Comcast Corp. agreed Tuesday to sell its 33 percent stake in online streamer Hulu to the Walt Disney Co. for at least $5.8 billion — and perhaps billions more — when a deal closes in five years, a strategic win for Disney in the global battle for eyeballs and one that Comcast will have to answer.
Tuesday’s deal paves the way for Disney’s full management control over prized, but money-losing, Hulu as Americans cut the cable-TV cord and migrate to online streaming services. And, Hulu’s customer base of 28 million subscribers bolsters Disney’s plans for a streaming service of its own with its hit movies and TV shows.
Comcast — which is also threatened by cord cutters — had few options but to sell its Hulu stake after losing a bidding war for Rupert Murdoch’s 21st Century Fox to Disney in 2018. The Fox assets included a one-third stake in Hulu, boosting Disney’s total ownership stake to 60 percent.
Comcast faced being a minority partner in Hulu and helping fund its growth, or cashing out and launching its own streaming service for millennials and young Americans. Comcast will earn a big profit on its estimated $2 billion investment in Hulu.
Comcast says it will launch a service through its NBCUniversal and Sky subsidiaries in 2020, though many details of that streaming service are not yet available. And though Comcast will continue to license This Is Us, Law & Order, and other NBCUniversal shows to Hulu for three years, it could pull them and put them on its own streaming service.
Analysts on Tuesday viewed the deal as good for both companies but noted that Comcast has been slow to respond to the streaming threat from Netflix and others because of huge profits it makes in cable TV.
“They don’t have it all together at this point,” Neil Begley, Moody’s Investors Service senior analyst, said of Comcast’s streaming plans.
“Comcast makes most of its money by selling cable bundles to consumers,” Eric Haggstrom, an eMarketer forecasting analyst, said on Tuesday. “Disney makes money in a couple of different ways and is not as reliant on the traditional cable bundle. Given its deep content library, Disney is more well-equipped [than Comcast] to move to streaming as consumers are increasingly cutting the cord.”
Disney CEO Bob Iger said in a statement: "We are now able to completely integrate Hulu into our direct-to-consumer business and leverage the full power of [Disney’s] brands and creative engines to make the service even more compelling and a greater value for consumers.”
NBCUniversal executives Jeff Shell, Matthew Bond, and Linda Yaccarino will step off the Hulu board as part of the deal, relinquishing management oversight immediately.
“This is a perfect outcome for us," NBCUniversal CEO Steve Burke said. “We believe strongly in the direct-to-consumer space and our content is a key driver of that ecosystem. The extension of the content-licensing agreement will generate significant cash flow for us, while giving us maximum flexibility to program and distribute to our own direct-to-consumer platform, as we build that business.”
Under the financial terms disclosed on Tuesday, the deal guarantees Comcast $5.8 billion for its Hulu stake if it sells the stake before January 2024.
In January 2024, Disney can exercise an option to buy Comcast’s 33 percent stake in Hulu. At that time, Disney has guaranteed a minimum value for Hulu of $27.5 billion, which values Comcast’s stake at $9.2 billion.
By comparison, Hulu’s primary competitor, Netflix, had a stock-market capitalization of $151 billion on Tuesday.
Comcast could dilute its 33 percent between now and 2024 by declining to fund Hulu’s growth over the next few years. Disney has estimated that Hulu requires $1.5 billion a year to acquire content and run the business.
As a part-owner, Comcast is expected to help finance these operations. If Comcast declines to put the funds forward for Hulu, its ownership stake will be cut to reflect Disney shouldering a bigger financial load for Hulu’s growth.