News Disney and Fox come to terms -- announcement soon; huge IP acquisition

[AnotherDayAnotherDollar]

Those estimates were based on dividing up the value of Disney's offer to Fox among Fox's assets (if you're talking about the most recent valuation estimates); most other estimates of Hulu's valuation have been book value estimates.

Time Warner was invited to invest into the business taking an equal portion from the 3 owners at the book value/carrying value of Hulu because they were seen as a strategic media investor similar to the then 3 owners. i.e. They received a preferential deal because they were seen increasing the overall value of Hulu by providing content for their live streaming service.

If it was a hedge fund or a non-media business buying in, I could understand your point, but I don't think you've really disproven anything I said:

If Netflix was still a privately held company like Hulu or Uber or any other private company, it would probably be worth $60-80 billion in book value/carrying value. That has nothing to do with the fact that it currently has a $160 billion market capitalization.


The same applies to Sky which Comcast has offered $38.8 billion for its stock based on this auction situation and the bidding war. The book value or fair value of Sky is probably around $20 billion.

It's apples and oranges to compare Sky's public valuation to Hulu's private valuation. They are not remotely comparable numbers.


And the most important point: Comcast has significantly more power as a minority shareholder of Hulu than Disney would as a minority shareholder of Sky. Hulu was structured to give each of its 30% shareholders a couple of board seats and a say in the decision making process to determine how Hulu invests and makes strategic decisions. Yes, Disney will control the CEO of Hulu and a majority of the board, but Comcast has more rights than typical minority owners. There's also the fact that Comcast controls the NBC portion of content on Hulu and that will be up for renegotiation when the carriage deals lapse.

The reverse isn't true for Sky which is just a normal public corporation. Comcast will have more complete control of Sky once it takes 51+% of the shares and will be able to control the CEO and whole board and its future decision making process. So that's another consideration for this relationship.


The most sensible outcome is for Disney to tender most of its Sky stake at 17.28 pounds per share, and then keep $4-5 billion worth of Sky shares (around 10-12% of Sky) to trade for Comcast's 30% of Hulu.

I don't think you've proven your theory. It's not for me to disprove your out there theory that Hulu is worth 20-25B because it has 1/6 the customer base of Netflix. You use a lot of ifs and assumptions there, whereas I'm using actual data. I want to add that the burden of proof is on you.

People can say all kinds of weird theories, it's not up to me or anyone else to disprove it. Six Flags and Cedar Fair have ~1/5 the attendance of Disney, then they should be worth 1/5 of 150B that is equal to 30B, but they are worth 5.8B and 2.95B respectively. Your theory makes no sense, especially when we have data backing up the 8-11B valuation.

 

[Rodan75]

Those estimates were based on dividing up the value of Disney's offer to Fox among Fox's assets (if you're talking about the most recent valuation estimates); most other estimates of Hulu's valuation have been book value estimates.

Time Warner was invited to invest into the business taking an equal portion from the 3 owners at the book value/carrying value of Hulu because they were seen as a strategic media investor similar to the then 3 owners. i.e. They received a preferential deal because they were seen increasing the overall value of Hulu by providing content for their live streaming service.

If it was a hedge fund or a non-media business buying in, I could understand your point, but I don't think you've really disproven anything I said:

If Netflix was still a privately held company like Hulu or Uber or any other private company, it would probably be worth $60-80 billion in book value/carrying value. That has nothing to do with the fact that it currently has a $160 billion market capitalization.


The same applies to Sky which Comcast has offered $38.8 billion for its stock based on this auction situation and the bidding war. The book value or fair value of Sky is probably around $20 billion.

It's apples and oranges to compare Sky's public valuation to Hulu's private valuation. They are not remotely comparable numbers.


And the most important point: Comcast has significantly more power as a minority shareholder of Hulu than Disney would as a minority shareholder of Sky. Hulu was structured to give each of its 30% shareholders a couple of board seats and a say in the decision making process to determine how Hulu invests and makes strategic decisions. Yes, Disney will control the CEO of Hulu and a majority of the board, but Comcast has more rights than typical minority owners. There's also the fact that Comcast controls the NBC portion of content on Hulu and that will be up for renegotiation when the carriage deals lapse.

