What to expect in 2019: Disney's interest in Hulu

Last week, Hulu reported that in 2018 it added 8 million new subscribers to its ranks bringing its total subscriber count to 25 million.  With that gain, it tops the largest pay-TV provider, Comcast, by about 3 million, but still falls way short of Netflix’s counts of 58 million and 137 million in the US and worldwide, respectively.  With its 85K episodes in its on-demand library and 27 Emmy nominations last year, Hulu is thriving in all areas except turning a profit.

Conditional on the sale of Fox’s 22 regional sports networks, Disney is expected to complete the Fox acquisition by early March.  When it does, it will have a 60 percent ownership share in Hulu.  Comcast with 30 percent and AT&T with 10 percent will have the remaining interests.  Bob Iger, CEO of Disney, has stated that Hulu is one of the firm’s top priorities in 2019.  The question is in what way.  As both a complement and substitute to its other distribution channels, including pay-tv partnerships and its own direct-to-consumer offerings (ESPN+ and Disney+), should Disney try to maintain, shrink, or expand its ownership stake in Hulu as it attempts to have greater control of its own fortunes as subscribers cut the pay-tv cord and it cuts the cord with Netflix?  (Note: when the firm launches Disney+ at the end of the year, it will end its relationship with Netflix.)

Short term (next year or two), Disney will most likely maintain the status quo and offer its streaming services as stand-alone and bundled offerings.  It will collect data: an advantage of owning the customer relationship.  But, what about the long term?  If it looks to increase its share to 90 or 100 percent, Disney risks losing the content of its partners and reducing the appeal of Hulu as a distinct offering or part of a Disney bundle.  If it looks to sell its 60 percent Hulu stake (to say Comcast or a third party), it gets cash (for another venture maybe) but it gives up a valuable asset to a competitor.  Oh, what to do!  For now, the course of action should be maintain and evaluate, but be nimble because in this industry you never know who might be interested in making a deal.