Disney Has Big Plans for Hulu

Hulu may be losing millions in equity for its corporate parents, but that isn’t stopping The Walt Disney Co. from dreaming big going forward about the 11-year-old SVOD service and online TV platform.

Disney, which attributed $10 million in Q4 equity losses to higher programming, marketing and labor costs at Hulu, partially offset by growth in subscription (20+ million) and advertising revenue, will become majority (60%) owner of the SVOD when its acquisition of 20thCentury Fox Film Corp. is finalized.

Hulu’s other corporate owners include Comcast (30%) and WarnerMedia (10%).

Speaking Nov. 8 on the fiscal call, Disney CEO Bob Iger thinks Hulu’s sub growth, brand strength and user demographics portend an opportunity to increase investment in Hulu – especially on programming.

“With this [Fox] acquisition comes not only some great IP, but some excellent talent, particularly on the television side,” Iger said. “And we aim to use the television production capabilities of the combined company to fuel Hulu with a lot more original programming … [content] that we feel will enable Hulu to compete even more aggressively in the marketplace.”

Specifically, Iger cited Hulu’s younger user base – apparently 20 years younger than competitors Netflix and Amazon Prime Video – and penchant for off-network content.

“And that’s clearly attractive to advertisers, which I think has been somewhat underappreciated about Hulu in that it … can offer targeted ads,” Iger said.

Hulu’s base $7.99 subscription plan features ad-supported content, while the $11.99 plan is ad-free. Iger says the service – especially the $39.99 Hulu With Live TV – has some price elasticity of demand.

“I think there’s an opportunity to improve – or I should say increase our pricing there,” he said.

Notably, Iger envisions Hulu focusing on general and edgier entertainment (i.e. Fox’s “American Horror Story” and R-rated movies), with Disney+ catering to softer fare.

“We’ll leave the more family-oriented programming to the Disney+ app,” he said.

Fox Ups Q1 Hulu Equity Loss 84%

Twenty-First Century Fox Nov. 7 disclosed a first-quarter (ended Sept. 30) equity loss of $114 million regarding its 30% ownership stake in Hulu. The loss represented an 84% increase from an equity loss of $62 million during the previous-year period.

Hulu, which is co-owned by Disney, Comcast and WarnerMedia, continues to generate significant losses on paper to its corporate owners, who license hundreds of millions of dollars in content to the 20+ million subscriber over-the-top video service.

While Hulu is nominally losing several billion dollars per year, its “losses” essentially amount to the excess it pays to its four sponsors over the revenues it generates, according to Wedbush Securities media analyst Michael Pachter.

“If the four [corporate] sponsors find a way to grow Hulu’s subscriber base, it should be able to achieve breakeven, and it should manage to gain market share from Netflix,” Pachter wrote in a recent note.

The analyst expects content from Disney, Fox, Universal, and Warner to be largely unavailable to Netflix going forward, leaving the SVOD pioneer trying to buy content from Sony, Paramount, Lionsgate, MGM, and smaller studios.

“Ultimately, we expect Hulu to become a formidable competitor to Netflix, particularly should Disney and Warner Bros. layer their own streaming offerings as premium additions to a basic Hulu subscription,” Pachter wrote.

Meanwhile, 20thCentury Fox Film (which includes 20thCentury Fox Home Entertainment) reported operating income of $277 million, an 8% increase from the $256 million reported in the prior-year quarter. The increase reflected higher contributions from the television production studio led by higher SVOD licensing of animated product.

Quarterly revenue decreased 7% to $1.82 billion, primarily reflecting lower theatrical revenue from a lower volume and mix of films released in the current quarter partially offset by higher SVOD revenue at the television production studio.

“We continue to deliver against our growth plan even as we make important strides toward completing our Disney transaction and launching Fox in the first half of 2019,” executive chairmen Rupert Murdoch and his son Lachlan said in a statement.

Separately, Fox posted a $147 million equity gain from its 39% stake in British satellite TV operator Sky – up 34% from an equity gain of $110 million last year. Fox recently sold much of its Sky stake to Comcast.

