Now That Disney Is Officially Buying Hulu, Will Merging the Two Apps Work?
The Most Important Story of the Week for 9-Nov-2023
(Welcome to the “Most Important Story of the Week”, my bi-weekly strategy column analyzing the most important (but often not buzziest) news story of the last two weeks. I’m the Entertainment Strategy Guy, a former streaming executive who now analyzes business strategy in the entertainment industry. Please subscribe.)
One of the great things about “reader-supported media" is that it allows a level of segmentation, so to speak, that old media couldn’t support. If you’re making “mass media”, you have to focus on the “mass” part, which means content that often tries to appeal to everyone. With the advent of digital subscriptions, news outlets can now target the exact demographic who wants a specific flavor of news or analysis.
For example, I assume most of my readers share my desire for news stories and analysis about the entertainment business that focuses on “business” more than entertainment. Sure, the “entertainment” is more fun, but many, many, many other outlets have that covered. Many fewer cover the business stories the way I really prefer.
I bring this up because, last week, the most important business story of the last few weeks came and went with little commentary. Meanwhile, one executive’s Twitter dealings dominated entertainment news. Since Twitter isn’t real life—and this story again shows just how fake—I can’t tell you how little I cared about that story. (Or how inconsequential it will be in the long term.)
So I’m going to talk about Disney officially buying Hulu from Comcast, the story that I don't think got enough coverage. Before that, we’ll quickly mention the end of the strikes, and later, look at other under-the-radar-but-important stories like Amazon’s Judge Judy show going to syndication, prices raises across the industry, a theme park merger and more.
Let’s dive in fellow strategy nerds.
Strike Update - SAG-AFTRA Makes a Deal
Hallelujah!
Both strikes have ended, which means that, shortly, Hollywood will get back to making TV shows and films. Since we don’t have the exact SAG-AFTRA terms—coming tomorrow I believe—I’ll save a deeper dive until I’ve read and absorbed that analysis.1 The strikes were the “Most Important Story of the Year”, obviously, and ending them will bring normalcy back to the town.
The theaters desperately needed this news too. Recently, several studios began tweaking their 2024 calendars. For example, Disney delayed a few of their films as did Paramount+. The weaknesses in the theatrical calendar will continue into at least the first half of 2024 now, which won’t be great for the theater chains. But at least there’s light at the end of the tunnel.
Meanwhile, TV production in Los Angeles was as impacted as you’d have guessed:
(Film LA includes commercial production, and unscripted production, so that’s why it’s not zero.) I share everyone’s excitement to get this town back to work.
Most Important Story of the Week - Disney is Officially Buying Hulu From Comcast
Disney announced last week that it would officially buy the rest of Hulu from Comcast, ending any speculation—including plenty from yours truly!—that it might make more sense for Comcast to buy it. Disney will pay the $8 billion or so they must pay as part of their deal back in 2019, then some additional amount if they establish the “true market value” is higher than the price agreed upon a few years back. (Trust me, we’ll talk pay below.)
Let’s be clear: this is a big deal.
If the streamings wars are a war—and I know some readers loathe that terminology, but I enjoy it—this is a big strategic piece taken off the board. If some outside entity bought Hulu, that would bring in a new huge player to streaming. Frankly, if Comcast had pried this from Disney, that could have vaulted them into the lead in America. As is, Disney gets to keep it all, meaning Hulu’s subscribers in America, its technology stack, and whatever programming obligations/assets it controls.
It’s a truism that “Business doesn’t actually mind regulation; they mind uncertainty about regulation” and it’s a truism for a reason: because it’s true. Settling the “Hulu issue” provides Disney with certainty going forward. I imagine the last few years of running Hulu as a joint venture with Comcast looking over their shoulder hasn’t been easy or optimal for Disney. Just from that stand point, operationally, Disney can now simplify and optimize a lot between their streamers. (Yes, that also means “eliminating redundancies”…which means likely more layoffs.)
The certainty offered in legal terms, though, will shift into uncertainty about their strategic moves.
Well, we kind of know what will happen: death to the bundle!
Not quite, but on Disney’s earning call CEO Bob Iger announced that the “beta version” of a Disney+/Hulu streaming app would be coming by the end of the year. (Disney had previously mentioned this move was coming.) As I’ve written before, this decision contains both potential for big success, but also potential failure.
On the failure side, I’ve long thought the “bundle” made a terrific amount of sense for Disney in particular. They basically had three distinct offerings, each providing a strong value proposition as a combined whole, or individually if customers preferred that:
Disney+: Premium “genre” content and kids shows
Hulu (day-after-TV shows): General entertainment
ESPN+: Sports
Remember, I’ve been arguing that streamers need to put on their “PANTSS”, which means making more “procedurals, award shows/specials, new programming, talk shows, sitcoms and sports” content. Pure streaming has been fairly slow about adopting most of those traditional TV categories. (Max, Paramount+ and Peacock, though, have started adopting pieces of it.) Partly, I think Hulu grew to its current size by offering ABC and FOX’s PANTSS content (and previously NBC’s).2
The only real failure is that Hulu itself didn’t lean into this. There’s basically two “Hulus”, which I’d generally describe as:
Hulu (originals): Prestige, high-end TV (that folks don’t really watch) and some cheaper reality shows and true crime docs.
Hulu (day-after-TV shows): Broadcast fare from ABC and Fox, including sitcoms, reality shows, and procedurals.
That market for prestige content is just too competitive. That’s the sort of content people go to HBO or Netflix, probably Apple TV+ now, not Hulu. Remember, just last week, when I said Hulu’s hit rate is the lowest in streaming?3