The reverse isn't true for Sky which is just a normal public corporation. Comcast will have more complete control of Sky once it takes 51+% of the shares and will be able to control the CEO and whole board and its future decision making process. So that's another consideration for this relationship.


The most sensible outcome is for Disney to tender most of its Sky stake at 17.28 pounds per share, and then keep $4-5 billion worth of Sky shares (around 10-12% of Sky) to trade for Comcast's 30% of Hulu.

I don't think you've proven your theory. It's not for me to disprove your out there theory that Hulu is worth 20-25B because it has 1/6 the customer base of Netflix. You use a lot of ifs and assumptions there, whereas I'm using actual data. I want to add that the burden of proof is on you.

People can say all kinds of weird theories, it's not up to me or anyone else to disprove it. Six Flags and Cedar Fair have ~1/5 the attendance of Disney, then they should be worth 1/5 of 150B that is equal to 30B, but they are worth 5.8B and 2.95B respectively. Your theory makes no sense, especially when we have data backing up the 8-11B valuation.

This discussion, is one of the main reasons I think they will treat the SKY and Hulu negotiations separately and paid for as discrete transactions vs being one large agreement. Publically it may all get announced together or announced as an agreement in principle, but likely they will be negotiated separately and money will flow in both directions, From Comcast to Disney Fox and from Disney Fox to Comcast. (technically there isn't any more negotiating to do for the price of the 39% of SKY, just timing)

 

[bartholomr4]

This discussion, is one of the main reasons I think they will treat the SKY and Hulu negotiations separately and paid for as discrete transactions vs being one large agreement. Publically it may all get announced together or announced as an agreement in principle, but likely they will be negotiated separately and money will flow in both directions, From Comcast to Disney Fox and from Disney Fox to Comcast. (technically there isn't any more negotiating to do for the price of the 39% of SKY, just timing)

Expect Comcast to start to report the number of shares tendered.... Comcast agreed to pay such a premium, I doubt it will be an issue for them, but the current shareholders of Sky (most of which are now hedge funds) need to tender 82% of their shares for Comcast to get to 51% (excluding the 21CF holdings). If any of them hold out, Disney/Fox all of the sudden get more leverage. Again likely a technicality but thought it was worth mentioning..

 

[Rodan75]

Expect Comcast to start to report the number of shares tendered.... Comcast agreed to pay such a premium, I doubt it will be an issue for them, but the current shareholders of Sky (most of which are now hedge funds) need to tender 82% of their shares for Comcast to get to 51% (excluding the 21CF holdings). If any of them hold out, Disney/Fox all of the sudden get more leverage. Again likely a technicality but thought it was worth mentioning..

great point. I can't imagine them now getting to the 51%, that premium and the fact that Stock is not in any way involved, should really make that choice easy. But as you say, it isn't a foregone conclusion.

 

[AnotherDayAnotherDollar]

This discussion, is one of the main reasons I think they will treat the SKY and Hulu negotiations separately and paid for as discrete transactions vs being one large agreement. Publically it may all get announced together or announced as an agreement in principle, but likely they will be negotiated separately and money will flow in both directions, From Comcast to Disney Fox and from Disney Fox to Comcast. (technically there isn't any more negotiating to do for the price of the 39% of SKY, just timing)

This will be similar to how Disney bought the 25% merchandise rights that Sony had and Sony bought out Marvel's participation in the movies. Basically Disney paid Sony 280MM + amended the contract to say they would pay 3.5% backend with certain limits and Sony paid Disney 100MM.

 

[happycamperuni]

I don't think you've proven your theory. It's not for me to disprove your out there theory that Hulu is worth 20-25B because it has 1/6 the customer base of Netflix. You use a lot of ifs and assumptions there, whereas I'm using actual data. I want to add that the burden of proof is on you.

