend that Comcast actually acquire the 70% of Hulu it doesn’t own. Comcast executives have alternated between praising Hulu and saying they don’t want to be involved in low margin video services. By acquiring Sky, Comcast also made its international expansion priority clear.
But if Comcast were to swap away its Hulu stake, its front row seat would go away as well. To be fair, Comcast will get some front row insights from Sky and its Now TV OTT service. But the European market is quite different than the U.S. market so Comcast would have to be careful about extrapolating too much.
Clearly there are significant financial considerations involved with whether Comcast should retain or swap its Hulu stake. But there’s also the risk of losing out on critical strategic, product and business model insights in these fast-changing times. For example, back in July I questioned why Comcast doesn’t have a more aggressive strategy to combat skinny bundles’ impact on its core video business. Insights from Hulu could improve Comcast’s ability to better compete. Comcast faces a tough choice here, but on balance it feels like holding onto its Hulu stake would be optimal.
Categories: Cable TV Operators, Deals & Financings, SVOD