Finally, the European Commission approved Disney’s acquisition of 20thCentury Fox provided it sells its stake in A&E channels (History, H2, Blaze, Lifetime, Crime + Investigation) distributed overseas.

“The commission’s decision is conditional upon full compliance with the commitments,” the EC said in a statement.

 

Comcast Tops Fox’s Bid for Sky as British Government Greenlights Murdoch’s Offer

NEWS ANALYSIS — As expected, Comcast Corp. increased its all-cash offer for British satellite TV operator Sky to $34 billion (£26 billion), or £14.75 per share, exceeding 21st Century Fox’s revised offer of £14 per share. Fox, which is controlled by Rupert Murdoch, currently owns 39% of Sky.

This came the day before the British government — after months of regulatory review — formally cleared Fox’s pursuit for remaining interest in Sky.

“It’s now a matter for Sky shareholders to decide whether to accept 21stCentury Fox’s bid,” Jeremy Wright, U.K. cultural and media secretary, said in a July 12 statement.

Which could be meaningless considering the third player (Disney) in this high-stakes media consolidation battle last month upped its bid for Fox to $71.3 billion (which includes Fox’s stake in Sky) after Comcast offered $65 billion — topping the Mickey Mouse’s company’s initial $52.4 billion acquisition amount.

Disney CEO Bob Iger has called Sky – with 23 million subscribers in the U.K., Germany and Italy, and a budding over-the-top video business – the “crown jewel” in the Fox deal.

Comcast claims its superior cash offer (Disney’s bid is cash and stock) has been recommended by an independent committee on Sky’s board of directors.

The company says it has the relevant regulatory approvals in the European Union, Austria, Germany, and Italy —  and expects to complete the acquisition before the end of October.

In a statement, the Philadelphia-based media giant said it has long admired Sky and believes the satellite operator is an outstanding company and a great fit with Comcast Cable.

“Today’s [July 11] announcement further underscores Comcast’s belief and its commitment to owning Sky,” said the company headed by cable veteran Brian Roberts.

Fox and Disney shareholders are slated to vote July 27 on the latter’s bid for 20th Century Fox Film, Sky and related assets. This gives Comcast about two weeks to up its Fox bid. Or does it?

BTIG Research senior analyst Rich Greenfield — in response to media scuttlebutt Comcast and Disney could stop the fiscal escalations with Comcast taking Sky and Disney opting for Fox’s assets — says such a move would be detrimental to both sides.

He said combining Disney and 20th Century Fox Film would dwarf Comcast-owned Universal Studios, while Disney abandoning Sky would give Comcast greater distribution.

“Why start a fight you do not want to finish?” Greenfield wrote in a blog note. “If Disney’s acquisition goal is adding 100% owned and controlled subscriber relationships, why go through all this effort and allow Comcast to own all of or at the very least control Sky?”

Fox Tops Comcast’s Sky Merger Offer

The “Sky” is apparently the limit for 21st Century Fox, which on July 11 upped its offer more than 30% for the British satellite TV operator to £14 per share — valuing the company at $32.5 billion. Fox, in late 2016, offered £10.75 per share of Sky stock (61%) it did not already own.

The bid represents an 82% premium on Sky’s £7.69 per share closing price the day before Fox’s initial bid. It also tops Comcast’s rival offer of £12.50 per share.

“As a founding member of Sky, we have remained deeply committed to bringing these two organizations together to create a world-class business positioned to deliver the very best entertainment experiences well into the future,” Fox said in a statement.

It’s a sentiment shared by The Walt Disney Co. and Comcast, which both have competing takeover bids for select Fox assets, including 2oth Century Fox Film and Sky.

Consolidation in the media world is in full swing following AT&T’s $85 billion acquisition of Time Warner as companies grapple with over-the-top video and subscription streaming video behemoths Netflix and Amazon Prime Video.

Disney last month upped its offer for Fox to $71.3 billion after Comcast bid $65 billion — topping Disney’s initial $52.4 billion acquisition amount.

Federal regulators last month approved Disney’s bid after the Mickey Mouse company agreed to divest 22 regional Fox Sports networks. Across the pond, the U.K. Secretary of State is expected rule on the Fox/Sky deal by July 12.

