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Is This the Beginning of the End for Hulu?

Rick Munarriz, The Motley Fool

The path for Disney (NYSE: DIS) to take full control of Hulu got a lot easier this week. Disney entered into a put/call agreement with NBCUniversal parent Comcast (NASDAQ: CMCSA) -- owner of the third of the stake that the House of Mouse doesn't already own -- for either party to give Disney 100% ownership as early as January 2024. Comcast stands to make at least $9.2 billion if its stake is sold to Disney, and even more if Hulu is valued north of $27.5 billion at the time.

Following last month's sale of AT&T's (NYSE: T) 9.5% position to Disney and Comcast in a $1.43 billion deal, Disney has gone from owning just 30% at the beginning of this year -- before doubling its stake with the Twenty-First Century Fox asset deal that closed in March -- to now effectively controlling the whole enchilada. 

Wall Street likes the Disney-Comcast agreement. Shares of both stocks moved higher on the news. Disney now has more flexibility in how it bundles, promotes, and programs Hulu, as it gains full operational control immediately. Comcast now has a guaranteed floor that it can collect come 2024 at a price well above what AT&T settled for last month. Everyone seems to be happy, but things could get dicey for Hulu itself. 

Cover art for The Handmaid's Tale.

Offred or Ofdisney? Image source: Hulu.

Peak Hulu

There's no denying that Netflix (NASDAQ: NFLX) dominates the streaming video market, but Hulu was that rare bird that actually grew larger in Netflix's rearview mirror last year. Hulu actually grew faster than Netflix in the U.S. last year, and not just in terms of percentages. Hulu added 8 million net new subscribers in 2018, more than the 5.7 million net domestic additions for Netflix.

Hulu's barbell pricing, growing breadth of current major network content, and its Emmy- and headline-grabbing series The Handmaid's Tale have made it a must-have platform for folks wanting to remain relevant during watercooler chatter at the office. Disney calling the shots on its own at this point would seem to raise the ceiling faster than a Haunted Mansion pre-show, with the media giant now free to price Hulu aggressively and create a plump bundle packaging the service with ESPN+ and Disney+ at a discount.

But Hulu's appeal has always been its agnosticism. If you missed last weekend's Saturday Night Live or are finally getting around to binge-streaming The Shield or The Eric Andre Show, Hulu is your jam. Most of the major networks are on the service, making new shows available as soon as the next day after they air live. This has always been Hulu's selling point over Netflix and many other platforms, but it's not likely to stay that way.

Hulu ownership has fluctuated over the years, but when 2019 began, its owners were Disney, AT&T's WarnerMedia, Comcast's NBCUniversal, and Fox, with none of the four having more than a 30% stake. Now Disney has essentially all of it, and it leads one to wonder how wide the Hulu vault will be in a few years. Comcast's NBCUniversal is giving Hulu another three years, but if it's serious about launching its own namesake service next year, you can be sure that it will fail unless it's the exclusive hub for most of its content. Why do you think Disney is in the process of pulling its content from Netflix as those licenses run their course? NBCUniversal isn't the only one that is likely to be looking to break free come 2022. Every channel on Hulu, now that isn't owned by Disney, will have to ponder if it's worth it to support a platform that funnels subscription revenue to a single rival, something that should benefit Netflix since there will be an inevitable shakeout among the growing number of stand-alone platforms. 

Hulu will still have its own original programming, and whatever Disney doesn't think it needs to tether exclusively to Disney+, but it's hard to fathom it being more popular five years from now, even with Disney eyeing international expansion for the service. This may be as good as it gets for Hulu, and that's only good news for Comcast, with its locked-in 2024 payday, and perhaps for Netflix. 

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Rick Munarriz owns shares of AT&T, Netflix, and Walt Disney. The Motley Fool owns shares of and recommends Netflix and Walt Disney. The Motley Fool recommends Comcast. The Motley Fool has a disclosure policy.