People can say all kinds of weird theories, it's not up to me or anyone else to disprove it. Six Flags and Cedar Fair have ~1/5 the attendance of Disney, then they should be worth 1/5 of 150B that is equal to 30B, but they are worth 5.8B and 2.95B respectively. Your theory makes no sense, especially when we have data backing up the 8-11B valuation.

Six Flags and Cedar Fair are only comparable to one aspect of Disney's business (which accounts for somewhere around a third of its revenue and profits), and all 3 are public companies.

I could use Six Flags and Cedar Fair to provide valuation estimates for Disney or Universal's theme park business by comparing their relative attendances and ARPUs to divide the latter two from their parent companies.

We could look at Disney that has 5x the attendance of those 2 and generates at least 2-2.5x the ARPU and end up with a valuation for Disney parks somewhere around $50-70 billion (and you'd be right).


Netflix is a public streaming company whose non-streaming businesses are negligible in terms of earnings and they have 130 million subscribers of which the market applies a value of $160 billion to it. Netflix had $11 billion in 2017 revenue and $2 billion in negative cash flow. The market basically applies a relative value of $1200 per subscriber in the context of all of those numbers looking forward.

Hulu is nearly identical to Netflix in that it is also a streaming company whose non-streaming businesses are negligible in terms of earnings and they have 20 million subscribers. 2017 revenue for Hulu was around $2.4 billion (including $1+ billion in ad revenue as they publicly announced that), and Hulu had $920 million in negative cash flow.

Based on a valuation of $9 billion, Hulu would have a value around $450 per subscriber.

But Hulu generates more annual revenue per subscriber than Netflix: Hulu gets around $120 per subscriber whereas Netflix is at around $100 (currently).

The main reason Hulu is correctly valued less than Netflix is that Hulu is US-only and Netflix is available everywhere.

Okay let's untangle that: Netflix has 55 million US subscribers out of its total, and if we were to extract Netflix US from the whole company, we'd have to account for how much faster international is growing (even if less profitable per subscriber).

You probably end up fairly saying that Netflix US has 42% of current total subscribers, but in the future that will likely drop to around 25% over the next 10 years as international explodes. US subscribers are always going to be significantly more profitable (right now Netflix derives profit off US subscribers and losses on international).

Once international is profitable for Netflix, I can see Netflix deriving around 30-33% of its long-term profit from US streaming despite only having 25% of its subscribers in the US on a longer-term basis. Basically, 30-33% of its long-term $160 billion in value is coming from the US, which at the low end is $48 billion in market value from the $160 billion market capitalization.

Netflix's 55 million US subscribers is valued forward at $870 each.

Hulu's US subscriber base should be valued more than Netflix's because Hulu generates ad revenue off its subs (and Hulu is growing quicker in the US than Netflix which appears to be mostly tapped out).

So Hulu's $450 per subscriber valuation from the bankers is undervaluing it by 50% on a comparable market basis to how public markets value Netflix.

Either way, it's pretty clear that the market values Netflix much higher on a per subscriber basis than the various Hulu valuations that Disney/Fox and their bankers are using. You could say the market is too bullish on Netflix (I would agree). But at the same time, that's what a market price for Hulu would look like: somewhere around 2x what Disney's private bankers are telling it...

Of course, there might also be some gamesmanship here: Disney only owns 60% of the asset in question, so being extremely conservative in valuing it makes sense. You wouldn't expect Disney (or its bankers) to start telling everyone: hey this asset would be worth $18-20 billion if publicly traded, and we're looking to buy 40% of it...

 

[AnotherDayAnotherDollar]

Six Flags and Cedar Fair are only comparable to one aspect of Disney's business (which accounts for somewhere around a third of its revenue and profits), and all 3 are public companies.

I could use Six Flags and Cedar Fair to provide valuation estimates for Disney or Universal's theme park business by comparing their relative attendances and ARPUs to divide the latter two from their parent companies.