Regardless, Sky shares closed July 10 at £15.01 per share suggesting the sky is indeed the limit for shareholders convinced the bidding war will continue.

Disney, Fox Shareholders to Vote on Merger July 27

The day after The Justice Department June 27 approved The Walt Disney Co.’s $71.3 billion cash/stock acquisition of 20th Century Fox Film (which includes British satellite TV operator Sky Plc.) both Disney and 21st Century Fox announced their respective shareholders will vote July 27 on the mega-merger.

Both companies canceled previously-slated July 10 shareholder votes after Comcast submitted a rival $65 billion all cash offer that trumped Disney’s initial $52.4 billion bid.

The new vote date gives the corporate parent of Comcast Cable, NBC Universal and DreamWorks Animation less than a month to secure a new bid.

Media reports suggest Comcast – whose cable operations are under threat from over-the-top video services such as Netflix and Amazon Prime Video and needs Fox content – will counter.

“We believe another counteroffer from Comcast for Fox is likely,” John Hodulik, analyst with UBS, told Deadline.com.

Moody’s Investor Service reportedly said Comcast’s current offer would push the company’s debt load to more than $170 billion.

While corporate debt is relative, both Fox and Disney contended their deal would pass regulatory muster more easily than Comcast’s. And apparently it did.

While the antitrust unit of the Department of Justice entered into a consent decree with Disney and 21st Century Fox that allows the acquisition to proceed – mandating the sale of the Fox Sports Regional Networks as a requirement – it has made no ruling on Comcast’s offer.

Regardless, Disney has at least 90 days from the date of closing the transaction to complete the sale, with the possibility that the DOJ can grant extensions of time up to another 90 days. The decree is subject to the normal court approval process.

But first, shareholders have to vote.

 

RLJ Entertainment Ups Q1 Loss

Independent distributor RLJ Entertainment May 10 reported a first-quarter net loss of $6.5 million, compared with a net loss of $6.1 million during the previous-year period. Revenue increased 34% to $18.5 million, from $13.8 million a year ago.

RLJE, which includes Image Entertainment, Agatha Christie Ltd., RLJ Entertainment Ltd., and Acorn Productions Ltd., attributed the higher loss to non-cash warrant expense driven by the appreciation of the company’s stock price.

RLJE said increase in revenue was primarily driven by the over-the-top video business.

The digital channels unit, which includes Acorn TV and Urban Movie Channel (UMC), saw the collective subscriber base increase 44% to more than 750,000 members, from 520,000 in the previous-year period. Segment revenue increased 45% to $8.7 million from $6 million last year.

“Our increased investments in unique and original content, expanded consumer awareness and broader distribution resulted in a strong first quarter,” CEO Miguel Penella said in a statement.

Meanwhile, the wholesale distribution segment, which includes packaged media, saw revenue increase nearly 25% year-over-year – driven by digital distribution.

“Digital sales led … as we continue to transform the business from physical to digital [content],” Penella said.

Equity earnings from Agatha Christie Limited increased 42% to $800,000 — driven by film and publishing business segments. RLJE owns 64% of the company that manages Christie’s literary works, including more than 80 novels and short stories, 19 plays, and 40 TV movies, featuring characters Hercule Poirot and Miss Marble.

In 2013, RLJE licensed theatrical, home entertainment rights to Murder on the Orient Express to 20th Century Fox Film Corp. Fox released a remake last December, starring and directed by Kenneth Branagh, that generated $351 million at the global box office. Fox released the title into retail channels Feb. 27.

As previously reported, CFO Nazir Rostom is leaving May 11 after two years with the company.

Fox’s Lachlan Murdoch Declines Comment on Comcast Bid, Touts Studio Home Entertainment Releases

Lachlan Murdoch, executive chairman of 21stCentury Fox, refused to comment on “market speculation” surrounding a possible $60 billion cash offer from Comcast for 20thCentury Fox Film Corp., and related assets.

The Walt Disney Co. currently has an accepted $52.4 billion stock offer for Fox – a transaction that must be approved by shareholders and regulators.

