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https://www.wsj.com/articles/inside...the-future-of-hulu-96a7aae6?mod=djemalertNEWS
Inside Disney and Comcast’s Fight Over the Future of Hulu
Parent companies are in final phase of battle marked by legal threats, broken promises and secret arbitration
By Jessica Toonkel and Amol Sharma
May 25, 2023 8:00 am EDT
Late last year, top executives from Disney and Comcast, the co-owners of Hulu, visited a New York law office to give depositions in a dispute over the streaming service, people familiar with the situation said. At issue is Comcast’s claim that Disney, the majority owner, injured Hulu by failing to launch it outside the U.S.
The arbitration case, which the companies haven’t discussed publicly, is part of a larger, multiyear battle between Disney and Comcast over one of the streaming industry’s biggest players, and how to divvy up the spoils of its rise. It has featured claims of broken promises, legal threats and dueling valuations.
Now, the companies must overcome that baggage to strike a deal that would lead to Comcast’s exit from the business. Under an agreement between the companies, starting in 2024, Comcast can require Disney, which owns two-thirds of Hulu, to buy its one-third stake, or Disney can require Comcast to sell.
Both sides want to do a deal, but when each has assessed Hulu’s value in recent years, they have been tens of billions of dollars apart, the people familiar with the situation said. Hulu can be valued no lower than $27.5 billion under the pact between the companies.
Comcast CEO Brian Roberts told investors at a conference days later that the “majority case” is that Disney will buy Comcast’s stake. Hulu’s value, he said, should be based on the hypothetical idea that it would be put up for sale in an auction for anyone—including any major media or tech company—to buy it. “The job is to then give us one-third of that value,” he said. “So I think we have a very valuable position.”
In early 2024, each company will do an assessment of Hulu’s value again, and if they are still very far apart, an independent third party will be enlisted to make a determination, people familiar with the matter said.
“These two companies have a long-term, intricate dance of a relationship, and there are a ton of levers that can be pulled to get to a deal,” said Bernard Gershon, a media consultant and former Disney executive.
Each company has its separate streaming ambitions beyond Hulu. Disney launched its flagship service Disney+ in 2019, while Comcast launched its Peacock service in 2020.
As their fight over Hulu plays out, Comcast has stopped funding Hulu, people familiar with Hulu’s finances said. Disney has provided the equivalent of a bridge loan, so that the streamer gets needed cash, they said.
If Comcast and Disney reach a deal on overall ownership of Hulu, they would settle up on the past payments and could resolve the arbitration as part of a wider transaction, the people said.
Even without a deal, Iger is already taking steps to integrate Hulu with a plan to fold its content into Disney+ in the U.S. by the end of the year—by adding a Hulu “tile”—while maintaining a stand-alone Hulu app. The initiative was known within Disney as “Project Hulk,” and has been under way for more than a year, but came as a surprise to top Comcast executives, people familiar with the situation said.
Hulu launched in 2007, and quickly became known for letting cable cord-cutters stream network TV shows the day after they aired on TV. That was possible because it was owned by several big media companies, including the parents of NBC, Fox and ABC.
Today, it streams such shows as ABC’s “Abbott Elementary” and Fox’s “The Masked Singer,” original programs including “Only Murders in the Building” and a deep library of TV and movie classics. The service had about 48 million subscribers as of April and is one of the few streaming services to generate a profit in the past few years.
Comcast, which became one of Hulu’s owners when it acquired control of NBCUniversal in 2011, has sometimes differed with the other owners over strategy. In 2013, Hulu considered a sale but scrapped the effort. One reason was that Comcast’s Roberts had assured the other owners, Disney and Fox, that he could make Hulu the nationwide streaming platform for the cable TV industry, which would boost its growth.
Discussions bogged down, and the Comcast partnership never happened. Iger and his team were said to be furious, according to people close to the discussions. In Comcast’s view, a sale of Hulu didn’t make sense at the time because the offers it was fetching were too low, another person familiar with the situation said.
Hulu added subscribers briskly for years but also lost a lot of money—upward of $1.5 billion in fiscal 2018 alone, according to an estimate from SVB MoffettNathanson. That is partly because of how the owners were paid for putting their own content on Hulu. As Hulu grew, the parent companies got larger revenue-sharing payments, according to people familiar with the situation, so they profited at Hulu’s expense. Hulu eventually established a cap on the total amount of revenue that could be shared with owners, the people familiar with Hulu’s finances said.
