Disney has begun testing a combined Disney+ and Hulu app, as the company takes full control of the latter streaming service. Apart from allowing subscribers to watch High School Musical: The Musical: The Series and High Fidelity (the series) in one place, how will the takeover impact the streaming landscape?
The entertainment giant has held majority control of Hulu since 2019, and this month announced it would acquire the remaining one-third stake from Comcast for an estimated $8.61 billion. And the company is looking to free up around $8 billion in 2024 via cost-cutting measures, having axed 8,000 jobs this year and cut its content spending.
But last week’s earnings revealed that Disney’s streaming division is still losing money, albeit at a lesser rate than in previous years. The D2C segment (which includes Disney+, Hulu, ESPN+ and Disney+ Hotstar) lost $387 million during the latest quarter, a 74 percent reduction year-on-year. And Hulu represents a healthy revenue stream for the business, generating $10.7 billion in 2022.
The Mighty Bucks
The deal also steps up Disney’s positioning as an ad-funded streaming business. Last month, the company revealed that half the new subscribers on Disney+ are choosing the ad-supported tier, adding 5.2 million customers in the latest quarter. This brings the ad-receptive base more in line with Hulu, where over 90 percent of subscribers are on the ad-supported plan, according to Ampere Analysis.
And having launched as an AVOD offering, advertising is in Hulu’s DNA. “Hulu is already considered by many to be the gold standard in domestic AVOD,” comments Brandon Katz, Entertainment Industry Strategist at Parrot Analytics. Given that entrenched ads business, Hulu’s monthly average revenue per user (ARPU) is high; $12.11 in the latest quarter, compared with $6.70 on Disney+.
Meanwhile, unifying the offering could drive further ad revenues by bulking up the offer to advertisers, and bringing more consumers to a combined subscription service. “Hulu’s library, depending on the subsequent split of content between Disney and Comcast, can also help drive engagement which is a key metric for advertisers,” says Parrot’s Brandon Katz.
Holding on to Hulu content will therefore be key for Disney in the coming months, according to Daniel Harraghy, Senior Analyst at Ampere Analysis. “The company will need to mitigate against the risk of losing content from the platform if any licensing agreements are impacted, and ensuring it maintains a substantial flow of titles to Hulu’s catalogue,” he says. “Protecting its library of titles will be vital in preventing future churn and driving additional revenue growth.”
If the Disney+ and Hulu libraries were to be fully combined, the content slate would likely form an attractive viewing proposition. Based on US streaming demand in Q2 2023, Parrot Analytics estimates that a combination of both libraries would account for 24.6 percent of on-platform demand. This would make it the most in-demand content catalogue in the US SVOD market, leapfrogging Netflix at 16.6 percent.
According to Parrot Analytics data, the two streaming services’ programming is demographically complementary. While Disney+ scores highly among males (50.5 percent) and “Zennials” (ages 23-29), Hulu skews towards a female (54.8 percent) and Gen X+ audience (19.2 percent). Their merger could therefore prove a potent combination.
The Bear market
But given the logistical difficulties and associated costs of merging streaming businesses, those benefits may take time to materialise; Warner Bros. Discovery has actually lost 700,000 streaming subscribers since launching its combined streaming service in May, although Max arguably presents a more jarring content mix to viewers.
“Consolidation into a single super service appears to be the trend Hollywood feels extracts the most value out of content libraries,” notes Katz. “With Disney CEO Bob Iger hinting at a combined Disney+ and Hulu by the end of the year, the Mouse House is positioning itself for the future with a well-resourced roster of streaming firepower. Yet the economics of the streaming business model remain in question for the entire industry.”
And Disney is under particular pressure from investors, amid ongoing agitation from “activist investor” Nelson Peltz, and a lawsuit from shareholders who felt deceived over the profitability of Disney+. “Disney will want to ensure the sales process runs smoothly and quickly,” says Ampere’s Harraghy. “If the full acquisition of Hulu is a key part of the company’s aims to make streaming profitable in 2024, it will want sufficient time to build and implement its integrated streaming strategy across its OTT platforms in order to see results before the end of next year.”