We could look at Disney that has 5x the attendance of those 2 and generates at least 2-2.5x the ARPU and end up with a valuation for Disney parks somewhere around $50-70 billion (and you'd be right).


Netflix is a public streaming company whose non-streaming businesses are negligible in terms of earnings and they have 130 million subscribers of which the market applies a value of $160 billion to it. Netflix had $11 billion in 2017 revenue and $2 billion in negative cash flow. The market basically applies a relative value of $1200 per subscriber in the context of all of those numbers looking forward.

Hulu is nearly identical to Netflix in that it is also a streaming company whose non-streaming businesses are negligible in terms of earnings and they have 20 million subscribers. 2017 revenue for Hulu was around $2.4 billion (including $1+ billion in ad revenue as they publicly announced that), and Hulu had $920 million in negative cash flow.

Based on a valuation of $9 billion, Hulu would have a value around $450 per subscriber.

But Hulu generates more annual revenue per subscriber than Netflix: Hulu gets around $120 per subscriber whereas Netflix is at around $100 (currently).

The main reason Hulu is correctly valued less than Netflix is that Hulu is US-only and Netflix is available everywhere.

Okay let's untangle that: Netflix has 55 million US subscribers out of its total, and if we were to extract Netflix US from the whole company, we'd have to account for how much faster international is growing (even if less profitable per subscriber).

You probably end up fairly saying that Netflix US has 42% of current total subscribers, but in the future that will likely drop to around 25% over the next 10 years as international explodes. US subscribers are always going to be significantly more profitable (right now Netflix derives profit off US subscribers and losses on international).

Once international is profitable for Netflix, I can see Netflix deriving around 30-33% of its long-term profit from US streaming despite only having 25% of its subscribers in the US on a longer-term basis. Basically, 30-33% of its long-term $160 billion in value is coming from the US, which at the low end is $48 billion in market value from the $160 billion market capitalization.

Netflix's 55 million US subscribers is valued forward at $870 each.

Hulu's US subscriber base should be valued more than Netflix's because Hulu generates ad revenue off its subs (and Hulu is growing quicker in the US than Netflix which appears to be mostly tapped out).

So Hulu's $450 per subscriber valuation from the bankers is undervaluing it by 50% on a comparable market basis to how public markets value Netflix.

Either way, it's pretty clear that the market values Netflix much higher on a per subscriber basis than the various Hulu valuations that Disney/Fox and their bankers are using. You could say the market is too bullish on Netflix (I would agree). But at the same time, that's what a market price for Hulu would look like: somewhere around 2x what Disney's private bankers are telling it...

Of course, there might also be some gamesmanship here: Disney only owns 60% of the asset in question, so being extremely conservative in valuing it makes sense. You wouldn't expect Disney (or its bankers) to start telling everyone: hey this asset would be worth $18-20 billion if publicly traded, and we're looking to buy 40% of it...

I appreciate the effort and you strengthening your argument. I really do. I appreciate the detailed breakdown that you gave here.

This doesn't prove Hulu is a 20-25B entity though and there are still a lot of assumptions there, but I can understand why you reached the conclusion you did. For example, Hulu adding more in ad revenue is pretty obvious since Netflix does not have an ad based option. Furthermore just because Netflix was able to get that huge userbase does not mean Hulu will (with or without Disney at the helm). That's not something you are taking into account. There's something to being first to market. Hulu is also on target to losing 1.5B in 2018

You wouldn't expect Fox (or their bankers and accountants) to sign off on a buyout that completely undervalues one of its key assets. That suggests Fox is leaving ~5B on the table. You also wouldn't expect DIS, CMCSA, and FOX to sign off 3 1/3 of their shares to TWX (T) at a 1/3 cost because of the latter bringing content to the platform (which never really came). I don't really buy it.

There's no gamesmanship (yet) because Disney has not publicly said they are interested in buying the extra 40%. They are not being conservative in valuing it to try to buy out Comcast, they valued it to buy out Fox. I don't think Fox would have let Disney pull a fast one on them if Hulu was really worth 20-25B.

