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Disney Takes Full Operational Control of Hulu

Jeff Baumgartner
5/14/2019

The Walt Disney Company has assumed full operational control of Hulu in return for a "put/call" agreement with Comcast that could lead to the sale of NBCUniversal's 33% ownership stake in the popular OTT video service as early as 2024.

The agreement emerges the week after Disney CEO Bob Iger confirmed reports that Disney and Comcast were holding talks about Comcast possibly divesting its stake in Hulu, the OTT service with 28.6 million subscribers (Hulu has not broken out how many of those subs take its pay-TV service).

Per the put/call agreement, Comcast, as early as 2024, can require Disney to acquire NBCU's interest in Hulu, and Disney, in turn, can require NBCU to sell that stake to Disney for its fair market value at that future time.

Hulu's fair market value will be assessed by independent experts. But Disney said it has guaranteed a sale price for Comcast that represents minimum total equity value of Hulu at that time of $27.5 billion.

Additionally, Disney and Comcast have agreed to fund Hulu's recent purchase of AT&T's 9.5% interest in Hulu for $1.43 billion, pro rata to their respective, current two-thirds/one-third ownership stakes. Going forward, Comcast will have the option, but not the obligation, to fund its proportionate share of Hulu's future capital calls and will be diluted if it elects not to fund, the companies said.

Whether Comcast funds its shares on those equity capital calls or not, Disney has also agreed that Comcast's interest in Hulu will never be less than 21% such that Comcast is guaranteed to receive at least $5.8 billion under the put/call agreement.

In addition to the put/call deal, Comcast has also agreed with Hulu to extend the Hulu license of NBCU content and the Hulu Live carriage agreement for NBCU TV channels until "late 2024," and to distribute Hulu on Comcast's X1 video and set-top box platform.

Additionally, NBCU can terminate most of its content license agreements with Hulu in three years' time. Plus, in one year's time, NBCU will have the right to exhibit on its own OTT service certain content that it currently licenses exclusively to Hulu in return for reducing the license fee payable by Hulu, the companies said.

Why this matters
In the near term, the agreement gives Disney full operational control of Hulu as The Mouse continues to expand and shore up a direct-to-consumer OTT strategy that includes services such as ESPN+ and Disney+, an SVoD offering that's set to launch November 12 and sell for $6.99 per month.

Although it's still years out, the put/call agreement stands to cement the final ownership fate of Hulu in return for a hefty payout to Comcast, which will still have the benefit of integrating Hulu on its own video platform, X1. That latter piece of the agreement should enable Comcast to make Hulu available on Xfinity Flex, a relatively new video streaming service that Comcast markets to its broadband-only customers.

The deal also ensures that Hulu will continue to have access to NBCU content for a few years. In addition, the agreement paves the way for NBCU to lock in digital rights for its own content for its own direct-to-consumer OTT service, which will debut sometime in 2020.

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— Jeff Baumgartner, Senior Editor, Light Reading

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