Disney (DIS) and Hulu


Hulu started in 2008 as a streaming collaboration between News Corp (owner of Fox) and NBC Universal. DIS acquired an interest in 2009; Time Warner bought during 2016. ATT then acquired Time Warner, selling the ATT stake to DIS. DIS bought Fox Studios, gaining the News Corp interest in Hulu, as well. Comcast bought NBC.

As a result of this wheeling and dealing, the current state of play is: DIS owns 2/3 of Hulu, Comcast 1/3.

In addition, DIS and Comcast have an agreement, under which DIS can become a 100% owner of Hulu in one of two ways. Starting on 1/1/24, DIS can call the Comcast stake away from Comcast; on the same date, Comcast gains the right to put the stake to DIS (i.e., compel DIS to buy it). The price depends on an evaluation of fair value at the time either option is exercised–subject, however, to a minimum total valuation for Hulu of $27.5 billion.

Since Comcast has already announced its intention to shift all its content that’s now on Hulu to its proprietary service, Peacock, as soon as contractually possible, it seems to me likely it will also put its Hulu shares to DIS as soon as it can. This would mean that DIS needs to come up with $9 billion+ to pay for Hulu in six months or so. That’s roughly 3x trailing 12 months’ profits and would add about a quarter to the company’s total debt ($38 billion; $48 billion minus the $10 billion DIS has in cash), assuming DIS borrowed the entire amount.


This is not ideal, as I see it, but not a tragedy, either. Several reasons:

–DIS’s operations are generating about $1 billion a quarter in cash flow

–any loss from acquiring 100% of Hulu was made when the deal to buy out the minority was struck. What we’re seeing now is recognition, not a new loss

–the DeSantis shoot-yourself-in-the-foot attack on Disney World has made it plain to DIS that it can’t count on the Florida park being its growth engine for the coming years. So it makes sense not to add to its assets in the Sunshine State until it becomes clear that it’s safe to do.

Nothing else about DIS appears particularly growthy at the moment, so Bob Iger’s recently announced $5 billion cost-cutting campaign makes a lot of sense as well. And the threat posed by DeSantis and the Florida legislature likely means that a good portion of the responsibility for job losses will fall on them instead on DIS management. In an odd sense, then, DeSantis et al are doing DIS a favor: concentrating minds, forcing difficult decisions and taking blame. They may also be ensuring that a disproportionately large part of the resulting pain will fall on the state of Florida.

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