Recently, Walt Disney announced that it will acquire a 33% stake in Hulu from Comcast for at least $8.61 billion, achieving full control of Hulu and "further achieving Disney's streaming goals". The transaction is expected to be completed by 2024.
$8.61 billion is the bottom price for Hulu's valuation negotiations, and the final acquisition price will be calculated based on next year's evaluation. Based on the current price of $8.61 billion, Hulu's valuation is at least $27.5 billion.
Hulu is a strategy of traditional Hollywood studios facing the rise of streaming media, leveraging the content of major traditional entertainment companies to create a streaming platform. But as various studios gradually launched their own streaming applications, Hulu faced an awkward situation and became a pawn in the tug of war between giant shareholders and Disney's streaming layout.
Disney has long had plans to acquire Hulu, and Disney CEO Bob Egger mentioned in a phone call in the second quarter of the 2023 fiscal year that he plans to merge Disney+and Hulu into one app, with the new app to be launched later this year.
Nowadays, Hulu's fate has been completely settled, while the century old Disney behind it is still in crisis.
Hulu was founded in 2007 with funding from NBC Global Group and 21st Century Fox. In 2008, it officially provided streaming services to American users. In 2015, Disney, NBC Global, and 21st Century Fox jointly held a $750 million stake in Hulu to counter the rapidly rising streaming platforms of Netflix and HBO.
In the following years, due to mergers and acquisitions among American media giants, Hulu's equity structure and the forces behind it frequently changed.
In March 2013, American telecommunications media giant Comcast completed its acquisition of NBC Global, while another media giant, AT& Time Warner, a media and entertainment company under T, invested $580 million in Hulu in 2016. In 2017, Disney acquired 21st Century Fox, increasing its stake in Hulu from 30% to 60%. Subsequently, under Disney's leadership, Hulu spent $1.43 billion to repurchase AT&amp in 2019; T holds a stake and launched the Disney streaming packaging service in the same year. Users who purchase the Disney streaming service package can simultaneously receive subscription services from Disney+, Hulu, and ESPN+platforms. At this point, Disney and Comcast became the two major shareholders of Hulu, with the former holding 67% and the latter holding 33%.
Due to the advantages of traditional television backgrounds and legitimate content, Hulu has obtained rich third-party copyright content, and the platform has over 90 providers of content. The film copyright holders include Walt Disney, NBC Universal, MGM, Sony, and Warner Bros. Pictures, while the series includes adult works from Universal Television Studios, Disney, Sony Pictures Television, Funimation, Warner Bros. Television Studios, MGM, Lionsgate Television, and Disney+.
In terms of business model, Hulu attaches different forms of advertisements to videos and provides paid ad free live TV and program on demand. In 2022, Hulu's revenue was $10.7 billion, with a membership size of 42.8 million, ranking behind Netflix, Disney+, HBO Max/Discovery+, and Paramount+. According to IndieWire's statistics, Netflix and Hulu are the only two major streaming services to achieve profitability by the end of 2022.
Hulu values television dramas and niche films, and there are also many domestic dramas with good reputation. The streaming platforms for acclaimed American dramas such as "Normal People," "House Doctor," "American Horror Story," and "Addiction Dose," are all on Hulu. The later stages of the classic American drama "Grey's Anatomy" are also simultaneously broadcasted on Disney's television platforms ABC and Hulu. In 2017, Hulu's original drama "The Story of the Handmaid" won the Emmy Award for the best drama in the plot category, beating Netflix's "Crown". It also won important awards such as the best director, best screenwriter, best actress, and best supporting role.
In addition, as more and more traditional studios begin to launch their own streaming platforms, some partners are gradually ceasing to license Hulu's content. For example, recently Comcast withdrew programs such as "Saturday Night Live" and "The Voice" under NBC Universal and switched to its own streaming service Peacock. But Hulu still has programs from ABC, FX, Fox, and other traditional networks, as well as original programs such as' Only Murders in the Building 'and' The Kardashians'.
Hulu in Disney's Streaming Layout
In Disney's streaming product lineup, Disney+meets the content needs of family and children, while Hulu provides popular and more adult streaming services. It is precisely because of Hulu's territory that Disney's streaming business can compete with Netflix and HBO Max.
With the fluctuations in Disney's performance and stock price in recent years, Disney's attitude towards Hulu has fluctuated. After winning Emmy Awards, Golden Globe Awards, and various union and association awards, Bob Egger, then Disney CEO, stated in a conference call that due to Hulu's growing user base and relatively impressive brand strength, Disney will invest more in Hulu's original content and bring it to the international market, which is also Disney's current strategic focus. Hulu had previously only opened up the Japanese market outside of the United States, and Egger clearly hoped that Hulu would take on more international and popular tasks.
However, Egger's successor clearly had a different attitude. After Bob Chapek was appointed as Disney's CEO in February 2020, he stated in a Disney earnings call that "Disney needs to consider differences in approach before entering overseas markets." Hulu has compiled a large amount of third-party content; At the same time, Hulu does not have any brand awareness outside the United States, and Disney+will take on the responsibility of international popular entertainment products.
Chapeck's statement to some extent denies the original strength and overseas influence of Hulu's series, but it is also reasonable. Because when Hulu's third-party content is expanded overseas, the copyright issue becomes more complex. If Hulu wants to try to develop more Hulu Originals like 'The Story of the Servant Girl', it will need to face high content production costs. Disney has been struggling with Disney+'s losses, and this plan is clearly not feasible.
