The deal that Comcast and Disney reached for Hulu, giving full control of the online subscription VOD service to Disney, was a good one for both companies and made sense for each side, according to comments made by Comcast and Disney executives at separate investor conferences May 14.
Under the deal, Disney will “ultimately buy” Comcast out of its 33 percent share of Hulu and “get full operational control from day one,” CEO Bob Iger said at the MoffettNathanson Media & Communications Summit in New York.
Calling Hulu the “third prong” of Disney’s direct-to-consumer (DTC) strategy, along with Disney Plus and ESPN Plus, he said there’s “a lot of synergies involved.” For starters, he explained: “We’ll be able to manage customers across all platforms,” giving Disney “the ability to bundle, which is a big deal, [and] share data.”
Meanwhile, ad sales are “another benefit to all of this because we’ll integrate [Hulu] with our ad sales across our other platforms,” he told attendees.
Disney “will also be able to leverage our technology, so the BAMTech platform that powers and forms the technology backbone of Disney Plus and ESPN Plus will ultimately be the technology platform that we put Hulu on,” he said.
The Hulu deal with Comcast provides Disney with “a lot of advantages and [was] something that we felt was really important to us long-term in terms of the direction we’re taking the company,” he said, adding that direction doesn’t stop in the U.S. “We have plans to roll out Hulu internationally in a variety of different markets,” he told attendees, but added: “We’re going to walk before we run.” Eventually, he said, “there will be a large presence of both Disney Plus and Hulu internationally over time.”
On the other side of the deal, Comcast CFO Michael Cavanagh said at the J.P. Morgan Global Technology, Media and Communications Conference in Boston: “The important point is that it’s a deal that’s good for both parties.”
Despite the fact that Disney became the majority owner of Hulu after completing its purchase of 21st Century Fox, Cavanagh explained: “Neither side had to do this deal. There wasn’t any gun to either side’s head, so we each got stuff that was important to us.”
He added: “For us, once we became the unequal minority against Disney/Fox together owning 60 percent [of Hulu], what was on our minds was two things. One is protecting the valuable content” owned by Comcast “that is licensed today to Hulu, and by protecting it, I mean making sure it stays relevant and well-monetized until we’re ready to do anything in the alternative with it.”
In particular, Cavanagh explained that as Comcast designs its own DTC over-the-top (OTT) service, “we want to have that flexibility, but we certainly want audiences to still be able to find that content in the intervening time period.”
The second main thing for Comcast was “we didn’t want to be sellers at today’s price of our stake,” he said, adding: “The deal we struck is one where the content we license to Hulu extends for five years. So, we have good monetization available to us of all that content. But we have the right to take it all back if we so choose at the three-year mark. And, at the September 2020 mark, I think, [for] most things that are exclusively licensed today” – like some cable TV properties – “we have the right to make it non-exclusive” and make it available to Comcast for its own “direct-to-consumer platform as we so choose… . That was all very important to us because we’re optimistic about our DTC proposition.”
Responding to an analyst’s question on how Hulu now fits into Comcast’s overall DTC strategy, he said: “Hulu won’t be different than other non-[Comcast NBCUniversal] platforms that are out there.” With each of its entertainment assets, Comcast is “open to putting it on our broadcast airwaves, keeping it for our own OTT product, or licensing it to others; we don’t think it’s an all-or-none world in terms of properly monetizing the content that we create,” he said.
“Independent appraisers will be involved” to calculate the correct value of Comcast’s stake in Hulu at the end of five years, “so that gives us great upside,” he told attendees.
The agreement didn’t come as an enormous surprise, in part because Iger said during Disney’s recent earnings call that the two companies were in talks about Hulu.
In a joint news release, Comcast and Disney said Disney “will assume full operational control of Hulu, effective immediately, in return for Disney and Comcast entering into a ‘put/call’ agreement regarding NBCUniversal’s 33% ownership interest in Hulu.”
Under the put/call deal, as soon as January 2024, Comcast can require Disney to buy NBCUniversal’s interest in Hulu and Disney “can require NBCUniversal to sell that interest to Disney for its fair market value at that future time,” the companies said, adding Hulu’s “fair market value will be assessed by independent experts but Disney has guaranteed a sale price for Comcast that represents a minimum total equity value of Hulu at that time of $27.5 billion.”
Disney and Comcast also agreed to fund Hulu’s recent purchase of AT&T’s 9.5% interest in Hulu, “pro rata to their current two thirds/one third ownership interests and, going forward, Comcast will have the option but not the obligation to fund its proportionate share of Hulu’s future capital calls and will be diluted if it elects not to fund,” the companies said.
Disney agreed that “only $1.5 billion of any year’s capital calls can be funded through further equity investments with any capital in excess of that annual amount being funded by non-diluting debt,” the companies said, adding: “Whether Comcast funds its share of those equity capital calls or not, Disney has agreed that Comcast’s ownership interest in Hulu will never be less than 21% such that Comcast is guaranteed to receive at least $5.8 billion under the put/call agreement.”
Along with the put/call agreement, Comcast agreed with Hulu to extend the Hulu license of NBCUniversal content and the Hulu Live carriage agreement for NBCUniversal channels until late 2024 and to distribute Hulu on its Xfinity X1 platform.
“NBCUniversal can terminate most of its content license agreements with Hulu in three years’ time, and in one year’s time NBCUniversal will have the right to exhibit on its own OTT service certain content that it currently licenses exclusively to Hulu in return for reducing the license fee payable by Hulu,” the companies said.