After making an initial payment of $8.6 billion to purchase Comcast’s 33% minority stake in Hulu back in December, Disney might have to pay up to $5 billion more to complete the buyout pending the outcome of a current appraisal process to determine the streaming service’s fair market value.
In November, NBCUniversal exercised its right to require Disney to purchase the stake, with Disney setting a guaranteed floor value of $27.5 billion. But the two parties have disagreed on Hulu’s fair value, prompting them to enter into arbitration.
Disney revealed in a 10-Q filing on Wednesday that during an initial third-party appraisal process, the company’s appraiser arrived at a valuation that fell below the guaranteed floor value, while NBCU’s appraiser arrived at one “substantially in excess” of the guaranteed floor value.
Comcast CEO Brian Roberts has previously touted Hulu as a “scarce kingmaker asset” and said that all of its synergies alone could be worth $30 billion before ascribing value to Hulu itself.
In May, the two parties entered into a confidential arbitration to resolve the dispute and seek “declaratory relief, equitable relief and unspecified damages” with a decision expected in fiscal 2025.
Per the companies’ agreement, if the two appraisers’ valuations are not within 10% of each other, the investment banks enlisted would select a third firm to make another determination in which the equity fair value would be the average of the two figures that are closes in value to each other.
If NBCU’s appraisal were “deemed to be valid” and the third appraiser’s equity fair value determination is consistent with that valuation, Disney expects to pay an additional amount of approximately $5 billion as its share of the difference between the equity fair value and the guaranteed floor value. If the third appraiser’s valuation is between Disney and NBCU’s appraisers, the incremental amount would “likewise be between zero and approximately $5 billion.”
“The outcome of the arbitration is uncertain and we cannot reasonably estimate the impact of the arbitration on the appraisal process, and thus any impact on the determination of Hulu’s equity fair value and any additional amount we may be required to pay to acquire NBCU’s interest in Hulu,” Disney added.
Under the previous terms of the agreement set back in 2019, Disney will share 50% of the future tax benefits from the amortization of the purchase of NBCU’s interest in Hulu with Comcast, with payments expected to be made over a 15-year period.
Hulu reported a total of 51.1 million subscribers in the third quarter of 2024, up 2% from 50.2 million in the previous quarter. That figure included 46.7 million SVOD-only subscribers, an increase of 900,000, and 4.4 million Hulu + Live TV subscribers, a decrease of 100,000. Hulu SVOD-only average revenue per user grew 8% to 12.87, while Hulu + Live TV ARPU grew 1% to $96.11, both driven by higher ad revenue.
In March, the Disney+ Hulu combo app exited its beta, which allows bundle subscribers to access a Hulu tile on Disney+ alongside Pixar, Marvel, Star Wars and National Geographic. Hulu content can also be viewed through Disney+’s “hero carousel,” in recommendations, sets and collections, their watchlist and the search function.
Starting Oct. 17, the price of Hulu with ads will climb to $9.99 per month, or $99.99 per year, from $7.99 per month, or $79.99 per year, while ad-free Hulu will go up to $18.99 per month from $17.99 per month. Hulu + Live TV will increase to $82.99 with ads and $95.99 without ads, up from $76.99 per month and $89.99 per month, respectively. The Duo Basic bundle will increase to $10.99 per month for ad-supported Disney+ and Hulu from $9.99 per month, while the Duo Premium bundle, which offers the two services ad-free, will remain $19.99 per month.
On Wednesday’s earnings, Disney touted its first-ever combined streaming profit across Disney+, Hulu and ESPN+, recording a profit of $47 million in its third quarter of 2024, compared to a loss of $512 million in the prior-year period. The milestone came a quarter ahead of the company’s previous guidance.
Entertainment DTC, which includes Hulu and Disney+, narrowed its operating loss by 96% year over year to $19 million, while ESPN+ reported a profit of $66 million, compared to a loss of $7 million a year ago.
“We remain on track for the profitability of our combined businesses to improve in Q4, with both Entertainment DTC and ESPN+ expected to be profitable in the quarter,” the company said in its earnings release. “We continue to feel optimistic about our trajectory, with multiple building blocks for improving margins over the coming years.”