In addition, Hulu's content is not as international as Netflix and HBO, and a significant portion of its revenue is provided by traditional television content through live streaming. Hulu's main market is outside the United States, and only has opened up the overseas market of Japan. Once entering more overseas markets, Hulu needs to provide more international or localized content, which in turn will drive up costs. Hulu faces a dilemma in Disney's streaming landscape.
A turning point for Disney in the past century
From the perspective of the entire group's business, Disney's performance is facing a huge impact after the epidemic. Previously, the global pandemic hit the amusement park business, and later, the streaming media business burned money but failed to achieve profitability. This century old entertainment giant is facing a new round of crisis.
In the fiscal year 2020, Disney's global park business had a total revenue of $16.502 billion, a year-on-year decrease of 37%, and an operating loss of up to $81 million. This year, the streaming business became Disney's biggest performance highlight under the impact of the epidemic, with annual revenue of $10.4 billion. Despite the expansion of losses, the subscription size of 73.7 million has already surpassed the streaming membership size of Hollywood studios such as Paramount+. The streaming media business is regarded by Disney as the most important business and has begun to invest in it regardless of cost.
In 2021, Disney's amusement park business continued to suffer losses, and it was not until last year that the global economy basically recovered from the pandemic that this business regained profitability, driving Disney's revenue of $23.43 billion in 2022, a year-on-year increase of 109%, and operating profit of $5.1 billion.
However, the losses on streaming media continued to expand. In the fiscal year 2022, Disney's streaming business had an operating profit of $4.02 billion, an increase of 139% compared to last year. In a conference call, Chapek reiterated to investors that Disney's streaming business will achieve profitability in the 2024 fiscal year.
Due to loopholes in losses and lackluster financial reports, Disney's stock price halved. As of press release, Disney's stock price was $84.59, a 57% drop from its $197 stock price in March 2021, and its market value has been left behind by Netflix.
This has also sparked strong dissatisfaction among shareholders. In May this year, Disney shareholders sued multiple executives including former CEO Bob Chapeck and current CFO Christian McCarthy, accusing them of formulating a scam related to streaming development plans, misleading investors into believing that the company's Disney+streaming services can achieve profitability by 2024, which involves concealing costs and difficulties in user growth, Declare that the number of subscribed users can reach 230 to 260 million in 2024, and achieve behaviors such as turning losses into profits in streaming media business.
Last December, former CEO Bob Egger returned to Disney as CEO. The Disney board's statement at the time was: "As Disney enters an increasingly complex period of industry transformation, Egger is in a unique position to lead the company through this critical period
Disney subsequently reduced costs through price increases, layoffs, and lower content costs. Since December 2022, Disney+has raised prices twice within a year and introduced a package that includes advertisements. The monthly fee for the ad free version has increased from $7.99 to $10.99, and then to $13.99. In the subsequent price increase, the monthly fee for the non advertising version of Hulu also increased by $2 to $17.99.
In addition, Disney has also raised some prices for Disneyland in California and Disney World in Florida. In February of this year, Egger announced that Disney had launched a major layoff aimed at saving $5.5 billion in costs. The layoffs were divided into three rounds, resulting in over 7000 job cuts.
This 72 year old executive who has led Disney for 15 years has led Disney's acquisition of Pixar Animation in 2006, Marvel in 2009, and Lucas Pictures in 2012, expanding Disney into an entertainment giant. Now he is doing his best to repair Disney.
Under Egger's budget cutting combination, Disney's performance has improved, but there are gains and losses. In the latest Disney third quarter financial report for 2023, the revenue of the theme park, experience, and consumer goods business was $8.3 billion, a year-on-year increase of 13%. The highly anticipated loss in the streaming media business significantly reduced from $1.06 billion in the same period last year to $512 million. However, due to the previous round of price hikes, Disney+'s user base decreased by 7% month on month to 146.1 million, resulting in a loss of 11.7 million subscribers within three months. Since Disney+2 was launched in 2019, Disney's total streaming losses have reached a high of $11 billion.
At the same time, as a representative of the studio, Egger is still responding to the dual strike of screenwriters and actors in Hollywood. On the one hand, the latter hopes to receive higher compensation from streaming services and hopes that the producers will limit the use of AI, which is another cost for Disney; On the other hand, Disney's important film projects have been delayed, such as the postponement of major production super British films such as Captain America 4, Fantastic Four, and Blade Warrior. The release time of Avengers 5 has been extended to 2026.
At present, after 148 days, the writers' strike has finally come to an end, but the actors' union and producers have yet to reach an agreement. On October 16th, Disney's centenary birthday, actors were still on strike outside Disney Studios.
Before the end of the screenwriter strike, Egger stated in an interview that the damage caused by the epidemic to the entertainment industry had not yet fully recovered, and the strike was not appropriate at this time. Moreover, it was not practical for the screenwriters to demand reasonable commission for replays on major platforms and prohibit the use of AI to replace live actors' performances.
This statement to some extent reflects the difficulties faced by Disney. The shadow of the epidemic has not yet dissipated, and industry writers and actors need more income. However, within this century old company, the streaming business has burned billions of dollars, causing investors to lose patience. Obviously, Disney is facing a more complex test this time.