Disney could sell its 67% stake in Hulu to buy up more Marvel rights: Citi




Alexandra Canal
·Senior Reporter
Fri, March 3, 2023 

Disney (DIS) might let go of Hulu in favor of the Hulk, at least according to one media analyst.

"We believe Disney may sell its 67% stake in Hulu," Citi analyst Jason Bazinet wrote in a new note to clients on Wednesday. "In parallel, we suspect Disney may secure the distribution rights to two Marvel characters held by Comcast (Hulk and Namor)."

Although Disney owns all of the Marvel intellectual property, Comcast's Universal (CMCSA) maintains the distribution rights to those two characters; consequently, the studio would be able to distribute any Hulk or Namor-centric films to its various NBCU media platforms, like Peacock.

"While the cost of securing these rights is likely small relative to the value of Hulu (we estimate the value at only $0.3 billion), it would fit with Mr. Iger’s desire to focus on core brands and franchises," the analyst said.

Bazinet, who previously thought Disney would either raise Hulu's subscription prices or combine the streamer with Disney+, now believes "the company is less interested in a mass market DTC offering" after CEO Bob Iger told investors the company will focus more on its core franchises and "aggressively curate our general entertainment content."

"This raises the possibility that Disney may sell its Hulu stake," Bazinet surmised.

Disney currently owns two-thirds of Hulu with Comcast’s Universal (CMCSA) controlling the rest.

Under the terms of the joint ownership agreement, Comcast could require Disney to buy out its stake in Hulu as early as January 2024 at a guaranteed minimum equity value of $27.5 billion (or about $9.2 billion for the 33% stake.)

Bazinet estimated Hulu's price tag could be valued anywhere from $19.8 billion to $27.5 billion.

"Based on Hulu’s level of profitability, the sale price and Disney’s use of proceeds, we see a wide range of outcomes from ~$3 downside to ~$13 of upside per Disney share," the analyst said, adding: "For Comcast, we see a balanced risk-reward of $2-3 per share in each direction, while the strategic and financial merits supports a positive move for the equity, in our view."

Disney shares have climbed more than 10% since the start of the year, and are up nearly 8% since Bob Iger's surprise return to the company in November of last year.

The Walt Disney Company CEO Bob Iger attends the Nominees Luncheon for the 95th Oscars in Beverly Hills, California, U.S. February 13, 2023. REUTERS/Mario Anzuoni

During Disney's latest earnings call, Iger doubled-down on the view streaming was his "top priority" for the company, but told CNBC "everything was on the table" in regards to Hulu’s future.

"I’ve talked about general entertainment being undifferentiated. I'm not going to speculate if we're a buyer or a seller of it," Iger said. "But I'm concerned about undifferentiated general entertainment. We're going to look at it very objectively."

Hulu boasts around 48 million subscribers and hosts top-rated shows including "Only Murders in the Building," "The Handmaid's Tale," and "The Dropout." Hulu's subscribers grew by 2% in Disney's latest quarter.

At the time of the original arrangement between Comcast and Disney, Iger maintained the purchase would allow Disney the opportunity to offer an alternative, more mature viewing experience to consumers, in addition to providing more flexibility with bundling.

Flash forward to today and streaming economics are vastly different as investors focus on profitability amid increased competition.

Disney's direct-to-consumer division reported a $1.1 billion loss in its fiscal first quarter — an improvement compared to the $1.5 billion loss seen in Q4, but still a significant drag on profits.

Alexandra is a Senior Entertainment and Media Reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 and email her at alexandra.canal@yahoofinance.com