Business assignment

With AT&T's Exit, Disney Takes Firmer Control of Hulu https://www.fool.com/investing/2019/04/16/with-atts-exit-disney-takes-firmer-control-of-hulu.aspx

Hulu paid $1.43 billion for AT&T's stake, leaving Disney and Comcast as joint owners of the streaming service.

And then there were two.

Less than a month after Disney (NYSE:DIS) closed its acquisition of Twenty-First Century Fox, which included its 30% share of

Hulu, the streaming service itself has acquired AT&T's (NYSE:T) 9.5% stake. That leaves just Disney

and Comcast(NASDAQ:CMCSA) as the joint owners of the popular television streaming service.

The deal valued Hulu at $15 billion, providing AT&T with $1.43 billion for its share. Disney and Comcast have not yet said how they

will split the equity, but given their prior stakes, a conventional split would give Disney two-thirds of the company and Comcast the

other third.

The move makes sense for both AT&T and Disney. And Disney was able to save a bit of money by having Hulu buy out AT&T's

share.

AT&T needs cash now

AT&T has racked up a lot of debt over the past few years to finance its acquisitions of DirecTV and Time Warner (now

WarnerMedia). At the end of 2018, the telecom giant had $176.5 billion in debt on its balance sheet.

AT&T plans to pay down $20 billion of that this year, and the $1.4 billion from Hulu should help. The company also plans to sell off

other non-core assets to raise funds for the purpose, but the vast majority of the money will still have to come from AT&T's free cash

flow. Given that the company expects free cash flow of about $26 billion, investors should expect another minimal dividend increase

next year, just to keep up its 35-year streak. AT&T has raised its quarterly payout by just $0.01 each year since 2008.

Owning a stake in Hulu had ceased to make much sense for AT&T. The telecom giant is launching its own subscription video on

demand service later this year on the back of WarnerMedia's content library. The service, to be offered in three pricing tiers, will

feature content from Warner Bros. studios and HBO, and it will naturally compete with Hulu and Disney+ for subscribers. For now,

though, WarnerMedia content will continue to be available on Hulu.

Disney wants more control

Disney has big plans for Hulu. At its Investor Day event earlier this month, the company said it expects the service's subscriber base to

grow from its current 25 million to between 40 million and 60 million by 2024.

CEO Bob Iger has said he sees opportunities to invest more in Hulu and expand the service internationally. Since it sold its Japanese

operations several years ago, it has operated exclusively in the United States.

If Disney is going to invest in growing the service to make it more profitable over the long term, it wants a bigger share of the

company in order to reap more of the benefits. While the House of Mouse expects Hulu to book $1.5 billion in operating losses this

year, it forecasts that the service will shift to profitability by 2023 or 2024.

Comcast will still own a minority stake in Hulu, but it's planning to launch its own competing streaming service early in 2020. That

service could result in more NBCUniversal content being held back from Hulu in favor of Comcast's 100%-owned service. Compared

to Disney, both AT&T and Comcast have relatively unclear visions about how they'll manage their content rights when they launch

their own streaming services. Disney is keeping everything it produces for either Hulu or Disney+.

Ultimately, Comcast may sell its stake to Disney in order to focus on its own streaming service, but it'll be happy to let Disney grow

the business for it in the meantime.

Disney Just Confirmed the Biggest Reason It Acquired Fox https://www.fool.com/investing/2019/04/14/disney-just-confirmed-the-biggest-reason-it-

acquir.aspx

Turns out it was all about streaming content.

Steve Symington

When Disney (NYSE:DIS) finally unveiled the details of its upcoming Disney+ streaming service last Thursday, shares of the

entertainment conglomerate soared 11.5% Friday in response, marking its biggest single-day pop in a decade.

After all, at just $6.99 per month or $69.99 per year -- or just above half the $13 per month Netflix (NASDAQ:NFLX) is now

charging for its most popular plan -- it's obvious the House of Mouse wants consumers to view Disney+ as a relative bargain to other

video-streaming services when it launches this November. What's more, the company predicted Disney+ should be able to achieve

profitability by 2024, amassing as many as 60 million to 90 million subscribers by the end of that year.

Though much more pronounced, the jump was also reminiscent of Disney's immediate rise in late 2017, when it first announced it

would acquire most the assets of Twenty-First Century Fox (NASDAQ:FOX)(NASDAQ:FOXA).

Make no mistake, with much of Fox's content to be offered alongside Disney's existing portfolio, it's no coincidence that mammoth

$71 billion deal only just closed a few weeks ago. In fact, according to Disney management, the Fox purchase wouldn't have happened

had it not been integral to Disney's streaming vision.

