Critic's Notebook: With Full Control of Hulu, Disney Shows It Doesn't Fear Comcast

The upfronts shine a light on Streaming Wars gamesmanship.
Hulu CEO Randy Freer

The television upfronts have always primarily been about network TV, eventually involving ad-supported cable too. In recent years, you could also find streamers getting a little action at the gathering. Those proportions are changing this year because, you guessed it, 2019 is the year the Streaming Wars really take off. 

And they changed a lot on Tuesday. Even in a traditional linear TV dog-and-pony show like the upfronts, streamers are stealing headlines.

Sure, a lot of what you're reading about the upfronts is the same old story: network ad-buying frenzies and the details of new series rolled out with starry-eyed promises. The advertising is sold "upfront" at a discount, companies hoping to get in early on huge hits that tens of millions of people will be watching — an adorably antiquated concept given that the "broad" in broadcasting is mostly a memory from a long-lost time; the "big tent" concept is dated. 

Yet even as the audience for linear television drops precipitously, networks and cable companies are still making tons of money in advertising. Say what? Yeah, this has been what the kids call a low-key big deal for a few years, and explains why the networks, once worried that their whole world would implode after the rise of YouTube and Netflix, have been a lot more cocky recently despite the inevitable transition to streaming. Even if the future belongs to streaming (Spoiler: It does) advertisers still believe that networks and cable companies represent a very predictable place to have a set audience at a set time, no matter the dwindling size. And given that the bulk of streamers are subscription-based and not ad-supported, ka-ching.

But Tuesday's most interesting news concerned Disney's taking full control of Hulu by coming to a (complicated) agreement with Comcast to buy its shares in the streamer, thus making Hulu — by 2024 at the latest — fully owned by Disney. Snatching Comcast's three board seats and becoming the only entity making decisions about the streamer's direction, Disney also gains immediate control of the company.

Translation: Hulu is all Disney's now.

Here's why that's interesting for the Streaming Wars: The deal can easily be read as a signal that Disney doesn't think Comcast/NBCUniversal is a threat.

First, ouch. Second, this deal was made in the light of day, so it's hard to say there's a fleecing going on. And yet it does give Disney a running start on convincing consumers that in a couple of years there'll be no need to spend money on Comcast/NBCUniversal offerings.

Both sides and some pundits are painting this as a win-win deal, but historically Disney has been in the we-win-you-lose dealmaking business, and you don't have to squint too hard to see why the media giant might be thinking this deal is no different.

For starters, it gets to bundle Hulu with Disney+, which rolls out Nov. 12, and with ESPN+, which already exists. The myriad ways to package a Hulu deal that viewers will want can be left up to Disney, but it can now chase upfront money knowing that it operates one of the only streaming services that has an ad-supported tier (yes, that's Hulu). And The New York Times reported on Tuesday that Hulu's entry-level $6 ad-supported tier "is Hulu's most lucrative business. It generates more than $15 in revenue per subscriber each month, because it allows for targeted advertising, the high-cost commercials tailored to individual viewers."

Guess who else will rely on ads in the main tier for its streaming service? Not Netflix, not Amazon, not Apple+, but WarnerMedia is said to be joining Hulu by readying one of its three tiers as ad-supported for more budget-conscious consumers. Both offerings, Hulu's and WarnerMedia's, are expected to be available before the NBCUniversal streaming launch from Comcast. Uh-oh.

If this comes down to dollars and cents, as it will for many people, the Big Six are undoubtedly going to be Netflix, Amazon, Hulu, Disney+, Apple+ and WarnerMedia, based on either perceived value or customer loyalty, which puts NBCUniversal at the back of the pack coming very late to the game.

Imagine this scenario: Disney+ is already going to be offered at a staggeringly low $6.99 a month, with a great bench of glittering IP — the Pixar movie catalog, the Star Wars movies, the Marvel Universe, all episodes of The Simpsons and the grandeur of National Geographic. If it's able to bundle the ad-supported Hulu portion of that at an even lower price, Hulu's subscription base will skyrocket, accelerating its already quick growth, and Disney will be able to dominate the ad market, followed soon after by WarnerMedia (which also has a killer stable of content).

That's a tough, tough sell for NBCUniversal no matter the pricing structure, because eyeballs are important. 

So Disney essentially bet on Tuesday that Comcast and its 2020 rollout of NBCUniversal won't be much threat to its Hulu ad dollars, or to Hulu's subscription model.

Beyond that, Natalie Jarvey's story on the deal for The Hollywood Reporter says that "Disney has guaranteed a sale price that would value Hulu at no less than $27.5 billon. That means NBCU's stake would be worth at least $9 billion."

Which is good money for its share, no doubt, but The New York Times reported Tuesday that Hulu was valued in April at $15.8 billion. Clearly Disney sees Hulu as a rapidly growing business — it's a good time to remember that the future is streaming — and believes it will grow massively in relatively short order. 

As part of the deal, Disney even gets NBC content to stay on Hulu for at least three years, a crucial selling point to subscribers.

Comcast got a lot of money from Disney, which helps with liquidity and allows Hulu profits to remain a small revenue stream for it as partial owner until the final buyout goes through. But what matters is that Disney gets to make all the Hulu decisions now and package it as a blunt instrument that can negate the need for the NBCUniversal streaming platform, whenever that rolls out. 

Put another way, this is Disney telling Comcast that in the Streaming Wars it's battling with a number of rivals, it doesn't count Comcast worthy of concern.