That didn’t stop Rich Greenfield, analyst with BTIG Research, from asking whether any offer other than Disney’s would be considered.

“We are committed to our agreement with Disney … and working on the conditions to bring it to closure,” Murdoch said, adding Fox’s board was aware of its fiduciary duty to entertain all offers.

Notably, Disney has to pay Fox $2.5 billion should the deal not be approved, while Fox is on the hook to Disney for $1.52 billion should it back away from the deal.

Meanwhile, speaking on the brief (28-minute) third-quarter (ended March 31) fiscal call, Murdoch gave a shout out to recent home entertainment releases of The Greatest Showman, The Shape of Water and Three Billboards Outside Ebbing, Missouri and Maze Runner: Death Cure.

“The home entertainment release of these films, along with the theatrical release of Deadpool 2, should propel a strong fourth fiscal quarter,” Murdoch said.

The Fox film unit generated pre-tax operating income of $286 million, which was down 23% decrease from $373 million in operating income in the prior-year quarter. Revenue was flat at $2.24 billion.

The operating income decline reflected lower contributions from the television production business due to higher deficits related to more new drama series delivered during the quarter and the absence of revenue from the prior-year subscription-video-on-demand licensing of “The People v. O.J. Simpson: American Crime Story”.

Fox, like other Hulu corporate parents Disney, Comcast and Time Warner, accrued increased losses from the SVOD service and Hulu Live online TV service. Fox lost $148 million on Hulu in the quarter, up from a loss of $62 million during the previous-year period. Through nine months, Fox has lost $318 million on Hulu compared to a loss of $161 million last year.

Separately, Murdoch acknowledged presence of a “potential further offer [i.e. Comcast],” for “our businesses” – reiterating a “no-comment” company policy on the issue.

He said he expected U.K. regulatory approval shortly for Fox’s bid for shares of satellite TV operator Sky it does not already own. Comcast also has an outstanding bid for Sky that substantially exceeds Fox’s offer.

“Comcast has just begun its regulatory process, and we think it’s very reasonable that Comcast undergo a very robust regulatory review – which could take months,” said Murdoch. “Given Comcast’s bid for Sky, we are considering our options.”

Murdoch said planning for the New Fox (absent 20thCentury Fox) was well underway, including the just-announced $910 million acquisition of seven TV stations from Sinclair Broadcast Group.

Fox chairman Rupert Murdoch and his sons, are keeping Fox News, including new SVOD service Fox Nation, Fox Broadcasting and Fox Sports.

Fox: Disney Could Buy Sky News Separately

Media giant 21st Century Fox April 3 floated the prospect The Walt Disney Co. could acquire Sky News in an independent deal to assuage British regulators in its $16 billion acquisition for the remaining 61% stake of the European satellite operator.

Disney’s acquisition of Sky’s news division would be separate from its $52 billion acquisition of 20th Century Fox Film Corp., which includes the corporate parent’s stake in Sky, according to The Wall Street Journal. Fox chairman Rupert Murdoch owns The Journal.

British regulator Competition and Markets Authority (CMA) in January issued a report critical of the merger, claiming Murdoch’s majority ownership of Sky would place too much (i.e. conservative politics) control of British media in hands of one person.

Fox contends selling Sky News to Disney (which owns ABC TV) should alleviate regulatory concerns. It has also pledged 15 years of guaranteed funding for the news division.

“The enhanced remedies we proposed to safeguard the editorial independence of Sky News addressed comprehensively and constructively the [CMA’s] provisional concerns,” Fox said in a statement.

Regardless, Fox faces competition from Comcast, which has submitted an unsolicited $31 billion bid for Sky – nearly twice that of Murdoch’s offer.

Comcast, which owns NBC Universal and DreamWorks Animation, is eying Sky for its European distribution plans. Comcast in 2004 attempted a hostile takeover of Disney, which was scuttled by the latter’s shareholders. Comcast also reportedly offered a 15% premium on Disney’s bid for 20th Century Fox, which was rejected by Murdoch over U.S. regulatory concerns.