The Medium
Monday AM Briefing: Disney's Hulu Dilemma After Netflix's "What We Watched"
Good morning!
The Medium delivers in-depth analyses of the media marketplace’s transformation as creators, tech companies and 10 million emerging advertisers revolutionize the business models for “premium content”.
Each fiscal quarter, The Medium identifies three or four new trends that have momentum and seem poised to play out at a larger scale in 2023. These key trends pinpoint dynamic and constantly evolving developments in the media marketplace that are emerging from incremental shifts or fundamental changes. The bi-weekly mailings analyze these trends as developments emerge in real-time.
Read the three key trends The Medium is focused on in Q4 2023. This essay covers "the less-discussed lens on how the demand for “premium content” is being redefined by creators, tech companies and 10 million emerging advertisers" and "In the shift from wholesale to retail models, there are many business models that delight consumers but no single, dominant one."
On December 6th, Disney launched the beta version of its integration of Hulu into Disney+. It is exclusive to subscribers to its Disney+ bundle, and the full integration for all Disney+ subscribers will launch in 2024. The service now sits as a sixth tile in the Disney+ app in the U.S., much like its Star service in a subset of countries where it operates.
The move is a bet on BAMTech as the primary back-end of Disney+ and not Hulu. That is surprising given that former Hulu and WarnerMedia CEO Jason Kilar argued in October the platform could be the back-end of “a digital everything product” for Hollywood.
It is also surprising given Disney paid $3 billion for BAMTech, but owes at least $8.61 billion for Comcast’s minority stake in the service—which it was contractually required to pay on December 1st—after Comcast exercised its option to sell. There is now a negotiation with Comcast for the final value of Hulu, and Disney may be on the hook for an additional $4 billion and “$5 billion or so”.
A third reason this bet on BAMTech is surprising is that in 2023, the Hulu standalone app gained subscribers in the U.S. in Q2 and Q3 while Disney+ lost subscribers. So, Hulu should be the better bet as a growth engine in the U.S. or internationally because its technology offers better “plumbing” for Disney’s streaming business model. It seems to be the safer, more dynamic bet for delivering shareholder value. Instead, Disney is integrating the Hulu library into Disney+ and some of its technology, but not as the standalone platform for its retail-first, consumer-first future.
This strategy now seems especially questionable in light of Netflix’s recent release of viewership data “What We Watched”. As I argued last week, the move was a statement to post-strikes Hollywood that it has set the standard for a successful streaming business model and is now evolving past it. That roadmap raises the question why Disney assumes consumers will pay for access to libraries (Disney+) instead of user experiences that delights them with relevant and interesting content recommendations from a library (Hulu).
Key Takeaway
If we believe Netflix’s report was a signal from the market leader that streaming’s value to consumers is about to flatten, then BAMTech is the wrong platform for its retail-first, consumer-first digital media future.
Total words: 1,300
Total time reading: 5 minutes
What is any media company selling access to?
I argued in October’s “Reconsidering Streaming's Subscription Models”:
“...when media CEOs like Disney’s Robert Iger and Paramount Global’s Bob Bakish beat their drums that ‘Streaming is the future’, they may be correct in their bullishness that ...