Disney's $71 billion bet on streaming

In an interview with CNBC last week, Disney CEO Bob Iger stated:

We would have have done [the Fox] transaction had we not decided to go in this direction. Because if we hadn't, we would have been

looking at that business through a traditional lens: "Oh, we're buying TV channels. We're buying more movie-making capability," etc.

But by the time the acquisition opportunity came up, and we knew we were going in this [streaming] space, we evaluated what we

were buying through this new lens of "Wow, what would National Geographic mean to us?"

Of course, it certainly won't hurt that Disney can now supplement its studio, parks and resorts, media networks, and consumer

products segments with Fox's portfolio of film and TV franchises, notably including Deadpool, Avatar, X-Men, Fantastic Four, This

Is Us, Modern Family, The Simpsons, and (as Iger noted) National Geographic. Disney also picked up FX Networks and doubled its

ownership in Hulu to a controlling 60% stake through the deal.

But coupled with Disney's already enviable stable of content -- from its namesake studios and TV channels to Marvel, Lucasfilm,

Pixar, and ABC -- there's no denying that the massive number of family friendly titles within Fox's assets bolsters the value

proposition of Disney+ in a way that Disney simply couldn't achieve alone. If that wasn't enough, Disney also revealed last week it

plans to invest $1 billion toward producing original content for Disney+ by the end of next year, including series revolving around the

storylines of specific Star Wars, Marvel, and legacy Disney characters.

In the end, however, it's clear that Disney believes its streaming plans would not have come to fruition without the help of Fox. And if

all goes as planned, the combination could positively transform the streaming media landscape -- and the value of Disney

shareholders' portfolios -- as we know it.

3 Advantages Disney Has Over Netflix in the Streaming Wars https://www.fool.com/investing/2019/04/15/3-advantages-disney- has-netflix-in-streaming-war.aspx

Each company has strengths when it comes to the over-the-top market. Here are Disney's.

Apr 15, 2019 at 1:35PM

After the market close last Thursday, Disney (NYSE: DIS) unveiled details about its long-awaited streaming service, Disney+. When

the market opened on Friday, investors bid shares up 11.5% to an all-time high. At the same time, Netflix(NASDAQ: NFLX) saw its

stock fall 4.5%. It looks like Wall Street thinks Disney+ has the potential to challenge the streaming leader in the direct-to-consumer

market.

At last report, Netflix boasted about 139 million paid subscribers worldwide and is expected to have added 9 million more when the

company reports earnings on Tuesday. With this type of lead, Disney has its work cut out for it when it comes to taking on the

incumbent. But the House of Mouse has several distinct advantages that make it an immediate contender.

Let's take a look at three reasons why investors are so optimistic about Disney's potential.

1. More palatable price

Netflix has long shown the pricing power of its service. The company recently instituted its fourth price hike in five years and its

subscriber base continues to swell. It's important to remember, however, that with growth in its domestic market slowing, future

growth lies in international locales. The cost of a monthly Netflix subscription has grown to $12.99, which might be prohibitive in

many developing countries.

Disney decided to price its offering at $6.99 per month, or an even more reasonable annual subscription of $69.99 -- which works out

to a monthly cost of about $5.83 -- when its service debuts on Nov. 12. At nearly half the cost of a Netflix membership, cash-strapped

viewers around the world might choose Disney if they can only afford to choose one.

Netflix is likely aware of this limitation and has reportedly been testing a lower-price, mobile-only subscription in some developing

countries. But, thus far, it's only been a test.

2. Global brand recognition

While Netflix is quickly making a name for itself, it only began its international expansion in 2010 when it started offering streaming

video in Canada. The big roll-out for the company came in early 2016 when Netflix announced that it would immediately be available

in 190 countries.

Disney, on the other hand, has long been a household name, and Mickey is among the most recognizable characters in the world. In

2016, just as Netflix was making its debut globally, Disney was named the world's most powerful brand, according to brand valuation

and strategy consultancy Brand Finance. Many subsequent studies have consistently placed Disney among the most well-known

and most beloved brands. With a host of instantly recognized studio offerings from the likes of Pixar, Marvel, and Lucasfilm, this will

give Disney a leg up as it seeks to chase down the video-streaming leader.

3. An apparently never-ending pipeline of lucrative content

Netflix moved quickly to begin creating its own content in 2013, but Disney has a library of intellectual property going back 90

years. In addition to the company's catalog of feature films, Disney also has decades of programming from Disney Television Studios

and The Disney Channel (its cable TV offering).

