What to Do With Hulu?


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The trend of disruption in traditional media and entertainment models seems to be growing stronger every day. It’s now commonplace to read about mega mergers between enormous companies, record contracts doled out to content producers, and newly minted businesses overseen by brilliant minds that promise to finally capitalize on the opportunity presented by new formats like mobile video.

In an environment where there are a virtually endless amount of interesting cases, though, one in particular stands out to me, Hulu. Sitting at an intersection of a few different pieces of the media environment, Hulu offers a unique case. It’s a streaming service, and it recently added a package with live TV. It boasts The Handmaid’s Tale, a show that won Outstanding Drama series before any show from Netflix or Amazon did, but it is not typically considered to be on the same tier as either of those players. It’s owned by Disney, 21st Century Fox, Comcast, and Turner, meaning that it has a major interest in how both the AT&T/Time Warner (Turner’s parent company) and Disney/21st Century Fox mergers play out. It has an impressive 17 million subscribers, and yet it lost a reported $920 million last year.

In some ways, Hulu is a little irrelevant. It’s been around for some time and, outside of The Handmaid’s Tale, hasn’t done much to carve out a crucial position for itself. Other services may bleed money the same way Hulu does, but they seem more critical to the entertainment ecosystem. In other ways, Hulu is an essential digital property with a number of very solid assets that presents its owners with a great deal of opportunity. Of all the question marks that the potential AT&T/Time Warner and Disney/21st Century Fox deals present, Hulu is perhaps the most interesting.

As a result, I’d like to attempt to survey the landscape and present some possible answers to what I consider to be a very curious question: what will happen to Hulu?

First we have to survey the players. Comcast, Disney, and 21st Century Fox all own 30% of the streaming service, while Turner owns 10%. For the purposes of this exercise, we’re going to assume the 21st Century Fox/Disney merger goes through. Disney will then own 60% of Hulu, which would seemingly change the dynamics of the operation quite a bit. Disney has been very open about its plans to create its own streaming service, and create a separate service for ESPN. There are a few ways that Hulu could play into its plans.

For one, it could utilize Hulu to support its standalone streaming service. Whether it be through add on deals or as a rebrand of the service that primarily uses Hulu’s infrastructure, one could see how it might be a good fit.

The obstacles to this, though, are obvious. For one, it’s difficult to see Disney giving up its ambitions of a truly standalone service and instead either latch onto or rebrand Hulu. It’s equally difficult to believe that Comcast and Turner would go along with such a plan, which means Disney would need to buy them out and assume full responsibility for the platform. It would presumably take hold of its intellectual property, and Hulu would simply become part of the new, larger company.

There’s another reason why it doesn’t really make sense for Disney to buy Hulu outside of that. Disney has already invested in another property, BAMTech Media, that specializes in streaming technology. After initially investing $1 billion for a 30% stake in 2016, it opted to increase its stake to 75% in 2017, controlling the company and presumably leveraging its abilities for a future streaming service. Disney doesn’t really need Hulu, it already has a strong relationship with a proven streaming technology provider.

Disney could, of course, opt to simply control 60% of Hulu, and run everything as is. But with the creation of its own streaming service imminent, won’t it want to keep its content exclusive to its own platform? Following that logic, it would remove its content from Hulu, weakening the platform and hurting its own bottom line. This works the other way too, if they opt to keep their content on Hulu, they weaken their new platform and disincentive consumers to subscribe. It’s a poor situation to be in, and one they’d probably like to avoid.

And they can do just that, by selling Hulu.

To Comcast.

While Disney doesn’t stand to gain much from acquiring Hulu, Comcast does. Now, such a suggestion might raise some eyebrows. Comcast’s unique position as both a monumental producer of content (NBCUniversal) and an ISP might make it less obvious as to why they’d be interested in taking on Hulu. They don’t really need the content, and they don’t need a way to get content in front of an audience.

So why push to completely control Hulu? Because of the advertising opportunity it presents. Audiences who are cutting the cord, or those who exist outside of the Comcast ISP footprint may very well still be interested in Hulu, and Comcast can both collect data from those customers, and serve them pertinent advertising. They can begin to learn how to segment audiences and eventually, when digital, addressable TV advertising becomes available, they can take those lessons and apply them to a much larger group of people.

A quick look over at what AT&T/Time Warner plans to do shows this quite well. They’re already pitching on the potential cohesion of their advertising through linear and streaming services, which Digiday provided a glimpse into.

This is just another piece of the puzzle for AT&T, as they’ve made it clear they’re attempting to merge with Time Warner in order to secure content. Comcast already has that through NBCU, why not get ahead of the game and acquire an established streaming service?

Simply put, this is a good marriage of content and platforms. Comcast wouldn’t even need to change the name, and they’d secure a space on a top streaming service for NBCU’s content, avoiding the hassle of attempting to work with Netflix, Disney, Amazon, Apple, or anyone else to host it online in perpetuity.

When considering the reach, the content, and most prominently the advertising opportunities, it makes a great deal of sense for Comcast to push for this acquisition. In the coming years, the investment in content and content delivery is going to be massive. Each different group is going to try and carve out their own subscribers, and the more ways you can reach an audience, and the more you have to offer them once you do, the better off you’ll be. Disney, with its ambitions to host an entirely separate streaming service and its other investments, and Turner, part of the AT&T/Time Warner merger, are substantially less inclined to take hold of Hulu and use it for what it might be.

Comcast, on the other hand, has a great opportunity to improve in an area where it could use some help, and solidify its areas of strength. As the disruption in media shows no signs of slowing down, it’d be very wise to do so.

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