Analyst: Disney May Be Motivated to Sell Hulu Ownership Stake

Wall Street investment firm Citi contends Disney may be motivated to sell its majority ownership stake in Hulu (rather than buy Comcast’s minority stake) in a move aimed at reducing Disney’s $1.1 billion Q1 direct-to-consumer operating loss, which included a decrease in Hulu results.

In 10 months, under a fiscal arrangement, Comcast can force Disney to buy its 33% stake in Hulu for at least $27.5 billion, or Disney can force Comcast to sell its stake. The situation emerged following Disney’s $71.3 billion acquisition of 20th Century Fox in 2019.

Jason Bazinet

For Comcast, acquiring Disney’s 66% stake (or another 33% for less than $27.5 billion and majority control) would be a costly “win,” but it could also add 48 million Hulu paying subscribers to NBCUniversal’s Peacock paid sub base of 20 million.

“We believe [Disney] is less interested in a mass market DTC offering,” analyst Jason Bazinet wrote in a note. He attributed this thinking to Disney CEO Bob Iger’s fiscal call comments and related media statements that the company would refocus efforts on core brands and franchises.

On Feb. 19, Iger, in an interview with CNBC, said “everything was on the table” in regards to Hulu’s future with Disney.

“We are intent on reducing our debt,” Iger said. “I’ve talked about general entertainment being undifferentiated. I’m not going to speculate if we’re a buyer or a seller of it. But I’m concerned about undifferentiated general entertainment. We’re going to look at it very objectively.”

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Bazinet said he believes a Comcast majority purchase of Hulu would accelerate the cable operator’s DTC operating scale “with potential financial synergies.”

“[It could] accelerate [Comcast’s] push into live streaming aggregation, and improve its strategic positioning within the media category,” he wrote.

Comcast chairman/CEO Brian Roberts, speaking last September at a Wall Street event, hinted the media company would be interested in acquiring Disney’s stake.

“Hulu is a phenomenal business,” Roberts said. “Its scale is fantastic. I believe if Hulu was put up for sale, Comcast would be interested. So would a lot of other tech and media companies. You would have a robust auction.”

Analyst Gives Thumbs-Up to Netflix Ads, Shrugs Off Account Sharing

Following the market’s outsized reaction to Netflix’s underwhelming first quarter results, including a net loss of 200,000 subscribers, the SVOD pioneer put in motion two initiatives designed to generate incremental revenue: Charging subs extra for sharing accounts and a less expensive ad-supported subscription plan.

Selling ads on the backs of Netflix’s 220 million global subscribers is being embraced by Wall Street as a legitimate revenue driver. Jason Bazinet, media analyst with Citi, believes the move could jumpstart subscriber growth and improve the fiscal bottom line.

“We believe an ad-based tier — which we expect in 2023 — will allow Netflix to resume sub growth and help narrow the ~$5 billion gap between [free cash flow] and net income,” Bazinet wrote in a note.

Citi analyst Jason Bazinet

Free cash remains a bone of contention among some Netflix analysts (notably Wedbush Securities’ Michael Pachter] who suggest the service spends too much money on content, among other costs.

Bazinet believes Netflix could generate $10 monthly from ad-supported U.S. subs and $3 monthly worldwide. The analyst says the ad-supported subscription plan could yield upwards of $3.6 billion in additional free cash flow from new subs, and $3.1 billion should existing subs downgrade to the estimated new $5.99 monthly ad-supported price point.

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“[This would] still generate incremental revenue from basic subs that spin down to a lower cost version,” Bazinet wrote.

The analyst doesn’t give much support to Netflix idea to charge existing subs an incremental fee when sharing account passwords. The concept is currently being tested in select markets globally.

The move is “unlikely to improve [churn] beyond current levels,” Bazinet wrote.

A separate report by The Information suggested Netflix could bump revenue up 21% with an ad-supported subscription option.