A byproduct of Walt Disney Co. (DIS) - Get Report or Comcast Corp. (CMCSA) - Get Report buying a big chunk of Twenty-First Century Fox Inc.'s (FOXA) - Get Report entertainment assets would be simplifying the ownership of Hulu LLC.
Disney, Fox and Comcast each 30% of the online video service, while Time Warner Cable Inc. (TWX) holds 10%. Disney or Comcast would obtain a majority position by purchasing Fox. Comcast is prohibited from exerting control over the Netflix Inc. (NFLX) - Get Report rival as part of the conditions of its 2011 purchase of NBCUniversal, but those provisions expire next year.
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Hulu would benefit from having consolidated ownership, Moody's Investors Service Inc. analyst Neil Begley suggested. "[I]t is more likely to tear a page out of Netflix's game book and make moves that benefit Hulu rather than its owners making decisions that suit their individual self interests," he said. "The formidable task however, would be overcoming the distance Hulu now is occupying in Netflix's global rearview mirror."
Hulu launched in 2008, a year after Netflix began streaming. The company offers a streaming service for a temporarily discounted $5.99 per month, which reverts to $7.99 a month after a year. In May it launched a package of more than 50 streaming TV channels for $40 a month.
Hulu has had successes. Its production of the Margaret Atwood novel "The Handmaid's Tale" was the first series from one of the streaming companies to win an Emmy for Outstanding Drama Series. However, it lags behind Netflix.
Direct comparisons are complicated. Netflix has 109 million subscribers in more than 190 countries. Huly reports having 47 million unique viewers, and has not released subscribers since 2016, when it had 12 million.
To gain ground on Netflix, Begley suggested, Hulu should develop more originals, including foreign-language originals that it could launch overseas.
Hulu budgeted $2.5 billion for originals this year and has not released a budget for next year. Netflix plans to spend $7 billion to $8 billion of content spend for original content in 2018.
While Hulu focuses on the U.S., Netflix produces local content in six countries. It has an international pipeline of 30 local language scripted series in development.
Hulu is looking into international expansion, Fox executive Peter Rice and Hulu board member said at a Variety summit on Thursday. While the company sees the value of a global platform, Rice said such a move is difficult because the owners treat international rights differently.
Regarding valuation, Hulu's is not even close to that of Netflix, which has a $82 billion market cap.
"With no cash flow, it is tough to say what Hulu is worth on a true fundamental basis," Marci Ryvicker of Wells Fargo Securities LLC wrote in a recent note that put the value of Fox's stake at $1.7 billion.
Ryvicker suggested that Hulu's owners have come together recently. "After years of disagreement on the direction of Hulu, it seems as if the offering is finally on track with a live streaming bundle coming out of its beta phase," she wrote.
A sale of Fox's assets would make it simpler for ownership to stay on track.
"It needs somebody to essentially take charge and make decisions that are not self serving for each company but for the benefit of Hulu in competing with Netflix," Begley said.
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