Comcast executives expect Disney to stick to its agreement to acquire the remaining stake in Hulu

Hulu’s future remains an open question, as Comcast and Disney have yet to agree on terms that will govern the company’s future ownership.

But Comcast executives plan for Disney to buy them out — even if they’d prefer otherwise.

Disney owns two-thirds of Hulu and has an option to buy the remaining 33% from Comcast as early as January 2024. Some analysts and industry watchers have speculated that Comcast may try to buy Hulu from Disney, rather than the other way around. Comcast CEO Brian Roberts is a longtime supporter of Hulu and has historically pushed to keep the asset rather than sell it, including in 2013 when Roberts called off talks with DirecTV, according to people familiar with the matter.

Comcast picked up the idea of ​​buying all of Hulu from Disney after Disney agreed to acquire most of Fox’s assets as part of a $71 billion deal that closed in early 2019, two of the people said. not to be named as the discussions were private. Disney, armed with 66 percent ownership after acquiring Fox’s minority stake in Hulu, rejected the idea, the people said.

Blocked from buying all of Hulu, Comcast’s steadfast faith in the business led to the unusual agreement the two companies reached in May 2019, with Comcast agreeing to sell its minority stake to Disney as early as 2024. As part of that deal, Disney guaranteed sale price valuing Hulu at a minimum of $27.5 billion.

That amount jumped earlier during the pandemic, giving Comcast some hope that Disney might choose to offload Hulu rather than pay Comcast a huge check for the balance, two of the people said. Offloading Hulu would allow Disney to direct its focus and money primarily to Disney+.

“I think if Disney could turn back the clock today, I’m not so sure they would get into this deal,” said Neil Begley, an analyst at Moody’s Investors Services. “Disney has to pay this huge bill in 2024 at a time when they are already investing a lot of money in Disney+.”

Disney’s acquisition of Hulu would also boost Comcast’s streaming efforts. Hulu will immediately become Comcast’s flagship streaming asset, replacing NBCUniversal’s Peacock, which has added just 13 million paid subscribers in its nearly two years of existence. Hulu has 46.2 million subscribers. Peacock may continue to exist as a free, ad-supported option on NBCUniversal. Peacock now has a free tier with millions of users.

Several senior Comcast executives also believe Hulu doesn’t make as much sense combined with Disney’s assets as it would at NBCUniversal, especially with the recent announcement that Disney+ plans to launch an ad-supported tier in December, according to people familiar with the matter. the question. Hulu has been Disney’s ad service for years. Disney could have positioned Hulu as its ad play going forward, but CEO Bob Chapek chose to make ad- and ad-free versions of both Disney+ and Hulu.

Disney and Comcast spokespeople declined to comment.

Netflix’s slowing growth this year has led to an overall devaluation in the streaming sector. Comcast executives value Hulu “significantly higher” than $27.5 billion and possibly as much as $50 billion, one of the people said. That’s down from about $60 billion during the pandemic, the person said. If Disney sticks to its plan to buy Comcast by January 2024, there’s still time for significant valuation swings.

Disney’s decision to cut Disney+ guidance for 2024 and the subsequent move to raise prices signaled to Wall Street that Chapek is no longer focused on adding subscribers at any cost.

This has sent a signal to Comcast that Hulu is likely in Disney’s long-term plans. Excluding Hulu with live TV, Hulu’s average revenue per user is $12.92 per month. That’s nearly triple Disney+’s global ARPU of $4.35 and more than double Disney+’s ARPU in the US and Canada ($6.27).

Disney has built a streaming strategy around bringing together Disney+, Hulu and ESPN+. While Disney raised the price of Disney+ by 38% and the price of ESPN+ by 43%, it only increased its bundled offering of Disney+, Hulu (with ads) and ESPN+ by $1, from $13.99 to $14.99. This suggests that Disney’s preferred option is for customers to pay for the entire package, including Hulu.

Media and entertainment companies have begun to focus on building profitable subscribers, rather than simply acquiring subscribers, in recent months as industry-wide streaming growth has slowed. If Disney doesn’t trade on Disney+ growth, Hulu becomes a more important part of its long-term strategy.

“People are getting more savvy about their spending,” Kevin Mayer, Disney’s former head of streaming, told CNBC last month. “There’s a renewed emphasis from Wall Street not just on the top line, but on the bottom line. I think that’s healthy.”

There is also a problem with competitive dynamics. According to people familiar with the matter, the main reason Disney is keeping Hulu and acquiring other Fox assets is to keep them from Comcast. Handing over Hulu to Comcast would change the balance of power in the media world and weaken Disney, then-CEO Bob Iger believed, the people said.

Comcast has already taken steps to weaken Hulu, assuming Disney will keep it. Earlier this year, Comcast made the decision to remove content like “Saturday Night Live” and “The Voice” from the streaming service and put it on Peacock instead. This change takes place later this month.

Comcast has already set aside some of the proceeds it will receive to pay down debt. Comcast executives say they don’t need the money and don’t want to speed up the schedule on their own, two of the people said.

Activist investor Dan Loeb’s Third Point Capital bought a new stake in Disney last month, arguing that Disney should not only complete its Hulu deal, but accelerate its timing.

“We urge the company to make every effort to acquire Comcast’s remaining minority stake before the contract expires in early 2024,” Loeb said in a letter addressed to Chapek. “We believe it would even be reasonable for Disney to pay a modest premium to expedite the integration, but we are aware that the seller may have unreasonable price expectations at this point (noting that the seller has already decided to prematurely remove its own content from the platform.) We know this is a priority for you, and we hope to have a deal before Comcast is contractually obligated to do so in about 18 months.”

According to people familiar with the matter, Disney has not publicly addressed the specifics of Loeb’s demands and has not made a decision on whether it plans to speed up the deadline to buy Comcast’s stake in Hulu.

Disclosure: Comcast is the parent company of NBCUniversal, which owns CNBC.

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