 

[happycamperuni]

I appreciate the effort and you strengthening your argument. I really do. I appreciate the detailed breakdown that you gave here.

This doesn't prove Hulu is a 20-25B entity though and there are still a lot of assumptions there, but I can understand why you reached the conclusion you did. For example, Hulu adding more in ad revenue is pretty obvious since Netflix does not have an ad based option. Furthermore just because Netflix was able to get that huge userbase does not mean Hulu will (with or without Disney at the helm). That's not something you are taking into account. There's something to being first to market. Hulu is also on target to losing 1.5B in 2018

You wouldn't expect Fox (or their bankers and accountants) to sign off on a buyout that completely undervalues one of its key assets. That suggests Fox is leaving ~5B on the table. You also wouldn't expect DIS, CMCSA, and FOX to sign off 3 1/3 of their shares to TWX (T) at a 1/3 cost because of the latter bringing content to the platform (which never really came). I don't really buy it.

There's no gamesmanship (yet) because Disney has not publicly said they are interested in buying the extra 40%. They are not being conservative in valuing it to try to buy out Comcast, they valued it to buy out Fox. I don't think Fox would have let Disney pull a fast one on them if Hulu was really worth 20-25B.

The problem is that Disney and Comcast were making offers to Fox on the basis of Fox's stock price and then applying implied valuations later; that's why all of these numbers are "hocus pocus" in some sense, especially given that Disney is counting $42 billion of the $71 billion offer as goodwill/premium consideration along with $29 billion in fair value of assets.

Disney's original offer to Fox was on a basis of $28 (in Disney shares) for each Fox share for 2/3s of Fox's revenue producing assets and Sky/Hulu stakes. Comcast counter-offered at $35 in cash per Fox share, and then Disney won with an offer at $38 per share (split 50-50 cash and Disney stock).

You posted the bankers valuation providing fair value for the assets. Those values only added up to $29 billion and then the remaining $42 billion was goodwill.

That implies that Disney's offer was at a 144% premium to the fair value of the assets. Obviously, that doesn't mean every asset gets the exact same premium, but let's just look at the Sky stake as an example:

Disney values its Sky stake at $10 billion, but now has the chance to sell all or part at a $15 billion valuation; if they take a price like that, they'll scratch the $10 billion in fair value as well as $5 billion in goodwill/premium consideration from the balance sheet.

Same applies to Hulu; I don't see why you apply $0 of that goodwill to the 30% in Hulu. Even just giving the same premium that Comcast offered on Sky brings the 30% of Hulu an extra $1.2 billion in goodwill/premium consideration value.

We'll find out more when Disney sells the RSNs; if the value of those RSNs is nearer to $25 billion, then that's where a big chunk of the goodwill was from, but if the price is under $20 billion, considerably less so (since I'd estimate that the carrying fair value of the RSNs is around $10 billion).



One final point: even where losses are concerned, Hulu is somewhat unique in that much of its revenue (and thus losses) are going towards payments to its owners in exchange for content; yeah there are originals purchased from others, but most of its costs are from content to its parents. Hulu claimed losses of $920 million in 2017 and its 4 owners put in $1 billion of capital..., but then the 4 owners (especially Comcast, Fox, Disney) each probably received more from Hulu in terms of payments for content.

So it's one of those tricky "Hollywood accounting" scenarios that applies like how movie accounting works: i.e. does a movie studio lose money on a movie when it covers the cost of distribution and making the film but not P&A? That depends on how much of the P&A went to advertising on its own channels...; in some sense we see massive P&A numbers thrown around for movies without acknowledging just how much of that goes from one hand to the other. Simple example is Universal spending $5 million on an ad for Jurassic World on NBC during the Super Bowl, or how Disney advertises Marvel/Star Wars movies all over ESPN. Those count as costs on the movie, but they turn into ad revenue for the parent.

