Disney Takes Operational Control of Hulu in Comcast Deal

By Joe Flint and Micah Maidenberg

Walt Disney Co. and Comcast Corp. have struck a wide-ranging deal that turns operational control of Hulu over to Disney and gives Comcast the option to sell Disney its stake in the streaming-video service.

Under the deal, Comcast can require Disney to purchase the one-third stake its NBCUniversal subsidiary owns in Hulu as early as January 2024, the companies said Tuesday. Disney can require NBCUniversal to sell that stake to Disney at a fair market value, according to the companies.

Disney has guaranteed that Hulu's equity value at the time of a deal will be at least $27.5 billion, which would value Comcast's stake at about $9 billion. The streaming service was valued at $15 billion just last month, when AT&T Inc. agreed to sell its 9.5% stake back to Hulu.

Comcast on Tuesday said it would give up its three seats on the Hulu board. For Disney, the arrangement helps clear a path for the entertainment giant to manage Hulu without having a competitor at the table to weigh in on strategy. Although Disney already controlled the Hulu board, the bylaws of the company gave some veto power to Comcast.

Disney, which is launching its own direct-to-consumer streaming service called Disney+, has ambitious plans for Hulu. Disney has said its own streaming service would focus on content for families and children, while Hulu, which has over 25 million subscribers, would be an outlet for content aimed at adults. Disney now owns the Twentieth Century Fox library as well as the FX cable channel, the latter of which is known for edgier fare.

"We are now able to completely integrate Hulu into our direct-to-consumer business and leverage the full power of The Walt Disney Company's brands and creative engines to make the service even more compelling and a greater value for consumers," said Disney Chairman and Chief Executive Robert Iger in a statement.

For Comcast, the deal allows it to capitalize financially if Hulu is successful over the next few years, even as the cable giant pursues its own path in streaming video. NBCUniversal is launching a direct-to-consumer service next year that will be free to cable TV subscribers and available for a subscription fee to cord-cutters.

Part of Hulu's value for consumers is its ability to show programming from major networks including ABC, Fox and NBC during the TV season. As part of the Disney pact, Comcast's current deal to provide NBCUniversal content can end in three years -- and in one year, NBCUniversal will be able to put some of that content on its as-yet unnamed streaming service.

NBCUniversal Chief Executive Steve Burke said in a statement that the deal is "a perfect outcome for us" and added that 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 part of the deal, Disney and Comcast said they would fund Hulu's recent purchase of AT&T's stake in the streaming platform. That deal increased Disney's interest in Hulu to 66% and NBCUniversal's to 33%.

Hulu's owners have pumped billions of dollars into the company, which is unprofitable. As part of their agreement, Disney and Comcast agreed that future "capital calls" will be funded through a combination of equity and debt. If Comcast doesn't participate, its stake would be reduced, though never below 21%.

For Hulu management, the agreement will finally put the streaming service under one roof. It launched in 2008 as a joint-venture between NBC, 21st Century Fox and Providence Equity Partners. Disney and Time Warner later became shareholders and Providence sold out. When Disney acquired the bulk of the 21st Century Fox entertainment assets, it became the controlling shareholder.

In the past few years, Hulu has become known for its original programming as well as being a place to catch up on shows from other outlets. "The Handmaid's Tale" has been a critical and commercial success for Hulu and the service is launching "Catch-22," a new ambitious limited series starring George Clooney based on the Joseph Heller novel.

Hulu has seen its subscriber reach grow dramatically in the past year. The service in February cut the price for its least expensive subscription plan and raised the cost of its live TV offering, in an effort to bolster its subscriber numbers while increasing the profit margins on its most expensive plan.

Write to Joe Flint at joe.flint@wsj.com and Micah Maidenberg at micah.maidenberg@wsj.com

(END) Dow Jones Newswires

May 14, 2019 11:33 ET (15:33 GMT)

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