The recent news that Disney was raising prices for its streaming services surprised many subscribers, but a new report by IndieWire may have provided the necessary context. According to reporter Tony Maglio, Disney may need to find as much as $5 billion in additional funding to complete their acquisition of Hulu, so say mediators working to finalize the deal. That amount is in addition to the $8.6 billion they already paid Comcast this past December for their share of the streaming service. How Disney got itself into this mess is a story not unlike Elon Musk’s acquisition of Twitter, another billion-dollar acquisition gone awry.
Disney is fighting tooth and nail to avoid having to pay Comcast even more to gain full control of Hulu, but the issue is now in the hands of arbitrators and independent evaluators. Regardless of the outcome, Disney has no one to blame but themselves for their situation, which comes just as the corporation is facing financial struggles in a down economy.
Disney’s Buying Spree Backfires
First launched in 2007, Hulu was originally formed to provide streaming content from multiple media companies. In 2009, Disney, Fox, and Comcast (via NBCUniversal) entered into a partnership wherein all three companies owned an equal stake in Hulu, and provided their content on one platform. When that arrangement changed when Disney bought Fox’s film assets in 2019, Comcast was given an escape clause, allowing themselves to be bought out within five years if they chose to end the Hulu partnership.
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At the time, the companies all decided Hulu was worth just over $27 billion dollars, for a potential buyout. Over four years later, in November of 2023, NBCUniversal decided they wanted out of Hulu. The move made sense, as Comcast had launched their own streaming service in 2020, Peacock, with a current subscriber base of over 30 million users. They no longer had the need to share their content on a Disney platform, and could get a nice payout for parting ways.
In December of 2023, Disney cut a check to Comcast for $8.6 billion for their 33% stake in Hulu, but the company balked at the amount. They insisted the $27 billion valuation of Hulu was several years old, and the company was now worth closer to $40 billion. Comcast had a strong argument: with Disney’s acquisition of Fox, the addition of new content made Hulu a much more valuable platform. Disney argued that Hulu was actually worth less than the original value, but was contractually obligated to the original valuation. With the two companies at an impasse over the value, arbitrators stepped in, which was bad news for Disney.
Disney Braces for Bad News
In a quarterly filing with the SEC, Disney revealed that once arbitrators rule, it could have to pay up to $5 billion more if it is determined Hulu is worth more. It could take another year for a determination to be made, and the filing hinted that Disney may need to pay more to Comcast after all:
“If NBCU’s appraisal were deemed to be valid…(Disney) would be required to pay NBCU an additional amount of approximately $5 billion as its share of the difference.”
While cutting a $5 billion check to Comcast would be a huge blow to Disney, it isn’t all bad news for the company lately. Disney+ reported its first quarterly profit ever, earlier than expected. Subscriber sign-ups still lag, however, hinting that Disney+ may have hit its consumer ceiling. The rise in subscription rates looks to be a step to remain profitable, and Disney’s package offer to bundle Disney+ and Hulu (with an ESPN+ option) is also paying dividends.
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Even if Disney ends up owning additional billions, it will still fall short of the loss Elon Musk took when he acquired Twitter in 2022 for $44 billion. At the time, Musk was Twitter’s largest shareholder, and proposed a buyout move that the company’s board opposed. The resulting conflict caused Twitter’s stock value to tumble, and Musk nearly backed out of the deal, only to move forward after threats of lawsuits emerged. The deal was finalized later that year, and Musk instituted cuts in staff that have made Twitter (now called X) more profitable, but Musk valued the company upon purchase at about $20 billion, less than half of what he paid.