The content business is an expensive game.
This was evident on Disney’s latest earnings call, when CFO Christine McCarthy shared the entertainment giant expects more than $250 million in equity losses on Hulu — a major jump from the $100 million in losses the company had previously forecasted.
McCarthy pointed to licensing costs when talking about the mounting losses on the company’s Q1 call on Tuesday… but much of it will get funneled back into Disney, since Hulu pays to license its shows.
“As one of the equity owners, our portion of these incremental costs will largely be recouped by ABC’s program sales, as well as affiliate revenues to some of our various networks,” McCarthy said.
CEO Bob Iger added Hulu is “ramping up their volume” on programming as another cost, and singled out Emmy-winner “The Handmaid’s Tale” as a sign its paying off.
Disney owns a one-third stake in Hulu, which will rise to two-thirds if its Fox deal goes through this year. It’s unlikely Hulu will become Disney’s standalone streaming service, which it plans on launching in 2019, if the deal closes.
Doing the math, with Disney expected to drop $250 million on Hulu, the streaming service’s overall losses for 2018 project to be more than $800 million.
BTIG analyst Rich Greenfield noted the accelerated rate of Hulu’s losses on Twitter following Disney’s Q1 report. Factoring in its anticipated $800 million in losses this year, Greenfield showed Hulu’s total losses reaching $1.6 billion by Sept. 2018.
Disney $DIS on Q1 call says their 30% share of Hulu losses in fiscal September 2018 will rise 112% — yields all-in @Hulu losses of nearly $1.6 billion 👀 👇 pic.twitter.com/fePkLSNCNS
— Rich Greenfield, LightShed 🔦 (@RichLightShed) February 7, 2018