The transaction values Hulu at $15 billion. According to the companies, the transaction didn’t require any governmental or other third-party approvals and was simultaneously signed and closed.
“We thank AT&T for their support and investment over the past two years and look forward to collaboration in the future,” Hulu CEO Randy Freer said in a statement Monday. “WarnerMedia will remain a valued partner to Hulu for years to come as we offer customers the best of TV, live and on demand, all in one place.”
AT&T is exiting Hulu as the telco’s WarnerMedia division gears up for a late 2019 launch of its own subscription streaming services — and could mean that WarnerMedia will at some point try to pull back content licensed to Hulu.
As reported by Variety in February, Disney had been in active discussions with AT&T about acquiring the telco’s minority stake in Hulu (technically 9.5%). Disney obtained 60% ownership of Hulu after it acquired the entertainment assets of 21st Century Fox for $71 billion, a deal that closed in March. The remaining 30% was held by Comcast/NBCUniversal. Earlier this year, NBCU chief Steve Burke signaled that he doesn’t want to exit Hulu in the near future.
“Disney would like to buy us out,” Burke told Variety in a January interview. “I don’t think anything’s going to happen in the near term.”
The fact that the AT&T/WarnerMedia stake in Hulu was sold to the JV — rather than to Disney — is further indication that NBCU wants to remain a key player in Hulu. NBCUniversal is cooking up its own streaming plans, slated to hit in 2020, that would be free to existing pay-TV customers or available for a fee to those without.
So what is Hulu’s ownership breakdown vis-a-vis Disney and Comcast at this point? According to a Hulu rep, “Hulu is the entity purchasing AT&T’s shares, and Hulu’s owners now have a window of time to allocate the shares.”
Disney and Comcast reps didn’t immediately respond to a request for more info. Assuming AT&T’s 9.5% stake is apportioned according to their previous ownership stakes, Disney would own two-thirds (67%) of Hulu, with Comcast/NBCU owning the remaining 33%.
The $15 billion valuation for Hulu that’s implied by the AT&T sale is a significant increase over its previous estimated worth: Disney last summer in a regulatory filing had projected Hulu’s fair value to be $9.3 billion after the 21st Century Fox deal closed.
And it’s more than 2.5 times the $5.8 billion valuation for Hulu when Time Warner originally made a $583 million investment in Hulu in August 2016. Following its acquisition of Time Warner, AT&T execs have said they were considering divesting the Hulu stake.
On Monday, AT&T said it will use proceeds from the transaction to reduce its debt — including the billions it accumulated through the Time Warner acquisition — along with additional planned sales of other “non-core assets.”
Disney sees Hulu as a key plank in its direct-to-consumer subscription VOD lineup, alongside Disney+ and ESPN+.
At last week’s Disney Investor Day, Disney CFO Christine McCarthy projected Hulu will have 40 million-60 million subscribers by end of fiscal year 2024. She said Hulu’s operating losses are expected to peak at $1.5 billion in Disney’s fiscal year 2019 (which ends in September), with Hulu achieving profitability in FY 2023 or 2024.
Hulu’s losses have increased with its investment in technology and programming. For 2018, Hulu lost around $1.5 billion, up from $920 million a year earlier, according to Comcast’s most recent 10-K filing (which reports Hulu’s losses as a portion of its equity).
Hulu said it ended 2018 with more than 25 million total subscribers, a net gain of 8 million for the year. (Hulu does not break out how many of its subscribers are only on subscription VOD plans versus how many have live TV packages.) Last year, according to Hulu, it grew ad revenue more than 45% in 2018, to nearly $1.5 billion, a company record.
Formed in 2007, Hulu was born as a three-way joint venture of Disney, NBCUniversal and Fox. Originally it was designed as a free, ad-supported service to catch up on broadcast TV shows. Today it offers a subscription VOD tier with ads at $5.99 per month, with some 85,000 episodes and movies; an SVOD tier with no ads for $11.99 per month; and a live TV package that includes over 50 channels and access to SVOD for $44.99 monthly.
With Disney assuming majority control Hulu, execs at the media conglomerate have said they’re exploring the launch of Hulu outside the U.S.