Tech

Disney is better off not meddling with Hulu, despite bigger ownership share

Key Points
  • Disney will own 60 percent of Hulu after the Twenty-First Century Fox acquisition closes.
  • If Disney changes Hulu too much, it may upset other media companies, who might respond by pulling their content off the service. The diversity of content makes it appealing to users.
  • However, Disney may face challenges when Hulu competes with its upcoming streaming service.
Bob Iger, Disney
Getty Images

Now that Walt Disney is about to own the lion's share of Hulu thanks to its deal with Twenty-First Century Fox, the smartest move may be ... to leave it the way it is.

Disney agreed to a deal Thursday to acquire parts of Twenty-First Century Fox's business in a deal worth $52.4 billion in stock. Assets include network Nat Geo, Asian pay-TV operator Star TV, Fox's movie studios, regional sports networks and Fox's stake in Sky and Hulu. Hulu was previously joint-owned by Disney (30 percent), Fox (30 percent), CNBC owner Comcast (30 percent) and Time Warner (10 percent).

"The benefit of Hulu is the variety the consumer is getting for the price point," said Darrell Miller, chairman of the entertainment department at Fox Rothschild. "It has really driven the audience and kept it stable — and made it profitable for all of them."

Disney will become the majority owner with 60 percent. But if Disney decides to muscle the other companies out, it may mean they will pull their content off Hulu's on-demand or live TV service — which would make it a less appealing service. Disney needs everyone to cooperate.

"Hulu has its own brand," said eMarketer senior analyst Paul Verna said. "I don't think those who subscribe to Hulu know or care what the underlying business arrangements [are]. They do a pretty good job of positioning the brand a direct-to-consumer service, not really favoring one [media company] or the other. What people want is to subscribe to a service where they are going to be able to watch whatever they want to watch."

Hulu already went through a shift in ownership without major changes. Time Warner took a 10 percent stake in 2016 and brought its Turner content including TNT, TBS, CNN, Cartoon Network and Adult Swim to the service. Hulu runs like an independent company with a joint board, so there shouldn't be many changes in the short term as Disney sorts through its new Fox assets, Miller said.

However, there is potential for disruption. Disney could insist that Hulu's content be more family-friendly, considering its overall brand image, Miller said. There's also the fact Disney's upcoming movie and TV streaming service is likely to compete against Hulu for customers, but the ownership stake may open both services up to future bundled plans.

"There is a certain amount of cannibalization with Disney wanting to have its own streaming service and supporting and nurturing Hulu," Verna said.

Disclosure: Comcast is the owner of NBCUniversal, parent company of CNBC and CNBC.com.