Disney (NYSE:DIS) finds itself in the midst of a high-stakes valuation dispute over its ownership of Hulu, which could result in the company owing an additional $5 billion to Comcast’s NBCUniversal. This potential financial obligation has sparked concern among investors, further complicating Disney’s efforts to fully acquire the popular streaming platform.
The Hulu Valuation Dispute
The root of the issue lies in the valuation of Hulu, a streaming service that Disney and Comcast have jointly owned for years. In 2019, Disney agreed to acquire Comcast’s 33% stake in Hulu, setting a minimum guaranteed value for the platform at $27.5 billion. Last year, Disney announced it would pay Comcast $8.61 billion for its stake, based on that guaranteed valuation. However, recent developments suggest that the final cost could be much higher.
In a recent SEC filing tied to Disney’s third-quarter earnings, the company disclosed that it might have to pay an additional $5 billion for Hulu. The reason? A disagreement over Hulu’s actual market value. Disney’s third-party appraiser valued Hulu below the $27.5 billion floor, while NBCUniversal’s appraiser arrived at a significantly higher valuation, well above the guaranteed amount.
The Arbitration Process
To resolve this discrepancy, the two companies have entered a confidential arbitration agreement, with a third appraiser brought in to determine Hulu’s true market value. This third appraiser’s decision could have three possible outcomes:
- Valuation at or below $27.5 billion: If the third appraiser’s valuation aligns with Disney’s appraiser and is equal to or below the guaranteed floor value, Disney would not owe Comcast any additional money.
- Valuation in line with NBCUniversal’s assessment: If the appraiser’s valuation supports NBCUniversal’s higher estimate, Disney could be on the hook for an additional $5 billion to cover the difference.
- Valuation between the two appraisals: If the third appraiser’s valuation falls between the two estimates, Disney may still be required to pay an incremental amount, which could range from zero to approximately $5 billion.
Disney expects a final decision during its fiscal 2025, which begins in October. However, the company noted that the outcome of the arbitration is uncertain, and it cannot reasonably estimate the impact on the final determination of Hulu’s equity value or the potential additional payment required.
Strategic Implications for Disney
The potential $5 billion payment adds another layer of complexity to Disney’s already challenging financial landscape. Disney CEO Bob Iger has long been a proponent of fully
acquiring Hulu, viewing it as a critical component of the company’s direct-to-consumer streaming strategy. Hulu, with its more mature content offerings, complements Disney’s family-friendly Disney+ service, providing a broader range of options for consumers and more flexibility in bundling services.
Hulu, which boasted over 51 million subscribers as of July, hosts some of the most popular streaming content, including critically acclaimed shows like “Only Murders in the Building,” “The Handmaid’s Tale,” and “The Dropout.” The platform has also been a contributor to Disney’s recent streaming profitability, with the company posting an operating income of $47 million in its DTC segment for the third quarter, a significant turnaround from the $512 million loss reported in the same period last year.
The Future of Hulu and Disney’s Streaming Ambitions
Despite the potential financial burden, Disney remains committed to Hulu as a cornerstone of its streaming strategy. The company’s success in turning a profit in its streaming division, which includes Disney+, Hulu, and ESPN+, underscores the importance of Hulu in achieving long-term profitability in the increasingly competitive streaming market.
However, the valuation dispute with NBCUniversal highlights the challenges Disney faces as it seeks to fully integrate Hulu into its broader portfolio. With the arbitration outcome still uncertain, the potential $5 billion payment looms large, and investors will be closely watching how this development impacts Disney’s financial health and strategic direction.
In the meantime, Disney continues to push forward with its plans for Hulu, including upcoming content releases and potential price hikes, as it navigates the complex dynamics of the streaming industry and its ongoing negotiations with NBCUniversal.
Featured Image: Pixabay © HenningE