The Walt Disney Company is weighing the long-term viability of streaming service Hulu as a business as a deadline looms for the company to acquire an outstanding one-third stake that is currently owned by competitor Comcast.
Speaking at the Morgan Stanley Tech, Media and Telecom conference on Thursday, Disney CEO Bob Iger said Hulu is doing well for itself in terms of content and growth, but the stage has been set for an incredibly competitive market with more than a half-dozen companies fighting to make their streaming products stand out.
“The environment is very, very tricky right now,” Iger said. “Before we make any big decisions about our level of investment, our commitment to [Hulu], we want to understand where it could go.”
Hulu originally started as a streaming service owned equally by Disney, Fox Corporation and Comcast’s NBC Universal, with different companies holding a non-controlling, 10 percent stake in the firm over its life cycle.
When Hulu hit the market, it was mostly accessible through computers, and competed for attention with the network’s own websites and Google-backed YouTube. Over the years, other players have entered the space — Netflix and Amazon have built robust streaming services of their own; Lionsgate (Starz), Paramount Global (Paramount Plus, Pluto TV), AMC Networks and Warner Bros Discovery have also launched competitive services.
Over time, Disney swallowed up much of Hulu — it acquired Fox Corporation’s stake as part of a bigger purchase of some Fox film and cable assets, and bought out another company’s 10 percent stake — leaving it with majority control. At the same time, Fox and Comcast have pushed into the streaming market with services of their own (Tubi and Peacock, respectively), a signal that Hulu has become less important to their business as the streaming market starts to mature.
Disney has until 2024 to buy out Comcast’s remaining stake in Hulu. As the company grows more successful — it has more than 47 million streaming subscribers — the purchase prices grows larger.
Meanwhile, Disney and others have had to struggle with diminished returns on their outsized content spending over the last several years. Like others, Disney spent billions of dollars licensing and producing content not only for Hulu, but also for Disney Plus and ESPN Plus, in an attempt to grow each service. And, like others, Disney hasn’t quite seen the financial return on that investment.
Under pressure from shareholders to turn things around, Disney returned Iger to the role of CEO last year after firing Robert Chapek, the executive who launched two of Disney’s three streaming services. Iger set to work immediately: He reorganized Disney’s business around three core sectors, slashed content licensing and production costs and announced a reduction in the company’s overall headcount, among other things.
Hulu has not been particularly at the top of Iger’s mind, though the deadline to exercise their buyout option is creeping closer. Still, the company is weighing the long-term viability of Hulu as a premium streaming offering, and whether it fits into a well-diversified firm like Disney.
“The whole streaming business other than Netflix…it’s a nascent business for most of us,” Iger said. “We’re also at an interesting point in the world from a media perspective where a lot of people are still getting linear programming or consuming media on traditional platforms…eventually, I think everything will migrate to streaming, but we’re not quite there yet.”
Iger said the economics of standalone streaming services like Hulu are still being figured out — how much do you charge subscribers for access to thousands of TV and film titles? How do you bundle those products together in an offer that’s compelling, yet makes sense from a business perspective? What’s the breaking point where consumers say that a service costs too much?
What isn’t debatable is that consumers aren’t watching television or movies the way they did more than a decade ago. The linear pay television business is eroding, and those who do want live channels are increasingly turning — where else? — to streaming services to get them.
“You have erosion of a traditional platform and its economics and some growth in the new platform, but not the kind of compelling growth that we’ll all need to be profitable,” Iger said. “And I think it’s just a tricky period of time.”