If you’ve been paying attention, Disney ($DIS) has had a couple rough days in the news. First, news broke via The Information that Comcast ($CMCSA) were not happy with Disney for abandoning their global Hulu rollout plans last summer and instead launching a 6th brand tile on Disney+ in most regions called “Star” to house the “mature” titles that would have been on Hulu. Disney did this to save money because the pandemic, coupled with the recent 70 billion dollar purchase of Twentieth Century, left them hurting. They also did this to keep Hulu’s value from rising too far.
In 2024, Disney is on the hook to buy Comcast’s 33% share of Hulu and it’s already going to cost them a minimum of $5.8 billion dollars. Comcast is wise to Disney’s game and tensions are rising. Not only that, but Hulu’s subscriber numbers have doubled from roughly 20 to 40 million in the past 2 years since they set that initial “floor” value and they believe they’re already entitled to a much higher floor value in 2024, currently between 9 and 13 billion.
As I’ve said since summer 2019, Disney shouldn’t have bought into Hulu. It’s never a smart idea to enter a deal like they did and it always sounded as if Comcast was the one winning. Comcast is the same company that drove the price of Fox up 20-30 billion beyond its value in that bidding war. Bob Bakish (Comcast CEO) has been schooling Disney for the past 5 years.
Disney’s choice to split their library between two services was anti-consumer and a bad business decision. Analysts last year were calling for a merger of Disney+ and Hulu and were not pleased when Disney announced they were basically doing that… everywhere except the United States. The news that Comcast and Disney are squabbling over a new “floor” value for Hulu in the same year that Disney has to renegotiate a new carriage deal for their television stations has me wondering if we could see big changes soon. One possibility, however unlikely it may be, is that Disney puts down the UNO Reverse Card and Comcast ends up buying Hulu instead of Disney. As much as that sounds unrealistic, per Bloomberg, in early 2020 as they were preparing to launch Peacock, Comcast actually did approach Disney about buying Hulu. Disney turned them down.
I have a feeling Disney regrets that decision today.
The successful launch of the Star brand tile (more on that soon) and Chapek’s claim that it has lead to a reduction of churn on Disney+ shows that Disney did not and does not need Hulu.
Another possibility is this new frustration leads to unfavorable results in Disney’s carriage negotiations and they end up shutting down some linear channels (like they’re doing internationally). They could attempt to quell Comcast’s anger by repeating a trick they did in 2006 when they offloaded their 40% share of E! Network to Comcast during a previous set of carriage talks. Disney’s half-ownership of A&E Networks (including Lifetime, History, FYI and Vice) seems like a great candidate to use as bartering chips. Disney doesn’t leverage these brands on Hulu or Disney+ so they feel superfluous.
Hulu makes great money via ad revenue which makes it an attractive short-term deal, but long-term its future is not bright. It is relatively close to a subscriber plateau. There is only so much market in America for streamers. The winning bet is Netflix, Disney+, and HBO Max are the 3 to survive with Paramount+ a dark horse. iCarly making waves would be a delicious taunt in the wake of Disney’s Lizzie McGuire, Love Victor, and High Fidelity debacles. Hulu also was losing 2 billion a year until just recently.
The only reason its subscriber numbers have bumped up is because unsavvy consumers subscribing to Disney+ have been swindled into purchasing the ESPN+, Disney+, and Hulu bundle cuz “why not?” 😜
A Comcast-owned Hulu would be the best for both parties and allow a merger with the poorly-named Peacock. Eliminating one of the many recently launched streaming services would be a victory for cord-cutters exhausted with the expansion in the past 36 months. Plus, Comcast gains roughly 40 million subscribers, leaps in front of Paramount+, and suddenly is a real player with the ability to go global using Hulu’s brand.
Okay, but what about the other bad news?
Lions Gate Entertainment Corporation issued multiple lawsuits from multiple countries accusing Disney of creating market confusion and infringing on their brand by renaming their international Fox channels “Star,” launching a 6th brand tile internationally called “Star” to house mature titles a la Hulu, and planning to launch a separate service in Latin America called Star+ which would basically be Hulu and ESPN+ smashed together. Whew.
So, first of all. Lions Gate ($LGF) is right…
I’ve witnessed a surprising amount of people who think Star is Starz. On Reddit and Twitter I’ve corrected numerous people asking questions such as, “when does America get the Starz titles?” or, “why didn’t Disney merge Starz and Disney+?” The TV channel Star has existed in India for many years. Disney acquired it in their purchase of Fox and decided to rebrand Fox channels internationally as Star to get away from the “Fox News” associations. Rolling the channel out to more international territories like Latin America is indeed confusing to customers.
However, I think biggest issue is the streaming services. StarzPlay and StarPlus are nearly identical when written out. Disney has a massive hold on every market – do you really think Lions Gate is gonna thrive in these conditions? Disney should lose this battle. I (along with many others) were shocked last December when Disney announced they were using the STAR name since STARZ is… a thing. I guess they just thought Lions Gate would stay quiet…?
Star+ was originally set to be launched in June and at their Q2 Earnings Call in May Bob Chapek explained why the promotion hadn’t started – launch had been postponed until August 31 to “lineup with the fall sports season.” At the time I knew it was PR spin. This is the reason Star+ was delayed. These lawsuits are heating up now but Starz challenged Disney’s attempt to trademark Star as far back as April.
It would not make sense for Disney to launch a new service then be forced to rename it shortly after. It would also be seen as aggressive to launch the service using the name while under litigation. Despite many Latin American subscribers angry about Star+ and wanting the same service other countries received with Star as a 6th Disney+ brand tile, the odds of Disney scrapping their plans are slim to none. They’re too far in and too proud.
More likely, they have an alternative name ready (Touchstone+?) and are hoping to resolve this by July 1st so they can start promoting their new service under whatever name they can use. If they lose the rights to use the name this way their 6th brand tile in other countries would likely undergo a name change too. We’ll know more soon. Disney must respond by Monday, June 14th.
Disney wins a lot of cases in court with regards to trademark and copyright but I think there are two likely outcomes here – they pay damages to Lions Gate but get to keep the name or they rebrand. It’s also possible they rebrand in some markets but not all. This would create more difficulties for Disney which is already operating numerous confusing brands such as Disney+, Disney+ Star, and Hotstar, so I don’t think this is likely. I’m curious if they could use their Hotstar brand in place of Star which would actually create less confusion for both Disney AND Lions Gate.
Disney is backed against a wall and may need to cut their losses and get out of Hulu before it bites them even harder. They may have to reconsider their international General Entertainment plans.
My advice? Get out of Hulu. Get rid of A&E, Lifetime, History, Vice, and FYI. Let Comcast have them.
Rebrand Star+ in Latin American as ESPN+. Add the non-sports titles to Latin America and Brazil’s Disney+ under a 6th brand tile – just like the rest of the world. Rebrand that 6th tile from Star to Hotstar or Touchstone globally. Launch that 6th brand tile in USA and move your Disney-distributed titles from Hulu over once Comcast takes the reigns.