Fox deal
A key moment in the Disney-Comcast feud came after Disney’s late 2017 announcement that it had agreed to acquire Fox entertainment assets including its one-third Hulu stake. Up until then, when Hulu did major deals to purchase content from any of its owners, it required unanimous approval from voting stakeholders—a way to avoid self-dealing.
On the eve of that merger announcement, Disney and Fox quietly changed Hulu’s governing rules, making it impossible for their minority partner, Comcast, to block major decisions, according to people familiar with the matter. Comcast wasn’t privy to the change because it had agreed to be a silent, nonactive partner in Hulu to secure the U.S. government’s approval of its NBCUniversal acquisition.
For the next few months, Comcast tried to break up the Disney-Fox deal, making its own unsolicited run for the Fox assets. Disney prevailed with a $71.3 billion acquisition deal in June 2018, but the bidding war drove up the cost.
Comcast only learned of the Hulu rule change in September of that year, when the restriction making it a silent partner ended, the people familiar with the matter said. When Comcast found out, it threatened legal action, the people said.
Partly to avoid that potential legal brawl, the companies started talking about how to rework their relationship, at the direction of Roberts and Iger. NBCUniversal’s chief at the time, Jeff Shell, sat down for lunch in Burbank, Calif., with Kevin Mayer, who was then Disney’s top streaming executive, and hashed out the beginnings of a truce, said people familiar with the situation. The eventual agreement, reached in 2019, gave Disney operating control of Hulu and set up the possible sale of Comcast’s stake in 2024.
Comcast agreed to go along with the new governing rules for Hulu with the understanding that Disney would keep aggressively expanding the streaming service, including in international markets, to make it as valuable as possible, said a person familiar with the discussions. Disney’s view is that it never promised that Hulu would launch internationally, people close to the situation said.
In 2020, by which time Bob Chapek had taken over as CEO from Iger, Disney instead decided to use its Star brand—which originated in Asia—for its general-entertainment streaming endeavors overseas, instead of Hulu. Star became a tile within the Disney+ app in certain markets.
That was the genesis of the arbitration dispute. Comcast executives who testified in the matter, including Roberts, Shell and strategy executive Bob Eatroff, argued that Disney hurt Hulu and its value with that decision, people familiar with the arbitration proceedings said. Comcast is seeking damages, some of the people said.
Disney made the case that the company was within its rights to change course, and that launching Hulu’s brand in foreign markets would be too costly, the people said. Mayer and Chapek were among the representatives from Disney’s side.
Mayer left Disney in 2020, while Chapek departed last fall when Iger returned. Shell left NBCUniversal in April.
Peacock is still small, with 22 million paid subscribers as of the first quarter, compared with 157.8 million for Disney+ and more than 232.5 million for Netflix. It has been adding subscribers at a solid clip, but has also piled up losses, including over $700 million in the most recent quarter.
Comcast contemplated buying Disney out of Hulu instead of the other way around, but a significant concern was whether Comcast would have rights to all of Hulu’s content, much of which is owned by Disney, people close to the company said.
Comcast’s sale of its stake is more likely. In 2021, when all of the major streaming services were still seeing huge subscriber growth, NBCUniversal executives pegged Hulu’s valuation at north of $70 billion, people close to the company said. Disney’s valuation has been tens of billions of dollars lower, they said.
Iger’s plan to add a Hulu tile in Disney+ could further complicate the calculation of Hulu’s value, said some people familiar with the situation.
“There seems to be real value in having general entertainment combined with Disney+,” Iger said on the recent earnings call. “And if, ultimately, Hulu is that solution…we’re bullish about that.”
Inside Disney and Comcast’s Fight Over the Future of Hulu
Parent companies are in final phase of battle marked by legal threats, broken promises and secret arbitration
By Jessica Toonkel and Amol Sharma
May 25, 2023 8:00 am EDT
Late last year, top executives from Disney and Comcast, the co-owners of Hulu, visited a New York law office to give depositions in a dispute over the streaming service, people familiar with the situation said. At issue is Comcast’s claim that Disney, the majority owner, injured Hulu by failing to launch it outside the U.S.
