🎧 Listen: In today’s episode of The Journal podcast, jtoonkel explains Disney and Comcast’s multiyear battle over Hulu and what a looming deal between the co-owners could mean for the streamer’s future
This transcript was prepared by a transcription service. This version may not be in its final form and may be updated.Jessica Toonkel: I just canceled one, so I probably subscribe to about five right now.
Jessica Toonkel: If you don't have cable, but you want to watch shows the next day, Hulu's a great place to go for a lot of that content. AVID Elementary, one of my favorites, is on there.Speaker 2: Do forget everything she taught you, toss it right out of the window.Speaker 3: It's Gloria right? Should I try slim cut jeans? Jessica Toonkel: I think a lot of people use it for that, and then they've really started getting traction, I would say, with their own original programming. Handmaid's Tale has been a huge hit. Murders in the Building, another huge hit.Speaker 5: It sounds like they off themselves.Jessica Mendoza: These days, Hulu is one of the bigger players in streaming. It has about 48 million subscribers, less than a quarter of what Netflix has, but it's still respectable. Jessica Toonkel: I do think that it's found its niche. I feel like it found its groove after a long time of struggling, I would say. Jessica Mendoza: That long period of struggling had a lot to do with conflicts between the big media companies that own Hulu. Currently, that's Disney and Comcast. They've had a number of pitch battles over the years. Just when things would settle down, something new would crop up. And now they're fighting again, but this time the battle is bigger than before. At stake is full ownership of Hulu. Jessica Toonkel: I think this is almost like siblings fighting over a toy and that fight will come to a head next year. Jessica Mendoza: Welcome to The Journal, our show about money, business, and power. I'm Jessica Mendoza. It's Wednesday, May 31st. Coming up on the show, the face off over who will own Hulu. The story of how Hulu came to be so complicated goes all the way back to 2007. Quick refresher. In 2007, George W. Bush was president, Rihanna's Umbrella was the song of the summer, and streaming was just starting to become a thing. Jessica Toonkel: This is a time when Netflix just started offering streaming. They were still doing DVDs, if you remember the little DVDs in the mail, but they had just started doing streaming. These media companies came together and said, "We need to come up with our own solution for this." Jessica Mendoza: The media companies behind Hulu in the early days included NBC, which is now owned by Comcast, as well as Disney and Fox. These companies were fierce competitors, but Netflix gave them a reason to join forces. Jessica Toonkel: I mean, they had a common enemy and they saw it. They just said, "Let's get together and let's bulk up and let's do this." They came up with Hulu as a solution of we will provide entertainment shows after they appear on TV through this streaming service, and this will be our solution to Netflix. This is how we'll protect ourselves. Jessica Mendoza: The rivals partnered up and got behind Hulu, but Hulu's many owners didn't always agree.Jessica Mendoza: Yeah, very much like what you were describing, siblings kind of like. Jessica Toonkel: Right, exactly. I don't want to do that. No, you have to do that. No, it's your turn to empty the dishwasher. Stuff like that, right? Jessica Mendoza: Hulu's owners wrangled over just how much revenue each of them should get and whether they should sell Hulu. But Jessica says those skirmishes were small compared to what went down in 2017. That year, Disney announced a major deal. Speaker 6: The Walt Disney Company is buying a large portion of 21st Century Fox, that includes its movie and TV studios, the Hulu streaming service, and a number of hit franchises. The deal was... Jessica Mendoza: This had big implications for Hulu. Once the sale went through, Disney would take over Fox's stake in Hulu and become the streaming platform's majority owner. Comcast didn't love that. It didn't want one of its biggest media competitors getting even bigger. That's one reason why Comcast launched its own bid for Fox's assets. Soon, Disney and Comcast were locked in a bidding war. Jessica Toonkel: It was several months of very tense battle between these companies, but Disney prevailed. Disney won Fox. Jessica Mendoza: Comcast had lost out, and that wasn't the end of the company's problems. Because while all this Disney deal making was happening, Comcast wasn't a bit of a weird situation. It had a financial stake in Hulu, but it wasn't allowed to influence its management. This arrangement was temporary. It had been imposed by regulators years earlier as a condition for approving Comcast's acquisition of NBC. Jessica Toonkel: They just had to be a passive owner, so that meant that they had an economic interest, but they didn't have any people on the board of Hulu. They couldn't make any active decisions around Hulu. Jessica Mendoza: What Comcast didn't know was that while it was a restricted player in Hulu, Disney and Fox had seized the opportunity to change a few things. One of them was how big content decisions were made at Hulu. Usually all of Hulu's owners needed to approve those decisions unanimously, but. Jessica Toonkel: As we report, the night before they announced their deal, Disney and Fox changed the rules around Hulu so that when Comcast was going to become an active owner, they couldn't do anything to block what they wanted to do. Jessica Mendoza: Basically, Disney and Fox were making sure Comcast couldn't get in their way. It was a power grab. Jessica Toonkel: And Comcast didn't find out about it until months later when they became an active owner and they went through all of the board minutes and everything. That's according to our reporting.Jessica Toonkel: It was pretty sneaky. It was a pretty sneaky moment. Yes.Jessica Toonkel: They threatened to sue. Calmer heads prevailed. An executive from Comcast, an executive from Disney had lunch and said, "Let's figure out how we can orchestrate a truce," because lawsuits are not good for either of these companies, and they came up with this agreement. Jessica Mendoza: The agreement would pave the way for Disney to assume full ownership of Hulu. Starting in 2024, either company can trigger a process for Comcast to sell its stake in Hulu to Disney. Assuming Hulu continued to grow and its