What to expect as Hulu becomes part of Disney

Disney's new majority ownership will have a major impact on Hulu's future, but many things remain uncertain.

Disney announced in December that it intends to acquire Fox for $52.4 billion. Hulu was once a three-way joint venture between Disney, Fox, and Comcast, but Disney’s acquisition of Fox will turn over majority ownership of Hulu to the Mickey Mouse media powerhouse. Comcast and Time Warner will continue to own minority shares in Hulu.

It’s hard to predict Hulu’s future

Disney’s new majority ownership will have a major impact on Hulu’s future, but many things remain uncertain. Competition, money, and programming could all affect the plans that Disney has for Hulu, which currently has about 17 million subscribers.

Hulu’s long-term role in the industry will be very different after all these factors play out.

Competition could derail growth

The competition to convert cord cutters into streamers is fierce. Streaming services like Amazon and Netflix are investing big money in original programming. In fact, Netflix announced the intention to drop $8 billion on original content this year, but the streaming giant has about 118 million subscribers with a global presence, making it about seven times bigger than Hulu.

Hulu is also spending a lot, but it doesn’t have the luxury of a large or global audience. With just 17 million subscribers, they don’t have the revenue to compete with a giant like Netflix on content. Regardless of the size difference, Hulu is growing faster than similar services like DirecTV Now, fuboTV, PlayStation Vue, and YouTube TV. It’s added more subscribers in the U.S. than Netflix has in the last two quarters. Combined with Disney’s family movie standalone service the pair will be a formidable contender.

Viacom has announced that it will launch its direct-to-consumer streaming service by September 2018. The network owns channels like Comedy Central, MTV, and Nickelodeon. It expects to be a niche streaming service like Netflix or Hulu with a limited library rather than a full-service cable replacement. They’re confident of the market for their content because the company hasn’t struck any significant streaming deals to date.

Competitors are a big factor in determining Hulu’s industry standing.

Money losses could stack up

Assuming the sale can hold up to the scrutiny of antitrust regulators, Disney stands to net a large library of movies, TV shows, foreign businesses, and 30% of Hulu. With so much of the entertainment industry already in its grasp, they have a long way to go to prove this purchase of Fox, and therefore Hulu doesn’t create a monopoly.

On paper, Hulu looks like a risky investment. The streaming service lost almost a billion dollars in 2017, and $360 million the year before. The financial position is somewhat mitigated by how much revenue the company generates but might flounder without the deep pockets of the four current owners that invested a billion dollars to offset the losses in 2017. Disney will bear the brunt of the losses as the majority owner, and even with projected growth, those losses aren’t sustainable.

Experts predict Hulu will lose nearly $1.7 billion this year. Disney executives, however, are expressing support for investing in new content and acquiring rights to hit series. The media giant is confident that over the top streaming bundles like ESPN, the new Disney streaming service, and Hulu will stem the losses from cord cutting.

It’s good that Hulu is investing, but the astronomical losses aren’t sustainable if they want to stay in the market.

Programming changes might lose viewers

Hulu is likely to change programming after the acquisition. Current subscribers chose it for access to three major broadcasters. But if the deal is successful, Disney’s 30% stake in Hulu would become a 60% majority.

Disney could opt to let Hulu’s media rights expire and shut down the streaming service in favor of its own recently announced streaming platform, expected to go live in 2019. Or the media giant could position Hulu as the foundation on which to build their new streaming service and drive subscriptions even higher.

Comcast could upset the apple cart by pulling content from Hulu or selling the 30% stake it owns. Additionally, it leaves the new live TV offering launched less than a year ago with only 250,000 subscribers with an uncertain future. One major risk is that once Disney owns more than half of the service, NBC’s parent company Comcast may not want to continue licensing for NBC shows. On the other hand, Hulu could add popular franchises like X-Men to the lineup that already includes Marvel and Star Wars.

If Disney also adds in general entertainment properties like ABC programs, Freeform shows, and FX series, then Hulu will have access to a library any company would envy.

If all of the factors go their way, Hulu will flourish

The little streaming service has been successful in carving out its space next to Netflix and assuming all factors go in Hulu’s favor; the company will become even more dominant.
Although competition in the industry is fierce, it actually highlights Hulu’s relative success in generating record numbers of revenue with a relatively low cost of doing business. Hulu has accomplished a great deal with few resources, even announcing in January that it had generated $1 billion in ad revenue in 2017, a remarkable figure despite its losses.

If Comcast continues to license its shows to Hulu and Disney positions Hulu as the foundation on which to build their new streaming service, then subscriber growth will continue at a faster pace than rivals. Even if the service has to rely less on broadcast networks for its content and sink even more into original programming, access to Disney’s content alone will make it more attractive. On the current trajectory, they could expect as many as 20 million subscribers by the time the deal with Disney closes.

Megan Southard

Contributor

Article Author

Megan Southard is a writer, mom, technology enthusiast, and movie junkie. She dreads the day her kids have to explain gadgets to her and is old enough to say, "I was the remote for our TV growing up.

Disclaimer: This article may have had additional images, links or data that was added by this site's editor.

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