Disney is on the verge of becoming the sole owner of Hulu, which has significant implications for its streaming objectives. In a statement released on Wednesday, the media conglomerate announced its plans to acquire Comcast’s 33% stake in Hulu for $8.61 billion. This move comes after Comcast exercised its right under the put/call arrangement between the two companies. Disney already owns the remaining two-thirds stake in Hulu.
Although the deal is not yet finalized, the agreed-upon purchase price of $8.61 billion might not be the final amount Disney pays for Comcast’s stake in Hulu. The two sides have differing opinions on the market value of Hulu. Comcast’s CEO Brian Roberts sees Hulu as an extremely valuable asset, suggesting that its synergies alone are worth $30 billion. However, an official valuation is yet to be determined.
The appraisal process to determine the fair market value of Hulu is set to occur by Dec. 1, 2023. Each side has enlisted the help of banks (Morgan Stanley for Comcast and JPMorgan Chase for Disney) to assess Hulu’s equity fair value as of Sept. 30, 2023. If the calculations made by these banks differ by more than 10%, a third firm will be brought in to provide an additional estimate. Ultimately, Hulu’s final valuation will be the average of the two closest figures.
Disney’s filing with the SEC outlines the payment process if the equity fair value surpasses the guaranteed floor value. In such a scenario, Disney will pay NBCU an amount equal to NBCU’s equity ownership percentage of the equity fair value minus the guaranteed purchase price. The appraisal process timeline is uncertain but is expected to be completed in the 2024 calendar year.
Disney has also reached an agreement to share 50% of its estimated U.S. tax savings resulting from the Hulu stake acquisition with NBCU. This payment will be made over a 15-year period.
It has long been speculated that Disney intentionally refrained from expanding Hulu internationally to maintain its value, as a higher value would require a larger payment to Comcast. However, once Disney gains full ownership of Hulu, it plans to launch the service globally as a general-entertainment platform.
Some analysts on Wall Street are skeptical that Hulu is worth significantly more than the minimum value of $27.5 billion set in 2019, especially as the focus in the streaming industry shifts from growth-at-all-costs to profitability. Hulu’s subscriber growth has also slowed down, with a 4.5% increase in the second quarter of 2023 compared to 8% the previous year. As of July 1, Hulu had a total of 48.3 million subscribers.
Despite these challenges, retaining Hulu is seen as a long-term strategic asset for Disney. It is expected to enhance the company’s streaming bundles with Disney+, helping to reduce churn and increase pricing power. This is crucial for scaling streaming revenues against a relatively fixed cost base.
Interestingly, during Disney’s earnings call in May, CEO Bob Iger revealed plans to combine Hulu content into a unified streaming experience with Disney+. This announcement caught Comcast executives off guard.
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