Comcast's $39 billion bid for Sky throws uncertainty on the future of Hulu, Disneyflix, and Now TV

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Comcast offered the winning bid for British broadcaster Sky over the weekend, besting the offer from Disney/Fox.
Now, the industry looks to see what will become of Comcast's stake in Hulu.
Hulu, a US streaming service with 20 million subscribers, shares ownership three ways: 60% Disney/Fox, 30% Comcast, and 10% AT&T.
Analysts are split over the question of Comcast selling or retaining its 30% Hulu stake.

Comcast and Disney traded victories all summer in the fight for Murdoch-owned media content and European pay-TV subscribers.

While Disney won 21st Century Fox assets for $71 billion, Comcast will likely take British broadcaster Sky for $39 billion. That latest victory again pits the media behemoths against each other over the future of streaming.

Hulu, a US streaming service with 20 million subscribers, shares ownership three ways: 60% Disney/Fox, 30% Comcast, and 10% AT&T. Analysts are split over what will become of Comcast's stake in Hulu.

Comcast might try and block a Disney-branded platform

Comcast intends to hold onto Hulu, a source familiar with the matter told Business Insider. And Comcast is barred by the British Takeover Panel from making any side deals to trade the Hulu stake for the 39% of Sky that Fox already owned.

Still, unnamed sources told CNBC on Sunday that Comcast was willing to discuss a sale of Hulu to Disney. Some analysts find such a sale hard to understand.

"We have a hard time understanding why Comcast would want to enable Disney to have near full control of an entity with over 20 million direct-to-consumer (DTC) subscribers that could accelerate Disney’s DTC ambitions, to the direct detriment of Comcast," BTIG analyst Rich Greenfield wrote in a note . "We suspect Comcast is highly likely to stay invested in Hulu and to prevent it from becoming a Disney-branded DTC platform."

Disney has already begun work on its own OTT service, dubbed Disneyflix by the industry, that it hopes will be a competitor to streaming giant Netflix. Disneyflix is expected to launch at the end of 2019 and include newly-acquired content from Fox, as well as Disney classics. And Disney's direct-to-consumer sports streaming service ESPN+ has been increasing subscribers since its April launch.

Disney could roll all of its content into a single streaming platform: Hulu. But enriching Hulu's content also means its competitors — Comcast and AT&T — benefit, an outcome that is surely less than ideal for Disney.

If Comcast chooses to stay a minority stakeholder in Hulu, it forces Disney to continue on its two-path solution with Hulu and Disneyflix as separate entities, according to Greenfield. "With only 30% ownership of Hulu, Comcast can frustrate Disney and continue to benefit from Hulu buying Comcast/NBC content and licensing NBC live channels (boosting revenues), while Hulu losses show up as a minority interest below the line," Greenfield wrote.

Comcast might sell-off Hulu to avoid competing with Now TV

But a Hulu platform, with majority ownership from Disney, would also directly compete with Comcast's newly-acquired Now TV, Sky's OTT platform, leading some analysts to predict Comcast will sell-off its Hulu stake.

"Comcast may divest its stake in Hulu given it will now have its own Now TV platform and would likely have no interest in feeding its content to a direct competitor to both sides of its business," according to a research note by Cowen analysts.

In the US, Comcast has dabbled with other OTT streaming platforms, but hasn't yet found success. NBC shuttered its comedy streaming service Seeso last year, and couldn't get the app Watchable off the ground.

Comcast might focus on a global Netflix challenger, building out Now TV, which already has a strong content portfolio with exclusive rights to run HBO shows like "Game of Thrones" and "Westworld" across Europe. It also has the majority of Premier League TV rights and exclusive rights to the German Bundesliga.

Either way, Comcast and Disney still end up unhappy

In the end, the decision will come down to financials, according to Alex DeGroote, an independent media analyst. And Comcast's 30% equity stake in Hulu will fetch $3 billion.

"Hulu is loss making and Comcast cannot compete with Netflix in terms of programming budgets in US streaming market," DeGroote said in an email to Business Insider. "Comcast has placed its chips on Sky and European expansion and it cannot realistically develop/fund Hulu as well, which is relatively immature."

Though Hulu doesn't report its financial figures, some estimates place its annual loses in the neighborhood of $1.5 billion. And while Hulu has 20 million US subscribers, that still pales in comparison Netflix's more than 130 million subscribers worldwide.

DeGroote said he expects Disney to acquire Comcast's Hulu stake, "though neither Disney nor Comcast is fully content with the outcome."

"Comcast wants Hulu but can't have it, Disney wants Sky, but can't have it," he said.

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