 

[seascape]

Because Comcast is overpaying for Sky, Disney should take their 15 billion and force Comcast to take on that additional debt. Comcast will be adding 48 billion in debt according to Bloomberg. Disney is adding about 50 billion but will then have Comcasts 15 billion plus another 15 to 20 billion from the sale of the RSNs. Thus the net new debt will between 15 and 20 billion. Disney will have cash to buy Hulu from Comcast should comcast want to sell but Disney will have the say on the price because they have no legal obligation or need to purchase it. Plus Comcast has indicated they want to see their 30% in Hulu so Disney should listen but insist on other assests they want to be included in any offer. As for paying anything over the 3.5 billion 30% is worth Comcast will have to give up something Disney really wants.

 

[the.dreamfinder]

Valuations aside, Netflix is a much more vulnerable company than is presented in the press. These are its two biggest weaknesses, not to be underestimated.

1. Price sensitivity: Netflix has been able to expand, historically, on account of its low price, compared to cable/premium cable. They successfully managed to increase their US price from $8/month to $10/month, with the assistance of a loyal consumer friendly grandfathering system. With 4K and their increasing original content budgets, as well as the debt that comes with it, more on that later, their streaming plans have become more fragmented with the goal of upselling subscribers to more expensive plans. However they have been looking to increase the total cost of a monthly subscription, even testing a more expensive tier in France to get subscribers to pay more for features they largely receive today. So, how high can Netflix raise prices before they lose subscribers, and their viewing data? We may have reached that tipping point in the US, when the price, before taxes, increased to $11/month. So, how much Netflix can raise prices globally will effect how agressively it can continue to be and its ability to start paying down its...
2. Debt: Netflix built out its Originals programming with cheap debt. They raised $1.5 billion in 2018, with an additional $6.5 billion outstanding. That’s not uncommon for a tech company trying to “disrupt” an existing field, see Tesla, Uber, to spend more than it makes to gain a monopoly in the field. However, Netflix is a media company with a strong core technical competency in a high risk/high reward field. No matter how much data they collect on their members, they are no different than their competitors. Who knows when the “tech company” sheen wears off, but they will have increasing obligations to meet their debt payments. Add to that the possibility of higher interest rates increasing the cost to borrow, Netflix is looking at a more difficult operating environment.

Note- Yes, Netflix first increased the price for streaming in 2011 when DVD and streaming were split, but the cost to a streaming only user didn’t change.

This is also why I’m skeptical of the need for these legacy media companies, like Disney/Fox, to consolidate because they are better positioned than Netflix long term, provided they invest in improving their technical competencies, which Disney was going to do anyway with Disney SVOD/ESPN+.

 

[CaptainAmerica]

Valuations aside, Netflix is a much more vulnerable company than is presented in the press. These are its two biggest weaknesses, not to be underestimated.

1. Price sensitivity: Netflix has been able to expand, historically, on account of its low price, compared to cable/premium cable. They successfully managed to increase their US price from $8/month to $10/month, with the assistance of a loyal consumer friendly grandfathering system. With 4K and their increasing original content budgets, as well as the debt that comes with it, more on that later, their streaming plans have become more fragmented with the goal of upselling subscribers to more expensive plans. However they have been looking to increase the total cost of a monthly subscription, even testing a more expensive tier in France to get subscribers to pay more for features they largely receive today. So, how high can Netflix raise prices before they lose subscribers, and their viewing data? We may have reached that tipping point in the US, when the price, before taxes, increased to $11/month. So, how much Netflix can raise prices globally will effect how agressively it can continue to be and its ability to start paying down its...
2. Debt: Netflix built out its Originals programming with cheap debt. They raised $1.5 billion in 2018, with an additional $6.5 billion outstanding. That’s not uncommon for a tech company trying to “disrupt” an existing field, see Tesla, Uber, to spend more than it makes to gain a monopoly in the field. However, Netflix is a media company with a strong core technical competency in a high risk/high reward field. No matter how much data they collect on their members, they are no different than their competitors. Who knows when the “tech company” sheen wears off, but they will have increasing obligations to meet their debt payments. Add to that the possibility of higher interest rates increasing the cost to borrow, Netflix is looking at a more difficult operating environment.

