Disneys Buys Hulu: House Of Mouse To Acquire Remaining Comcast Share

Key takeaways

• Disney has agreed to buy out Comcast’s remaining stake in Hulu
• The price may be an issue, with Comcast arguing Hulu is worth a lot more than its 2019 $27.5 billion valuation
• Disney shares were up 0.5% at the news, while Comcast gained 0.1%

It’s been on the cards for a while, and now it’s happening: Disney is officially buying out Comcast’s 33% stake in Hulu, so it has full ownership of the streaming service for the first time. If they can agree on the price, that is.

The move gives Disney the freedom to fully incorporate Hulu into its own streaming packages, which Disney clearly views as a competitive advantage at a time when competition is fierce and subscriber counts are falling.

Here’s the lowdown of what’s happening with the Hulu sale and why the price might be a sticking point, how Disney’s streaming platforms is performing and how Wall Street took the news.

What’s happening with Hulu?

Disney has announced it’s buying out Comcast’s share of streaming platform Hulu, which the House of Mouse already owns two-thirds of. The deal had already been whispered about since the summer when Disney CEO Bob Iger told investors the company was moving towards adding more Hulu content to its Disney+ streaming service.

The price Disney will pay Comcast is a bit complicated. Five years ago, the two agreed either party could trigger the sale. At the time, Hulu was valued at $27.5 billion, with Disney announcing it expects to pay Comcast $8.61 billion by December 1. But that valuation is nearly five years old, and Hulu’s equity fair value will be assessed as of September 30, 2023.

Why does this matter? Disney sure thinks it’s only paying around $8.6 billion, but if the price has gone up since then, Disney will have to shell out billions more. Comcast CEO Brian Roberts has been saying the same for a while, commenting at a conference in September that the business is “a scarce kingmaker asset” and “way more valuable” than $27.5 billion. Punchy words.

Comcast has confirmed it would use the sale proceeds to further fund its stock repurchasing program. “We look forward to the appraisal process and the determination of Hulu’s fair market value, which we expect will reflect the extraordinary value of the business,” a Comcast spokesperson said.

The deal is expected to close in early 2024.

Disney’s streaming woes

Regardless of the pricing drama, it’s likely that Disney will think it’s worth it either way. Hulu’s third-quarter subscriber count was 48.3 million, compared to 28 million subscribers for Comcast’s Peacock streaming platform. Disney+ had 146.1 million subscribers at the end of the third quarter.

Disney+ needs the boost, as confirmed by Disney’s third-quarter earnings report. 146.1 million subscribers in the third quarter is still a 7.4% drop from the previous quarter and a bigger decline than Wall Street expected.

Of course, Disney has tried to stem the flow. It’s raised the price of its streaming platform’s ad-free tier, introduced a cheaper ad-supported option and has announced a crackdown on password sharing, which worked well for Netflix’s subscriber count.

There’s also the issue that Disney is hemorrhaging money thanks to its endless content options. In the third quarter, the company recorded a once-in-a-blue-moon loss thanks to $2.65 billion in one-time charges and impairments, which Disney called “content impairments” related to ending third-party licensing agreements.

It’s also anticipated that Disney will find a minority buyer for sports network ESPN. Last month, Disney disclosed ESPN was struggling with declining revenues and the company will try to launch its own streaming platform in a bid to turn the ship around. Analysts have concluded as much as a 36% stake in ESPN could be up for sale, with Apple, Amazon, Verizon and Comcast all rumored to be interested.

The stock market reaction

Wall Street had a lukewarm reaction to the deal, likely due to the uncertainty over the price. Disney’s share price rose by 0.5% on Wednesday, while Comcast saw a meager 0.1% boost.

Disney has had a pretty miserable time on the stock market in 2023, with the share price declining by 6.38% so far this year. In comparison, Comcast has enjoyed a nearly 20% increase.

Earlier this year, Disney announced it was restructuring the business to make $5.5 billion in cost savings, resulting in thousands of employee layoffs. But it hasn’t been enough to sway Wall Street as streaming and films have continued to underperform. Disney shares are now trading at their lowest price in a decade.

The House of Mouse’s decline has gotten so bad that activist investor Nelson Peltz, founder of Trian Fund Management, has now returned to his battle for multiple board seats at the company instead of the one he was after last year. The nominating window for Disney’s board of directors opens in December.

The bottom line

The Hulu sale to Disney has been on the cards for some time, but the key sticking point for Comcast will be over price – if they get their way, Disney will be paying billions of dollars more for the streaming platform.

Wall Street might not like that idea, given Disney’s recent financial woes and plummeting streaming subscriber rates. But equally, subscribers are looking for better value – and a combined Disney+ and Hulu might be the ticket to unlocking more subscribers. With the deal expected to move quickly, we’ll find out soon enough.