1. Everybody Wants Hulu

Hulu is hot right now.

Comcast’s Brian Roberts is not being coy anymore, stating outright that he’d buy it if only Disney would let him.

But they won’t.

In fact, CEO Bob Chapek is talking about how he can’t wait until Hulu is all Disney’s, so that he can merge it with Disney+.

Yes, there’s a new season of The Handmaid’s Tale out and all, but why is Hulu suddenly the belle of the ball?

Why It Matters

Like most affairs of the heart, this one is complicated.

But then again, so is Hulu.

Hulu started out as an idea that made a lot of sense. And then it didn’t, and then it did and then it didn’t and now it does again.

Allow me to unpack.

Early days Hulu was a way for the broadcast networks to get ahead of the TV Everywhere (TVE) curve—it was originally designed to be a free ad-supported app that let pay TV subscribers watch that week’s prime time programming via a streaming app they could watch on any device. It made sense at the time because MVPD VOD was poorly designed ( I’m being kind there) and because it allowed them to all invest in a single TVE app and say “yes consumers, we hear you. While those evil cable guys won’t give you a TVE app, we will!” 

But then it didn’t make sense once Netflix came along and rolled out original programming and classic reruns, all with no ads. Which, of course, redefined streaming.

But then Hulu rolled out an ad-free version and some high profile originals as well. At which point Hulu started to make sense again, as it became a valid number three to Amazon and Netflix.

Then Disney bought Fox (and Fox’s share of Hulu), while Comcast held on to its one-third share, which didn’t make a lot of sense, at least not from a Hulucentric POV, as it left them in a no-man’s land, a part of Disney but not fully a part of Disney.

But now Hulu makes a lot of sense again for both Comcast and Disney, only Disney is in the catbird’s seat since Comcast is contractually obligated to sell them their share of Hulu. (For how much is another matter—more on that in a minute.)

Hulu also makes sense for NBCU because it would make an ideal SVOD (subscription) vehicle for them—they could combine their strong ad sales team with Hulu’s long experience selling streaming ads, they would have a great outlet for all that NBCU content along with strong originals, plus all those subscribers. 

And they could pretend that Peacock was supposed to be a FAST service all along.

But more than all that, they’d get Hulu TV Live, the service’s vMVPD, which they could combine with Comcast’s broadband offering and potentially keep a whole lot of cord cutters happily inside their ecosystem.

So a win all around.

Only not from Disney’s POV.

Disney wants to do what every analyst has been suggesting since the launch of Disney+, which is to combine Hulu with Disney+ to create an app that appeals to adults, children and adults with children alike. (There are easy interface fixes to prevent said children from accidentally seeing naked body parts on FX series.)

That combo would allow Disney to really take on Netflix and aid in their attempts to pull out ahead of their erstwhile rival, both in the U.S. and overseas, where people are unlikely to have heard of Hulu.

To wit: as per the latest Nielsen stats from September 2022, Hulu has 3.7% of Total TV Time, putting it in second place for SVOD services, while Disney+ has 1.9%. Combined, Disney+/Hulu would have 5.6%, putting them within striking distance of Netflix’s 7.6%.

Disney would also have the Hulu TV Live vMVPD—which would presumably include access to Disney+.  That would give them an ideal way to keep linear ad dollars flowing to ABC and ESPN for that portion of the population (we’re thinking 30% to 40%) who still like old school linear.

But then there’s the price thing. (Told you I’d get back to it.)

Disney and Comcast still need to work out a price for Comcast’s share of Hulu.

They are both doing a whole lot of showboating right now with Disney’s Chapek proclaiming that streaming valuations have “cooled” while Comcast’s Roberts calls bullshit.

So there’s that too, though at some point they will find a number that works for both of them and Comcast will sell.

What You Need To Do About It

If you’re Wall Street, realize that this is all a game to get the best price for Hulu. Of course Comcast is going to sell and Disney is going to buy. So all that talk about valuations cooling and how, if Hulu was part of Comcast, they’d 100% treat Hulu like a queen, is just that: talk.

Disney will wind up buying Hulu and then merging it with Disney+, possibly throwing in some variation of ESPN as well. (Yes, you can imagine a scenario where it’s better for Comcast to wind up with Hulu, but that’s science fiction at this point.)

Meaning the end result is all but inevitable. How we get there is the question.

If you’re Netflix, a combined Hulu/Disney+ is a formidable competitor, one that will come with a sizable percentage of its subscribers already on the ad-supported model. Making that decision to hire Peter Naylor (who knows where all the Hulu bodies are buried) seem even more prescient.

2. Streaming’s Carriage Fee Issue

I moderated a panel at TV Week the other day about the various business models currently available on streaming. (Short answer: there are two, free and not-free, both of which offer linear and on-demand delivery.)

One issue we discussed that everyone flagged as a potential future problem, was “if cable networks and local broadcasters are making the move to FASTs and to streaming-based delivery, how do they make up the money they currently get from carriage and retrans fees?”

Why It Matters

For many of these companies the answer may be the difference between whether they stay in business or not.

Or adapt their business model to account for the fact that they will indeed be pulling in less money.

That was Cinedigm Chief Strategy Officer Erick Opecka’s take—they may not be able to rake in the kind of dollars they made during cable TV’s heyday, and as a result, may need to rethink many things, including the type and volume of original programming they are creating.

To backtrack for a minute, the conventional wisdom on this has been that the money thing will not be an issue as brands will be willing to pay more money for fewer, better-targeted ads, thus making up the carriage fee shortfall.

Unfortunately “more’ is proving to be not all that much more and as such there’s still a deficit.

More troubling still is that many of the biggest TV advertisers don’t really see the value in targeting. They figure that any “waste” is not really waste. Meaning that if an older woman sees a car ad aimed at younger men, they figure there’s a good shot she has a relative, co-worker or neighbor in that younger male demo and if the ads get her to provide positive reinforcement to his purchase decision, then it’s money well spent.  

Which is not to say that carriage fees on streaming are an absurd notion. As we noted in our report FASTs Are The New Cable, more than a few people we spoke with said they could envision scenarios where content providers routinely strike some sort of deal for the right to have their app on a TV OS platform. If not an outright exchange of money, it may be a trade for viewership data or a share of ad revenue.

Again, just something to keep an eye on.

What You Need To Do About It

If you are of the Aggregators in the FAST ecosystem (e.g. the bigger FAST services that aggregate content from many sources) be aware that this is a potential issue. Might be worth thinking about what you can do if your cable network buddies start to feel a financial pinch.

If you own one of the big TV operating systems, don’t be surprised if the more popular services start demanding some sort of vig in return for letting you include their app on your platform. Given that there’s little downside for them to make that kind of ask, you’ll need to figure out what your counter offer is going to be.

If you are a cable network, you’re going to have to figure out how you make up that carriage fee revenue. So time to start thinking about other revenue opportunities, everything from branded content to more sophisticated syndication strategies. 

The good news is that carriage fees are not going to disappear overnight, but rather, gradually shrink each time you renegotiate your deals. This is inevitable as more and the number of cable TV subs continues to shrink, and gives you a good five years or more to come up with an alternative.