Note- Yes, Netflix first increased the price for streaming in 2011 when DVD and streaming were split, but the cost to a streaming only user didn’t change.

This is also why I’m skeptical of the need for these legacy media companies, like Disney/Fox, to consolidate because they are better positioned than Netflix long term, provided they invest in improving their technical competencies, which Disney was going to do anyway with Disney SVOD/ESPN+.

IMO, Netflix needs better content. Stranger Things is their only "must see" show. They need more anchor programs or they're going to end up like HBO does the second the series finale of Game of Thrones goes off air.

 

[bartholomr4]

Expect Comcast to start to report the number of shares tendered.... Comcast agreed to pay such a premium, I doubt it will be an issue for them, but the current shareholders of Sky (most of which are now hedge funds) need to tender 82% of their shares for Comcast to get to 51% (excluding the 21CF holdings). If any of them hold out, Disney/Fox all of the sudden get more leverage. Again likely a technicality but thought it was worth mentioning..

As a follow-up From Reuters this morning Comcast has already started to buy Sky Stock in the open Market.

LONDON (Reuters) - Comcast (CMCSA.O), the victor in the $40 billion (£30.5 billion) auction for Sky (SKYB.L), said on Tuesday it had bought more than 30 percent of the European pay-TV group's shares in the market.
Crossing the 30 percent threshold means that the U.S. cable company must offer to buy out other investors at the formal offer price of 17.28 pounds per share, valuing Sky at around 30.6 billion pounds.

 

[AnotherDayAnotherDollar]

I do wonder if Fox tenders their share or if Disney (or Fox) acquires 30% of Hulu from Comcast how that would work and affect the acquisition process. The DOJ approved under those specific conditions.

 

[ABQ]

IMO, Netflix needs better content. Stranger Things is their only "must see" show. They need more anchor programs or they're going to end up like HBO does the second the series finale of Game of Thrones goes off air.

No kidding, when I can't get to sleep, I just turn on Stranger Things and try for the 3 thousandth time to maybe get through the first season of that boredom. That's when it's must see for me. Maybe it gets better, but I just can't grind through that. Sorry, back on topic.

 

[seascape]

I do wonder if Fox tenders their share or if Disney (or Fox) acquires 30% of Hulu from Comcast how that would work and affect the acquisition process. The DOJ approved under those specific conditions.

It would have no affect on the Fox merger and since that would give Disney control over Hulu shpuld have no problem getting approved.

 

[Indy_UK]

Would Disney have not been in a stronger position by not splitting all their content into separate Apps?

I understand they want to offer discount for taking out multiple services but wouldn't it have bolstered their content far more to say, put all the content from Hulu and the Disney service in one app and separate the content by the menus, bit like Netflix having a kids section.

Disney owning their own content will make it far easier to roll out that service worldwide but Hulu would be much more difficult with different content providers

 

[Twilight_Roxas]

IMO, Netflix needs better content. Stranger Things is their only "must see" show. They need more anchor programs or they're going to end up like HBO does the second the series finale of Game of Thrones goes off air.

There's also the Marvel shows, Dreamworks animation, the upcoming series Chiling Adventures of Sabrina, and the renewed fourth season of Lucifer.

 

[Rodan75]

Would Disney have not been in a stronger position by not splitting all their content into separate Apps?

I understand they want to offer discount for taking out multiple services but wouldn't it have bolstered their content far more to say, put all the content from Hulu and the Disney service in one app and separate the content by the menus, bit like Netflix having a kids section.

Disney owning their own content will make it far easier to roll out that service worldwide but Hulu would be much more difficult with different content providers

I think we are all speculating on what Disney plans to do with Hulu. I imagine, you are correct, that until Hulu has more originals than off-network purchases, it is going to remain primarily in the US. The new DisneyPlay/Life/Flix service will likely launch in at least a couple of territories outside of the US. They already have experience with the Life app in a number of countries that should just be converted and re-energized as the new service.

