How Does Disney Benefit From Its Association With Hulu?

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Hulu has reportedly signed a new multi-year deal to become the exclusive streaming home of dozens of movies from the library of Disney (NYSE:DIS), including The Nightmare Before Christmas, Mulan, Sister Act, Hercules and Air Bud. [1] This announcement comes in addition to the reports of Hulu airing content from ABC television network and ESPN on its upcoming over-the-top streaming service in 2017, which would not require a cable subscription to watch paid TV content. [2]

Hulu’s new online service along with its current on-demand offering could help Disney address its cord-cutting problem, which has led to people moving away from the pay-TV subscription packages to online services such as Netflix (NASDAQ:NFLX), Sling TV and Amazon (NASDAQ:AMZN) Prime. Hulu’s competitors, such as Dish Network’s Sling TV and Sony’s PlayStation Vue, are trying to capitalize on this trend by showing popular channels at reasonable prices of $20 & $30-40 per month, respectively. However, Hulu plans to offer a package of live programming from broadcast and cable networks with a reported $40 monthly subscription price. This new live streaming service offered by Hulu will be open to all, not just existing Hulu subscribers. However, it is unclear as to what specific programming bundle Hulu would offer in 2017, but we can still expect a significant volume of live sporting events.

Disney & Hulu 

Hulu is much smaller in size compared to many of its peers with a subscriber base of around 9 million subscribers, compared to the nearly 50 million subscribers of Netflix in the U.S. However, with more content to offer, Hulu could see more rapid growth in the coming years. It should be noted that Disney owns a 30% stake in Hulu, along with 21st Century Fox (NYSE:FOX) (30%), Comcast (NASDAQ:CMCSA) (30%) and Time Warner Inc‘s (NASDAQ: TWX) (10%).

Disney has been witnessing a slowdown in its media networks division of late; for example, ESPN has lost more than 11 million subscribers over the past six years due to the emergence of alternative viewing platforms. At the end of fiscal 2016, Disney also reported the lowest number of ESPN subscribers in the last 10 years at 90 million. This declining subscriber base poses a major concern for the company, since it derives 60% of its revenues from subscription fees. However, Disney is adapting to the changing consumer habits and evolving technology shifts to seek new revenue streams, and investing with Hulu is one of the options to grow its media network revenues.

   

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Notes:
  1. Hulu signs deal with Disney for movie streaming rights, cnbc.com, Sep 27 2016 []
  2. Hulu’s digital TV service will include Fox, Disney shows, cnbc.com, Nov 2016 []
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