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AT&T May Sell 10% Stake in Hulu, Worth Up to $930 Million, Potentially Giving Disney More Control

Disney might be set to gain even more control over Hulu: AT&T said it is considering selling WarnerMedia’s 10% stake in the streaming venture — which is worth as much as $930 million — as part of shedding nonstrategic assets to pay down its massive debt load.

AT&T execs made the comments at the telco’s investor day briefing Thursday. It’s potentially looking to shed its Hulu minority stake as WarnerMedia gears up to launch its own subscription VOD service. AT&T said the new SVOD service, set to debut in the fourth quarter of 2019, will include three service tiers: one focused on movies; one with movies plus original programming; and a third tier comprising content from the first two along with WarnerMedia library content and licensed programming.

If AT&T sells the WarnerMedia stake in Hulu, that could bulk up Disney’s ownership in the streaming TV company — giving the Mouse House even more incentive to invest in Hulu and expand it to international markets. Disney already is set to assume a majority ownership stake of 60% in Hulu under its deal to buy big chunks of 21st Century Fox’s assets, a transaction expected to close in the first half of 2019.

Disney most recently said Hulu would carry a $9.296 billion fair value after the 21CF deal closes, including an implied control premium of $1.246 billion, per an SEC filing on June 28 in connection with the proposed Fox deal. That’s up from Hulu’s implied valuation of around $6 billion in August 2016 with Time Warner’s original investment.

If AT&T exits Hulu, that would leave just Disney and Comcast, which currently holds 30% share, as owners. There’s been broad industry speculation that Disney will try to buy out Comcast to gain full control over Hulu.

But Comcast in September signaled that, for the time being, it’s interested in keeping its hand in the Hulu pot. The conglomerate appointed three execs to Hulu’s board: Universal chairman Jeff Shell; Linda Yaccarino, chairman of NBCU advertising sales and client partnerships; and Matt Bond, NBCU’s chairman of content distribution. The Hulu board appointments by Comcast came after the expiration of Comcast’s restriction on management decisions regarding Hulu under the 2011 agreement with the DOJ related to its NBCU acquisition.

Under Disney’s control, Hulu will stay focused on adult-oriented, general entertainment fare while the forthcoming Disney+ subscription product will be in the family-friendly wheelhouse, Disney chief Bob Iger told analysts on the company’s Nov. 8 earnings call. Iger added that Disney intends to invest in Hulu and expand the service internationally, but he didn’t provide details.

According to Disney’s 10-Q for the third quarter of 2018, WarnerMedia has the right through August 2019 to put its shares to Hulu (or Hulu may call the shares from WarnerMedia under certain limited circumstances arising from regulatory review). In the event Hulu is required to repurchase WarnerMedia’s shares, Disney and 21CF have agreed to make capital contributions for up to $400 million each; following the closing of the 21CF deal, Disney will assume 21CF’s capital contribution obligations to Hulu.

The $930 million implied value of WarnerMedia’s stake is a 16% premium over Time Warner’s original $583 million investment in Hulu in August 2016 plus its subsequent $200 million capital contributions to the streamer.

The appreciation of Hulu’s value comes even as Hulu continues to lose money — with losses accelerating as it continues to invest in technology and programming, including for its live-TV streaming service.

Hulu lost upwards of $440 million during the third quarter of 2018, more than double a loss of $207 million a year earlier and losses of $357 million in Q2, according to regulatory filings by Comcast and 21st Century Fox.

For Q3, Comcast recorded a $132 million loss attributed to Hulu (versus a $62 million loss in the year-prior quarter), per the company’s 10-Q filing. Meanwhile, 21CF reported a $114 million loss for Hulu in the most recent quarter.

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