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Disney (NYSE: DIS) is set to own a 60% share of Hulu once it closes its acquisition of 21st Century Fox (NASDAQ: FOX) (NASDAQ: FOXA), but Disney will still have to deal with Hulu's co-owners, AT&T (NYSE: T) and Comcast (NASDAQ: CMCSA).
Well, maybe just Comcast.
Disney is in talks with AT&T to acquire its 10% stake in the subscription video-on-demand service, according to a report from Variety. Gaining further control of Hulu could accelerate Disney's plans to increase its investments in content and geographic expansion. AT&T, meanwhile, could accelerate its debt repayment.
Image source: Hulu.
A key part of Disney's streaming portfolio
Disney's streaming strategy includes offering three separate services tailored to distinct audiences. ESPN+ is for sports fans, Disney+ is for family-friendly films and series, and Hulu carries more adult-oriented entertainment. That stands in contrast to AT&T's plan to offer a single three-tiered service featuring WarnerMedia content later this year.
Disney is already investing a lot of money in acquiring content for ESPN+ and creating originals for Disney+, but Disney plans to expand investment in Hulu, too. Hulu has started developing its own original content, some to much critical acclaim. Still, during Disney's fourth-quarter earnings call in November, CEO Bob Iger said, "... [W]e think there's an opportunity to increase investment in Hulu, notably on the programming side."
Disney also wants to expand both Hulu and Disney+ to Europe. Initially, it hoped to leverage Sky TV as a means of introducing its direct-to-consumer services to Europeans. Unfortunately for Disney, Comcast outbid Fox for the European pay-TV operator. It's not clear if Comcast shares the same ambition as Disney with regard to expanding Hulu into a territory where it's just invested in a competing video platform.
As a result, Disney may have to invest more cash in a European expansion for Hulu. An extra 10% stake in the company may give Disney the incentive needed to make the investment.
AT&T needs the cash
It's no secret that AT&T has a lot of debt. The company ended 2018 with $176.5 billion in debt. Its net debt to adjusted EBITDA ratio remains above 2.8. By the end of 2019, AT&T's management expects to pay down enough debt to reduce that ratio to 2.5.
Last summer, Disney pegged Hulu's value at $9.3 billion. That makes AT&T's 10% stake worth around $930 million, and maybe more based on Hulu's reported growth. AT&T could put that money straight toward debt repayment.