December 28, 2017

Breakingviews: Hulus Slimmed Down Ownership Adds Complexity

by Breakingviews.

Hulu’s ownership has become simpler in one way, and more complex in another. Walt Disney may soon have a majority stake in the streaming service behind “The Handmaid’s Tale,” reducing the number of controlling investors from three to two. Disney’s counterpart, cable company Comcast, is muzzled by a deal it struck with regulators, but won’t stay that way for long.

The Magic Kingdom gets a 30 percent share of Hulu as part of its agreement to buy parts of Rupert Murdoch’s Twenty-First Century Fox for $66 billion – doubling its own stake. While Disney is working on launching its own direct-to-consumer services targeted at families, Chief Executive Bob Iger envisions Hulu as a useful service to ringfence adult-oriented content. Some of Fox’s more irreverent programming, such as “Family Guy” and “American Horror Story,” will be hard to reconcile with the Mouse House’s squeaky-clean brand.

Comcast, meanwhile, will get shunted to minority status, just when it was about to get more of a say in the venture’s future. The firm led by Brian Roberts agreed to give up management rights in Hulu for seven years as a condition required by the U.S. Department of Justice when Comcast acquired NBC Universal in 2011. The settlement ends in September 2018.

Both sides have reason to want to control the whole thing. Hulu’s fractured ownership has never been ideal. The media conglomerates flirted with selling the streaming service in the past only to pull it back from the auction block. Squabbling caused by competing interests has seen Hulu lose ground to Netflix, which has ballooned to a global 100 million subscribers. At the same time, the switch from cable to streaming is no longer in question. A PwC survey found 73 percent of respondents were pay-TV subscribers in 2017, down from 79 percent two years ago. And 73 percent said they use Netflix.

That doesn’t necessarily mean Disney will make a play for the whole of Hulu. Regulators may well yet have an issue with Iger’s company controlling 60 percent and could apply similar restrictions as it did with Comcast. In that case, it could be Comcast that tries to take the upper hand. Roberts may even threaten to stay put with a minority interest to keep tabs on a fierce competitor. Hulu’s ownership may get simpler yet – but not without drama along the way.

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