The arbitration case, which the companies haven’t discussed publicly, is part of a larger, multiyear battle between Disney and Comcast over one of the streaming industry’s biggest players, and how to divvy up the spoils of its rise. It has featured claims of broken promises, legal threats and dueling valuations.
Now, the companies must overcome that baggage to strike a deal that would lead to Comcast’s exit from the business. Under an agreement between the companies, starting in 2024, Comcast can require Disney, which owns two-thirds of Hulu, to buy its one-third stake, or Disney can require Comcast to sell.
Both sides want to do a deal, but when each has assessed Hulu’s value in recent years, they have been tens of billions of dollars apart, the people familiar with the situation said. Hulu can be valued no lower than $27.5 billion under the pact between the companies.
Hulu's Ownership Saga
Control of the streaming pioneer has been complicated since its founding2007
Hulu launches, letting cord-cutters stream popular TV2013
Hulu’s owners scrap plan to sell company2019
Disney gains two-thirds control of Hulu after it acquires Fox assets; an agreement lays out path for Disney to eventually acquire Comcast’s Hulu stake2020
Disney opts to use Star brand for international streaming, not Hulu2022
Top Comcast and Disney executives are deposed in arbitration case2023
Disney CEO Robert Iger says talks to buy out Comcast’s Hulu stake are cordial
Comcast CEO Brian Roberts told investors at a conference days later that the “majority case” is that Disney will buy Comcast’s stake. Hulu’s value, he said, should be based on the hypothetical idea that it would be put up for sale in an auction for anyone—including any major media or tech company—to buy it. “The job is to then give us one-third of that value,” he said. “So I think we have a very valuable position.”
In early 2024, each company will do an assessment of Hulu’s value again, and if they are still very far apart, an independent third party will be enlisted to make a determination, people familiar with the matter said.
“These two companies have a long-term, intricate dance of a relationship, and there are a ton of levers that can be pulled to get to a deal,” said Bernard Gershon, a media consultant and former Disney executive.
Each company has its separate streaming ambitions beyond Hulu. Disney launched its flagship service Disney+ in 2019, while Comcast launched its Peacock service in 2020.
As their fight over Hulu plays out, Comcast has stopped funding Hulu, people familiar with Hulu’s finances said. Disney has provided the equivalent of a bridge loan, so that the streamer gets needed cash, they said.
If Comcast and Disney reach a deal on overall ownership of Hulu, they would settle up on the past payments and could resolve the arbitration as part of a wider transaction, the people said.
Even without a deal, Iger is already taking steps to integrate Hulu with a plan to fold its content into Disney+ in the U.S. by the end of the year—by adding a Hulu “tile”—while maintaining a stand-alone Hulu app. The initiative was known within Disney as “Project Hulk,” and has been under way for more than a year, but came as a surprise to top Comcast executives, people familiar with the situation said.
Hulu launched in 2007, and quickly became known for letting cable cord-cutters stream network TV shows the day after they aired on TV. That was possible because it was owned by several big media companies, including the parents of NBC, Fox and ABC.
Today, it streams such shows as ABC’s “Abbott Elementary” and Fox’s “The Masked Singer,” original programs including “Only Murders in the Building” and a deep library of TV and movie classics. The service had about 48 million subscribers as of April and is one of the few streaming services to generate a profit in the past few years.
Comcast, which became one of Hulu’s owners when it acquired control of NBCUniversal in 2011, has sometimes differed with the other owners over strategy. In 2013, Hulu considered a sale but scrapped the effort. One reason was that Comcast’s Roberts had assured the other owners, Disney and Fox, that he could make Hulu the nationwide streaming platform for the cable TV industry, which would boost its growth.
Discussions bogged down, and the Comcast partnership never happened. Iger and his team were said to be furious, according to people close to the discussions. In Comcast’s view, a sale of Hulu didn’t make sense at the time because the offers it was fetching were too low, another person familiar with the situation said.