value increased, that sale could mean a big payday for Comcast. Did it kind of seem like the battle over Hulu was over? Jessica Toonkel: It did seem like the battle for Hulu was over. I actually remember feeling very optimistic at the time, because again, Hulu had just been bogged down by all these quibbling around it. They couldn't make any decisions. They couldn't move fast enough because these companies were always fighting. I was like, finally, Disney has control. They're going to be able to do all this stuff. It's over. Let's see what they do with it. Jessica Mendoza: But the next fight over Hulu was already brewing. That's after the break. Disney and Comcast had come to a truce, and that truce set the stage for Disney to buy out Comcast's Hulu stake in 2024. But that piece didn't last because there was a misunderstanding baked into their agreement. According to Jessica's reporting, Comcast executives believed Hulu was about to get a whole lot more valuable because Disney was about to expand Hulu abroad. Jessica Toonkel: Comcast is like, hey, we just think this is going to grow. Everyone loves streaming. This is just going to get bigger and you're going to go international, and that will be even bigger. Whether that is in writing is up for debate. I don't know that it was in writing, but there are people close to Comcast that were definitely under the impression that that was the agreement. And then Disney didn't do that. Disney scrapped its plans to launch Hulu internationally. Jessica Mendoza: Instead, in 2021, Disney expanded another streaming service it owned called Star, which already had a foothold in Asia. Jessica Toonkel: Their argument is no one knows Hulu outside the United States. It would've been very expensive to market the Hulu brand outside the United States. This was all going on during COVID, where theme parks were shut down, movie theaters were shut down, so they were strapped for cash. Their argument is this was within our right and this was the right decision to make. Jessica Mendoza: People close to the situation said Disney's view was that it never promised to expand Hulu overseas. What does Comcast think? Why does Comcast think Disney didn't expand Hulu? Jessica Toonkel: Comcast thinks Disney didn't expand Hulu to hurt the valuation of Hulu and keep it as low as it could. Now, they are in arbitration over this. They've been in arbitration for several months. Many of the top executives were deposed late last year. We are expecting a decision on this imminently.Jessica Toonkel: It'll be damages, right? If Comcast loses, then we'll just move on. But if Comcast wins, Disney will have to pay Comcast a certain amount of damages. Jessica Mendoza: As all of this is going on, over the past few years, the streaming landscape has changed. Could you talk about what it looks like now compared to, say, when Hulu started? Jessica Toonkel: I mean, back in 2007 when they launched Hulu, Netflix was the common enemy. But now all of these companies have launched their own streaming services.Jessica Toonkel: They're all competing with each other. Not only are they competing with their traditional businesses, they're competing for subscribers with their streaming services. Jessica Mendoza: Sometimes that competition has come at the expense of Hulu. For example, last year, Comcast pulled a bunch of NBCUniversal shows off of Hulu. Now, if you want to stream Saturday Night Live or The Voice, you have to do it on Peacock. All of this is setting the stage for what could be the final big showdown over Hulu. Remember, in 2024, Disney will get its chance to buy out Comcast and own Hulu outright. How hard will it be for Disney and Comcast to actually come together and make a sale happen? Jessica Toonkel: I think this is going to be pretty complicated. These are two companies that have had a history of battles, so I am just expecting this to be another drawn out battle. The sticking point will be, how do we determine the value of this asset? Each side will come up with their own valuation. If they're within about 10% of each other, great, go for it. But if they're not, then they have to bring in a third party to figure out the difference. Given the fact that these companies have been tens of billions of dollars apart on how each one values Hulu, I don't expect them to come to an agreement on this anytime soon. Jessica Mendoza: This month, Disney CEO Bob Iger said Disney and Comcast had had "cordial discussions." Days later, Comcast CEO Brian Roberts said he believed it was likely that Disney would buy Comcast's stake. If Disney does own all of Hulu, what does that mean for consumers, for people who are already paying for Hulu or paying for Disney+? Jessica Toonkel: Disney has already said that they're working on making Hulu a tile into Disney+, which all that means is if you subscribe to both Hulu and Disney+, you could just log on to Disney+ and watch both of these services and not have to go to two separate services. You have to think that that is step one, right? They do that, and then eventually you have to think that maybe it just becomes all one app and it had a higher price than Disney+, of course. Of course, of course. Jessica Mendoza: Do you think this kind of idealistic partnership among rivals that created Hulu in the first place, could this have ever worked, or was it doomed to fail? Jessica Toonkel: It's very hard to be rivals and partners on any entity. In the case of Hulu, I think it really held the company back. They were moved slower with their own original programming. I mean, when you think about it, like Handmaid's Tale was their first breakout really, and that wasn't that long ago. I just don't think they were as nimble as they could have been because there've just been so many tiffs between these companies. I think it's hard. I mean, it's a great question though, because I also think partnerships might become more important for these companies. It would be great if some of these companies would partner more. I think it would also be easier for the consumer not to have a million streaming services, but it's just really hard. Jessica Mendoza: That's all for today, Wednesday, May 31st. Additional reporting in this episode by Amol Sharma. The Journal is a co-production of Gimlet and The Wall Street Journal. If you like our show, follow us on Spotify or wherever you get your podcasts. We're out every weekday afternoon. Thanks for listening. See you tomorrow.
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