The long-awaited Sky auction is over and Comcast has won (at least provisionally—the deal still needs to be approved by Sky’s shareholder.). That wasn’t a huge surprise though, as most were betting on Comcast to do whatever it took to win. That might not make their shareholders happy—the final price was quite steep—but CEO Brian Roberts is justifying it as current pain for future gain.
There are a lot of positives for Comcast in that win. Sky has a sizable presence in Europe, with outlets in the U.K., Germany, Italy, Ireland and Spain, plus English Premier League rights (think NFL + NBA), plus Now TV, a successful vMVPD (virtual multichannel video programming distributor) and a free wifi service named Cloud.
For anyone who has dreams of taking on Netflix , having an overseas presence is a must, and Sky gives Comcast a major overseas presence along with a way to potentially distribute all of the NBCU content they own.
So that’s the upside. The potential downside is that satellite providers haven’t exactly been on the upswing, at least not in the U.S., where Dish has been shedding subscribers faster than other MVPDs and AT&T seems intent on moving its Direct TV subscribers over to its DirecTV Now vMVPD service.
Satellite transmissions still face weather problems, aesthetic problems (dishes on rooftops) and, most important, don’t come with a broadband service that can be used to create stickiness via a double or triple play package. That all seems to be less of an issue in Europe where competition between multiple broadband providers combined with stricter government regulations keeps pricing competitive, but it’s a cloud on the horizon nonetheless.
There’s also that pesky 39% of Sky that Fox /Disney still owns, which many analysts are betting that Disney will sell to Comcast to help recoup all the money they wound up spending on Fox. (Disney wound up paying $71.2 billion for Fox, far more than their original offer of $52.4 billion.)
And then there’s Hulu.
The Hulu Conundrum
Hulu is owned by three different parties. Disney owns 60% (they picked up Fox’s 30%), Comcast owns 30% and AT&T (via Time Warner ) owns 10%.
The seemingly logical play here would be for Disney to buy out Comcast and AT&T and use Hulu as the base for their upcoming app geared to the 18 and older market, folding ESPN+ into it as well, to create a more compelling offering.
That’s what many of us thought would happen, but then Bob Iger said no, the two OTT apps (kids and adult) that Disney was developing would be separate from both Hulu and ESPN+, and while he was committed to all four apps, he would consider bundling some combination of them together.
That statement confused a lot of us, as it’s unclear what the differentiator between Hulu and the adult Disney app will be. Will Hulu, as some have suggested, be the home of shows that are off-brand for Disney, like The Handmaid’s Tale and much of FX’s current programming? (e.g., Mayans M.C.) Will it be a way for Disney to get into the vMVPD game (Hulu Live TV already has over one million subscribers, myself included) and use that as part of a bundle with the new OTT apps and ESPN+?
It’s just that all of those possibilities sound like Disney finding a way to make lemons into lemonade rather than a plan they would have come up with on their own.
The Comcast Angle
That’s why the reverse solution actually makes much more sense. Disney already has two OTT app products it needs to figure out (three if you count ESPN+) but Comcast has none. They desperately need one, given the head start that both CBS and Disney have on them in that department. Hulu could be that app.
NBCU has a lot of content because NBCU owns a lot of networks. (What they actually have rights to is another story, but for purposes of this argument, let’s assume they have rights to a lot of what they show.) SyFy, Oxygen, Bravo, Telemundo, USA Network and Cloo are all NBCU channels, along with CNBC, MSNBC, NBC and NBC Sports. Then there’s Universal Kids (formerly known as Sprout) and, of course, Universal Pictures, which also includes DreamWorks.
That’s a lot of diverse programming that Hulu can draw from, especially if it’s bundled with Hulu Live TV.
And that’s not even the main reason Hulu makes so much sense for Comcast.
No, the main reason is that Comcast is one of the nation’s premier providers of broadband internet with more than 25 million customers.
Combine that base with a solid vMVPD offering (and Hulu Live TV is very solid), throw in double play (TV + broadband) packages to increase stickiness along with high quality original programming like Handmaid’s Tale and Castle Rock, and you’ve got what could be a very winning combination.
The sort of very winning combination you could, if you wanted, move to Europe and combine with Now TV (Sky’s existing vMVPD) to create an even stronger offering. One that could offer up a real challenge to Netflix.
So there’s all of that, and it’s pretty compelling, especially if you’re got global ambitions.
The real question then, is where is Disney’s head at in terms of this whole equation? Are they thinking that letting Comcast have Hulu could turn them into a serious threat? Or are they thinking that letting Comcast pay billions for Hulu could seriously help resolve their cash flow issues?
Either is possible, along with some combination of the two, but the ultimate fate of Hulu will be the final and most important twist to what is already one of the industry’s biggest and most unpredictable stories.
More Info: forbes.com