Disney CEO Bob Iger made clear in comments last week that acquiring Hulu was a microcosm of the larger strategic move that that House of Mouse made in acquiring Fox.
“Hulu obviously is a great opportunity to expand in the direct-to-consumer space. Owning roughly a third of it was great, but having control of it will enable us to greatly accelerate Hulu into that space and become an even more viable competitor to those that are already out there,” Iger said during a conference call announcing the Fox deal.
As much as questions will revolve around what Disney will do with the streaming service, there remains a much more fundamental question:
What will Disney even be able to do with Hulu?
By adding Fox’s 30 percent stake in Hulu to its own, Disney will control 60 percent of the streaming service. However owning most of Hulu is not nearly the same as owning all of Hulu.
Comcast still has its 30 percent stake and will likely be in position to have more say over Hulu’s business than it does right now. And Time Warner owns 10 percent, which is not an insignificant share, especially if that stake ends up in AT&T’s hands should the AT&T–Time Warner merger gain government approval.
When Iger talks about making Hulu “an even more viable competitor to those [direct-to-consumer services] that are already out there,” he could just as easily be referring to his pay-TV co-owners as to Netflix, Amazon, YouTube or Facebook.
And therein lies the problem.
Comcast is unlikely to sit on its hands as Disney attempts to build Hulu into a legitimate alternative to any and all other avenues by which people watch TV shows and movies, including Comcast’s own cable and over-the-top services. More to the point, Comcast will no longer be required to sit idly by.
In exchange for the government approving Comcast’s acquisition of NBCUniversal — which included NBCUniversal’s 30-percent stake in Hulu — the cable-TV and internet service provider had to give up its management rights over Hulu, as a part of a consent decree Comcast agreed to with the U.S. Department of Justice. However Comcast may have regained those rights by the time Disney would be able to exert majority control over Hulu.
“Given that a Fox acquisition will take at least a year to close, Comcast/NBC will have regained the ability to be a voting partner in Hulu with the Comcast/NBC consent decree tied to Hulu expiring in September 2018. In turn, Disney will not be able to make major structural changes to Hulu following the closing of the Fox transaction without Comcast/NBC’s consent,” according to a research note published last week by BTIG analyst Rich Greenfield.
Once Comcast finally is able to have any say over Hulu’s business, it would be foolish to think it would not act upon it. After all, even when Comcast wasn’t allowed to influence Hulu’s business, it tried to.
When Hulu’s owners put the service up for sale in 2013, Comcast covertly tried — and ultimately succeeded— to subvert any sale. According to The Wall Street Journal, Comcast convinced its co-owners that, instead of offloading Hulu, they could reap more value from it by investing in making it “the streaming video platform for the cable TV industry.” That involvement likely helped to scuttle Comcast’s attempt to acquire Time Warner Cable, but it hasn’t sunk Comcast’s ambitions for Hulu.
Soon after news first broke last month that Disney was interested in acquiring Fox and, as part of the deal, its stake in Hulu, reports surfaced that Comcast was also kicking the tires on such a deal. “Comcast is also attracted by the prospect of gaining control of Hulu,” according to a CNBC report.
Given Comcast’s years-long history of interest in Hulu and the impending opportunity for Comcast to finally — and legitimately — act on that interest, it’s hard to see how the cable giant would defer to Disney simply because the latter owns majority control. For example, with the repeal of net neutrality rules, Comcast could force Disney’s hand by threatening to throttle its other planned streaming services, including ESPN Plus, if it doesn’t like what Disney tries to do with Hulu.
And just as easy as it is to see Comcast complicating Disney’s control over Hulu, so too is it foreseeable that the Justice Department, perhaps at Comcast’s clandestine behest, could compel Disney to surrender a share of its stake in Hulu or a certain level of control in its governance in exchange for its overall acquisition of Fox gaining approval. Or Disney could be forced to sell off Hulu entirely, in which case as part of buying Fox what Disney acquired was a bigger payout from someone else acquiring — and having to manage — Hulu. That’s not nothing and, given the Comcast complication, potentially the best outcome for Hulu’s soon-to-be majority owner.