A knowledgeable source confirmed the talks, which come as Disney heads down the homestretch in gaining regulatory approvals to buy 20th Century Fox. Once that closes, Disney would pick up Fox’s 30% ownership share in Hulu. Meanwhile, AT&T on Tuesday prevailed in a court challenge by the Department of Justice, which was attempting to block its takeover of Time Warner.
Reps for Hulu and AT&T declined to comment. Disney didn’t respond to a request for comment.
Disney currently holds a 30% stake in Hulu, as does Comcast/NBCUniversal — which is not prepared to exit the JV at this point. “Disney would like to buy us out,” NBCU CEO Steve Burke told Variety last month. “I don’t think anything’s going to happen in the near term.”
Word that Disney is negotiating to buy out WarnerMedia’s stake in Hulu isn’t a surprise. AT&T execs have said the company has been considering selling the Hulu stake, which Time Warner acquired in 2016.
AT&T CFO John Stephens, at the telco’s analysts day last November, cited its minority investments “in things like Sky Mexico or Hulu” as potential assets it could sell to gain working capital — as well as cash to help pay down the debt it assumed with the Time Warner deal. Also note that WarnerMedia/Time Warner has never held a Hulu board seat.
The question is what Disney is willing to pay for the 10% stake. Disney last summer pegged Hulu’s fair value at $9.296 billion after the 21st Century Fox deal closes, including an implied control premium of $1.246 billion. 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.
AT&T is looking to sell its Hulu minority stake as WarnerMedia gears up to launch its own subscription-streaming service. The still-unnamed 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 Disney ends up controlling 70% of Hulu, that would give the media conglomerate even more incentive to invest in Hulu and expand it to international markets. 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 CEO Bob Iger has told Wall Street analysts.
For Hulu, having one controlling owner could help it accelerate growth amid heavy competition in the streaming market. Hulu said it ended 2018 with more than 25 million total subscribers, a net gain of 8 million for the year. (Hulu does not break out how many of its subscribers are only on subscription VOD plans versus how many have live TV packages.) Last year, according to Hulu, it grew ad revenue more than 45% in 2018, to nearly $1.5 billion, a company record.
Disney sees Hulu as a key piece of its SVOD lineup, even as Hulu’s losses mount given its investment in technology and programming, including for its live-TV streaming service. For 2018, Hulu lost around $1.5 billion, up from $920 million a year earlier, according to Comcast’s most recent 10-K filing (which reports Hulu’s losses as a portion of its equity).
According to Disney’s 10-Q for the September quarter of 2018, WarnerMedia has the right through August 2019 to put its shares to Hulu.