As a long-time movie lover and finance enthusiast who has seen his fair share of corporate deals gone awry, I can’t help but feel a sense of deja vu with Disney‘s current predicament with Hulu. It seems that the Mouse House is finding itself in a bit of a pickle, with potential costs of up to $5 billion looming if they can’t come to an agreement with Comcast over the value of their streaming service.
The unexpected increase in prices for Disney’s streaming services left many subscribers surprised, but recent insights from IndieWire might offer some clarity. Tony Maglio, a reporter at IndieWire, suggests that Disney could require up to $5 billion more to finalize their acquisition of Hulu, as per sources involved in the deal-making process. This additional funding demand comes on top of the $8.6 billion they paid Comcast last December for their stake in Hulu. The financial predicament Disney finds itself in mirrors Elon Musk’s challenging experience with Twitter’s acquisition – another high-value deal that has faced difficulties.
Disney is putting up a strong resistance to further payments required by Comcast to fully own Hulu, yet the decision rests with impartial mediators and assessors now. Regardless of the verdict, Disney must accept responsibility for their predicament, which arises at a time when they are grappling with financial challenges in an economic downturn.
Disney’s Buying Spree Backfires
Initially introduced in 2007, Hulu started as a platform for streaming content from various media companies. In 2009, Disney, Fox (later acquired by Disney), and Comcast through NBCUniversal formed a partnership, each owning an equal share of Hulu and contributing their content to the platform. However, when Disney acquired Fox’s film assets in 2019, Comcast was granted an option to sell their stake within five years if they decided to terminate the Hulu partnership.
Four years ago, we collectively deemed Hulu to be worth more than $27 billion in potential acquisition value. Fast forward to November of 2023, NBCUniversal, my company, decided it was time to step away from Hulu. This strategic move made sense as we launched our own streaming service, Peacock, in 2020, which now boasts over 30 million subscribers. With our own platform thriving, it no longer made sense for us to continue sharing content on a Disney-owned platform. Additionally, parting ways provided us with a substantial payout.
In December 2023, Disney paid Comcast $8.6 billion for its 33% share of Hulu, but Comcast wasn’t satisfied with this amount. They argued that the $27 billion valuation of Hulu, established several years ago, was outdated and the service was now worth approximately $40 billion.
Disney Braces for Bad News
In its quarterly report to the SEC, Disney disclosed a potential financial burden of up to an additional $5 billion should arbitrators decide Hulu is valued higher. This decision might not be reached until a year from now, and the filing implies that Disney may end up owing more money to Comcast.
“In case NBCU’s evaluation is found to be accurate, Disney would then have to pay NBCU an extra approximately $5 billion, which represents their part of the discrepancy.”
Despite the substantial $5 billion payment to Comcast being a significant financial setback for Disney, it isn’t all doom and gloom. In fact, Disney+ recently announced its first-ever quarterly profit, arriving earlier than anticipated. Although subscriber growth has been slower than expected, this could suggest that Disney+ has reached its consumer saturation point. To stay profitable, Disney is focusing on increasing subscription rates and its package deal of bundling Disney+, Hulu (with an optional ESPN+) is proving beneficial.
Despite Disney potentially accumulating additional billions, it’s important to note that Elon Musk’s loss from acquiring Twitter in 2022 for $44 billion will still outweigh any increase in Disney’s wealth. As the largest shareholder of Twitter at the time, Musk proposed a buyout which was initially opposed by the company’s board. This disagreement led to a significant drop in Twitter’s stock value, causing Musk to almost abandon the deal. However, with legal threats looming, he eventually went through with it. The acquisition was finalized later that year, and subsequent staff cuts under Musk have made Twitter (now known as X) more profitable, but at the time of purchase, Musk estimated the company’s value to be around $20 billion, significantly less than what he paid.
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2024-08-11 23:01