Hulu's Fate Hinges on Outcome of Fox Bidding War/ FOXA / DIS
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By Joe Flint and Shalini Ramachandran
Hulu is caught in the middle of a custody battle.
Walt Disney Co. and Comcast Corp. are each vying to acquire the bulk of 21st Century Fox's entertainment assets, which includes its 30% stake in Hulu. The winner will end up with a controlling 60% stake in the streaming-video service.
Hulu could be pulled in different directions depending on who prevails. Comcast is interested in investing in Hulu with Live TV, a $40-a-month bundle of TV channels, as a way to target cable TV cord-cutters and catch up to rivals who already offer national streaming services, people familiar with the company's plans said.
Comcast also could boost Hulu's subscriptions by making it available through its cable boxes, the people said. Still, Comcast would have to overcome what has been an uneasy relationship with Hulu, at times, in the past.
Disney has indicated that Hulu would complement its separate plans to launch a direct-to-consumer service with child-friendly content, as the entertainment giant strives to take on Netflix Inc. and Amazon.com Inc. The idea is that Hulu would become "a more adult-oriented offering," Disney Chairman and Chief Executive Robert Iger has said, likely relying on content primarily from Fox outlets and less so from outside suppliers.
Because Hulu has made it a priority to add more children's content -- just this week it reached a deal with Viacom Inc. that included Nickelodeon shows like "Alvinnnn!!! And the Chipmunks" -- that potential outcome could rankle some Hulu employees.
Disney has a leg up in the takeover battle for the Fox assets, after submitting a $71.3 billion offer last week that topped Comcast's bid, and gaining antitrust clearance Wednesday from the U.S. Justice Department.
21st Century Fox and Wall Street Journal parent News Corp share common ownership.
The loser between Disney and Comcast, each of whom also own 30% of Hulu, will be a large minority owner, which could lead to tense moments in discussions over the streaming service's financing and content. The minority player will wield some power on the board, because Hulu has depended on its corporate parents to supply prime-time network programming and finance a business with increasing losses that totaled $920 million last year.
The controlling and minority partners will still have to agree on how much money to spend on original programming and its live TV-streaming service and whether to expand overseas to keep up with Netflix Inc.
Hulu launched 10 years ago primarily as a digital home for reruns of TV content. It has since grown into a full-service streaming platform with almost 20 million subscribers and critically acclaimed original shows including "The Handmaid's Tale."
Hulu offers two versions of its on-demand service: one with ads, and a more expensive feed with no ads. The majority of subscribers opt for the advertising feed, the company said, and last year Hulu had $1 billion in ad revenue.
It is possible having a controlling stakeholder could clear up what some former Hulu executives have described as the confusion of having multiple owners with different agendas. "Working for the Hulu board isn't easy," one former executive said.
Comcast hasn't had a say in the management of Hulu because of a government condition of its 2011 acquisition of NBCUniversal, which is how it obtained its Hulu stake. Those restrictions lift in September. AT&T Inc. owns the remaining 10% of Hulu, having acquired it as part of its Time Warner Inc. purchase.
If it gained control, Comcast would be unlikely to alter the platform's current programming strategy of carrying a broad range of content, including children's programming, a person familiar with the company's thinking said.
If Comcast made Hulu available on its advanced X1 cable box, that would make it very easy for the cable company's more than 20 million subscribers to sign up for the service. Hulu and Comcast were near a deal to do just that last year, but a leadership change at the streaming service led to a shift in priorities, people familiar with those talks said.
Earlier rounds of discussions to put Hulu on the X1 failed to yield a deal, with some Hulu executives believing Comcast was demanding onerous terms and wasn't all-in on the streaming service because it competes for viewers with Comcast's cable business, people familiar with those talks say. Comcast executives felt they were making a good-faith effort but the tangle of content rights complicated talks, people familiar with Comcast's viewpoint said.
But people close to Comcast said they see big potential in Hulu, including the online TV bundle, which has 800,000 subscribers. Comcast, which like all cable providers only operates in certain regions, could tap into new markets it doesn't serve by controlling Hulu with Live TV.
After Comcast made its rival bid, Steve Burke, chief executive of its media division, NBCUniversal, said on a call with analysts that Hulu is "a very important part of the deal" and Comcast is "very interested in investing and growing that business in the future."
No matter how the ownership structure changes, expanding distribution outside the U.S. will be key to helping Hulu improve its financial picture, because it will help amortize programming costs across more markets, said one executive familiar with Hulu's operations.
"Given the price points, it is hard to do Hulu as a domestic-only business," the executive said. "They need to expand effectively to monetize their programming budget. Netflix is getting international revenue, and Hulu isn't."
--Ben Fritz contributed to this article.
Write to Joe Flint at joe.flint@wsj.com and Shalini Ramachandran at shalini.ramachandran@wsj.com
(END) Dow Jones Newswires
June 28, 2018 09:52 ET (13:52 GMT)
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