Hulu added subscribers briskly for years but also lost a lot of money—upward of $1.5 billion in fiscal 2018 alone, according to an estimate from SVB MoffettNathanson. That is partly because of how the owners were paid for putting their own content on Hulu. As Hulu grew, the parent companies got larger revenue-sharing payments, according to people familiar with the situation, so they profited at Hulu’s expense. Hulu eventually established a cap on the total amount of revenue that could be shared with owners, the people familiar with Hulu’s finances said.
Fox deal
A key moment in the Disney-Comcast feud came after Disney’s late 2017 announcement that it had agreed to acquire Fox entertainment assets including its one-third Hulu stake. Up until then, when Hulu did major deals to purchase content from any of its owners, it required unanimous approval from voting stakeholders—a way to avoid self-dealing.
On the eve of that merger announcement, Disney and Fox quietly changed Hulu’s governing rules, making it impossible for their minority partner, Comcast, to block major decisions, according to people familiar with the matter. Comcast wasn’t privy to the change because it had agreed to be a silent, nonactive partner in Hulu to secure the U.S. government’s approval of its NBCUniversal acquisition.
For the next few months, Comcast tried to break up the Disney-Fox deal, making its own unsolicited run for the Fox assets. Disney prevailed with a $71.3 billion acquisition deal in June 2018, but the bidding war drove up the cost.
Comcast only learned of the Hulu rule change in September of that year, when the restriction making it a silent partner ended, the people familiar with the matter said. When Comcast found out, it threatened legal action, the people said.
Partly to avoid that potential legal brawl, the companies started talking about how to rework their relationship, at the direction of Roberts and Iger. NBCUniversal’s chief at the time, Jeff Shell, sat down for lunch in Burbank, Calif., with Kevin Mayer, who was then Disney’s top streaming executive, and hashed out the beginnings of a truce, said people familiar with the situation. The eventual agreement, reached in 2019, gave Disney operating control of Hulu and set up the possible sale of Comcast’s stake in 2024.
Comcast agreed to go along with the new governing rules for Hulu with the understanding that Disney would keep aggressively expanding the streaming service, including in international markets, to make it as valuable as possible, said a person familiar with the discussions. Disney’s view is that it never promised that Hulu would launch internationally, people close to the situation said.
In 2020, by which time Bob Chapek had taken over as CEO from Iger, Disney instead decided to use its Star brand—which originated in Asia—for its general-entertainment streaming endeavors overseas, instead of Hulu. Star became a tile within the Disney+ app in certain markets.
That was the genesis of the arbitration dispute. Comcast executives who testified in the matter, including Roberts, Shell and strategy executive Bob Eatroff, argued that Disney hurt Hulu and its value with that decision, people familiar with the arbitration proceedings said. Comcast is seeking damages, some of the people said.
Disney made the case that the company was within its rights to change course, and that launching Hulu’s brand in foreign markets would be too costly, the people said. Mayer and Chapek were among the representatives from Disney’s side.
Mayer left Disney in 2020, while Chapek departed last fall when Iger returned. Shell left NBCUniversal in April.
Peacock’s pull
Comcast decided to enter the streaming wars on its own, launching the Peacock service in July 2020, as the pandemic was fueling at-home entertainment consumption. Last year, as expanding that service became a bigger priority, Comcast opted to pull NBCUniversal content off Hulu and put it on Peacock, including such popular shows as “The Voice” and “Saturday Night Live.”Peacock is still small, with 22 million paid subscribers as of the first quarter, compared with 157.8 million for Disney+ and more than 232.5 million for Netflix. It has been adding subscribers at a solid clip, but has also piled up losses, including over $700 million in the most recent quarter.
Comcast contemplated buying Disney out of Hulu instead of the other way around, but a significant concern was whether Comcast would have rights to all of Hulu’s content, much of which is owned by Disney, people close to the company said.
Comcast’s sale of its stake is more likely. In 2021, when all of the major streaming services were still seeing huge subscriber growth, NBCUniversal executives pegged Hulu’s valuation at north of $70 billion, people close to the company said. Disney’s valuation has been tens of billions of dollars lower, they said.
Iger’s plan to add a Hulu tile in Disney+ could further complicate the calculation of Hulu’s value, said some people familiar with the situation.
“There seems to be real value in having general entertainment combined with Disney+,” Iger said on the recent earnings call. “And if, ultimately, Hulu is that solution…we’re bullish about that.”