My suspicion is that Disney isn't really just waiting for their Netflix content deal to expire, they are also trying to ensure that they can launch the service across the largest number of international markets possible.

I wonder if they would have more success if they launched the FX+ service internationally instead of Hulu? I guess that would depend on how much of that content is already licensed in other territories.

 

[CaptainAmerica]

Would Disney have not been in a stronger position by not splitting all their content into separate Apps?

I understand they want to offer discount for taking out multiple services but wouldn't it have bolstered their content far more to say, put all the content from Hulu and the Disney service in one app and separate the content by the menus, bit like Netflix having a kids section.

Three reasons.

1. For the sports product, being "Live" matters. ESPN+ will always be fundamentally different than the Disney and Hulu products for that reason.

2. The Disney content is ready to go now. The Hulu product won't be ready until Fox closes, which has always had a foggy timeline that Disney can't really control.

3. You gain more subs by offering each product at a lower price. I'll gladly pay $5 for ESPN+ and $10 for Disney+, but I wouldn't pay $25 for ESPN+Disney+Hulu because I don't care about Hulu.

Disney owning their own content will make it far easier to roll out that service worldwide but Hulu would be much more difficult with different content providers

Hulu is fundamentally two distinct products. Hulu VOD is the Netflix competitor and Hulu Live TV is the streaming multichannel package. Hulu VOD is the one that's going to be fed primarily from the "adult Disney" studios. Hulu VOD: Powered by FX.

 

[Rodan75]

Valuations aside, Netflix is a much more vulnerable company than is presented in the press. These are its two biggest weaknesses, not to be underestimated.

1. Price sensitivity: Netflix has been able to expand, historically, on account of its low price, compared to cable/premium cable. They successfully managed to increase their US price from $8/month to $10/month, with the assistance of a loyal consumer friendly grandfathering system. With 4K and their increasing original content budgets, as well as the debt that comes with it, more on that later, their streaming plans have become more fragmented with the goal of upselling subscribers to more expensive plans. However they have been looking to increase the total cost of a monthly subscription, even testing a more expensive tier in France to get subscribers to pay more for features they largely receive today. So, how high can Netflix raise prices before they lose subscribers, and their viewing data? We may have reached that tipping point in the US, when the price, before taxes, increased to $11/month. So, how much Netflix can raise prices globally will effect how agressively it can continue to be and its ability to start paying down its...
2. Debt: Netflix built out its Originals programming with cheap debt. They raised $1.5 billion in 2018, with an additional $6.5 billion outstanding. That’s not uncommon for a tech company trying to “disrupt” an existing field, see Tesla, Uber, to spend more than it makes to gain a monopoly in the field. However, Netflix is a media company with a strong core technical competency in a high risk/high reward field. No matter how much data they collect on their members, they are no different than their competitors. Who knows when the “tech company” sheen wears off, but they will have increasing obligations to meet their debt payments. Add to that the possibility of higher interest rates increasing the cost to borrow, Netflix is looking at a more difficult operating environment.

Note- Yes, Netflix first increased the price for streaming in 2011 when DVD and streaming were split, but the cost to a streaming only user didn’t change.

This is also why I’m skeptical of the need for these legacy media companies, like Disney/Fox, to consolidate because they are better positioned than Netflix long term, provided they invest in improving their technical competencies, which Disney was going to do anyway with Disney SVOD/ESPN+.

You make great points here. The trick with Netflix (and to a certain degree Amazon) is that there is only a limited amount of time before they start to get treated like regular companies with regular wall street and bank requirements. When that happens Netflix is going to have to invest in paying down debt, not new programming...and the big 'what if' is if they can maintain their customer base if they aren't releasing originals 3x a week.

In my opinion the value to Netflix's original content library is actually devaluing itself pretty quickly, because Netflix is aging it rapidly by releasing more content too often. The Netflix bubble will burst.