After Nabbing Sky, Will Comcast Sell Its Hulu Stake to Disney?

Randy Freer speaks onstage during Hulu Upfront 2018 - May 2, 2018 - Getty-h 2018
Dia Dipasupil/Getty Images for Hulu

Many on Wall Street argue that it doesn’t make much sense for Comcast to retain its stake in Hulu with Disney calling most of the shots.

Now that Fox has agreed to sell its stake in Sky to Comcast, Wall Street is turning its attention to Hulu.

The streaming service has operated as a joint venture of Disney, Fox and NBCUniversal for a number of years. It is now poised for an ownership shakeup as Disney prepares to acquire Fox’s 30 percent stake in Hulu as part of a larger purchase of the media company’s assets. Given that the deal will give Disney a controlling 60 percent stake in Hulu, many analysts have suggested that it would be in NBCU-owner Comcast’s best interest to sell its 30 percent share to Disney. (AT&T’s WarnerMedia also owns 10 percent of the business.)

“We incidentally do not feel that it makes sense for Comcast to hold on to its 30 percent position,” Buckingham Research Group’s Matthew Harrigan wrote in a Sept. 25 note, adding that “it makes no sense for Comcast to emerge as albatross to Disney as their respective direct-to-consumer strategies are not a zero sum game, both have to compete with Netflix, Apple, Amazon and others.”

Hulu’s history is rooted in its complex corporate structure. It was originally conceived as a joint venture of NBC and Fox (then News Corp.), and Disney joined as an equal partner a year after its launch. The three owners have had equal control of the company and a joint venture agreement bars any one owner from making a fundamental change to the business without the support of the others. For years the three companies maintained a tenuous balance, one that is said to have been difficult for Hulu leadership to navigate as it sought to compete against Netflix and Amazon in the cash-fueled race for streaming dominance.  

But the status quo was thrown off-balance when, late last year, Disney announced its intention to acquire most of the assets of Fox, including its Hulu stake. The deal would give Disney majority ownership of Hulu as it seeks to strengthen its relationship with audiences through a portfolio of direct-to-consumer streaming services, including ESPN+ and a forthcoming family-friendly offering. Hulu is a linchpin of that strategy, a place for Disney to license its more adult fare and a service that, as CEO Bob Iger recently confirmed, could be bundled with the other offerings to sell to consumers.

In order for Disney to fully integrate Hulu into these streaming plans, however, Iger and company will need full ownership of the service. That’s where NBCU’s stake becomes an important factor. The company was forced to take a passive role in the management of Hulu after its sale to Comcast, and it vacated its three board seats as part of a government regulation. That provision ended on Sept. 1 and Comcast immediately moved to install three NBCU executives —  Jeff Shell, Linda Yaccarino and Matt Bond — to the Hulu board.

But much of Wall Street has argued that it doesn’t make much sense for Comcast to retain its stake in Hulu with Disney calling most of the shots, especially now that it has won control of Sky through its $40 billion bid for the broadcaster and Fox’s decision to sell its 39 percent share.

With the acquisition of Sky, Comcast will take control of its Now TV international streaming platform. The question is why it would want to continue to license programming to a platform majority-owned by Disney when it could work to build up an in-house streaming offering. Comcast, notes Cowen analyst Gregory Williams in a report, “would likely have no interest in feed its content to a direct competitor to both sides of its business.”

BTIG analyst Rich Greenfield contends that Comcast could want to remain in Hulu because it would give executives a valuable look inside a growing direct-to-consumer business and also continue to provide licensing revenue to NBC — even as Hulu losses continue to grow, rising to an estimated $357 million during the second quarter. “One of legacy media’s greatest challenges has been the lack of data they get from SVOD platforms like Netflix and Amazon Prime,” writes Greenfield in a blog post. “Hulu gives Comcast/NBC access to incredible data, whether it is to better understand the threat posed to Comcast’s core cable business or to help Comcast understand how it can launch their own vMVPD or SVOD offerings in the future.”

Further, Greenfield notes that Comcast could want to make it difficult for Disney to fully absorb Hulu’s streaming business and its 20 million subscribers, writing, “Relations between Disney and Comcast have been and continue to be poor. These two companies and their senior executives are NOT friends. This is war; Comcast remaining in Hulu and keeping three board seats that enable them to have a say in Hulu’s future will drive Disney absolutely crazy.”

But others, including Harrigan, believe there’s not enough value in Comcast remaining a heel to Disney when it could fetch $3 billion or more for its stake in Hulu and use that money to invest in its business. He noted, “We incidentally do not feel that it makes sense for Comcast to hold on to its 30 percent position just to block Disney’s prospective 90 percent ownership of Hulu.”