It doesn't stop there. Disney is a content-creation machine, churning out new movies and programs every year. This isn't just filler. It

includes box-office blockbusters like Black Panther and Avengers: Infinity War from Marvel, Star Wars: The Force Awakens and Star

Wars: The Last Jedi from Lucasfilm, Finding Dory and Incredibles 2 from Pixar, and Zootopia and Beauty and the Beast from

Disney. The recent acquisition of Fox content only serves to increase its advantage. For instance, the company announced that all 30

seasons of The Simpsons will appear exclusively on Disney+.

While Netflix has largely stuck to monetizing its content with subscriber fees, Disney has a host of ways to make money from its hit

movies and television series. For example, once a movie has been shown in theaters, consumers buy the film on Blu-ray and/or digital

copy; visit Broadway shows and other live productions; buy plush toys, coffee mugs, and other consumer products; and visit Disney

theme parks around the world to interact with their favorite characters. For Disney, content is the gift that keeps on giving.

Investor takeaway

It's important to remember that this isn't a zero-sum game and there's room for multiple winners in the nascent streaming industry.

There are more than 1 billion global fixed-broadband subscribers and many more accessing the internet via mobile devices. The

arrival of data-friendly 5G wireless technology will only accelerate broadband adoption. Streaming will be a huge and growing market

that can easily support multiple players.

That said, Disney has several compelling advantages that will make it a serious contender in the over-the-top market.

Netflix CEO Reed Hastings Was Right About Disney+ https://www.fool.com/investing/2019/04/14/reed-hastings-was-right-about-disney.aspx

The so-called "Netflix killer" is anything but.

Jeremy Bowman

(TMFHobo)

Apr 14, 2019 at 5:17PM

Netflix (NASDAQ: NFLX) shareholders should breathe a sigh of relief.

The great unveiling has come for Disney+ (NYSE: DIS), the new streaming service from the House of Mouse, but it looks like Netflix

CEO Reed Hastings was right all along about the potential Disney rival. This is no mortal threat, or even much of a thorn in the side

for the leading streamer.

In case you missed it, here are key facts about the new Disney+ service.

• It's set to launch Nov. 12.

• The service will feature content from Disney Studios, Pixar, Lucasfilm, Marvel Studios, and National Geographic; it will also offer 30 seasons of The Simpsons, and family-friendly movies from Twentieth Century Fox, like The Princess Bride.

• Disney+ will cost $6.99 per month, or $69.99 per year; Disney has hinted at a bundled package including Hulu and ESPN+.

With a price like that, Disney+ looks set to undercut Netflix, whose most popular package now costs $13 per month. But as Hastings

has said before, there's plenty of room for both services to be successful.

Hastings' thoughts on Disney

Time and again, the Netflix chief has been asked on earnings calls for his thoughts about the upcoming Disney streaming service, as

well as his concerns about other competitors. But he always bats the questions away, downplaying the threats.

Here's what he said over a year ago after Disney's bid for Fox went public:

Then they're also putting together a Disney direct-to-consumer service, which we think will be very successful because Disney has

superstrong brands. And so, we'll see. We don't see it as a threat to us any more than Hulu has been, but it's a great opportunity for

them.

Hastings even went on to pay Disney a compliment, saying he'd subscribe to its new service.

More recently, Hastings said in an earnings letter to shareholders:

We earn consumer screen time, both mobile and television, away from a very broad set of competitors. We compete with (and lose to)

Fortnite more than HBO ... Our focus is not on Disney+, Amazon (NASDAQ: AMZN) or others, but on how we can improve our

experience for our members.

The Netflix co-founder has always been something of the Big Lebowski of Silicon Valley CEOs, regularly coming off as superchill

and unbothered. But he's got a point here, and he's been right many times before, especially about the evolution of the streaming

industry.

There's a vast sea of entertainment options, and a single competitor is only likely to make a difference at the margins.

What's also notable is that Hastings believes Disney+ will be successful, but he doesn't think it will affect his company. After the great

reveal, you can see why.

There are so many differences between the two services that they aren't really direct competitors. Disney+, for example, is family-

focused. Netflix wants to have something for everyone, and its original content leans toward the kind of edgier subjects that tend to

become bait for the Oscar and Emmy awards. Disney has clearly-defined verticals for content creation from its existing studios, while

Netflix is fielding content from all around the world in multiple languages, from a wide range of creators, including both scripted and

nonscripted programming. That also means that Netflix won't be competing directly with Disney+ for content, the way it does with

HBO, Hulu, and Amazon.

Additionally, though quality of content matters more than quantity, Netflix will have the much bigger and diverse library of the two

services -- about two-thirds of Disney+'s 7,500 TV episodes will come directly from the Disney Channel. Netflix is also planning to

spend much more on original content: Disney promised $2 billion in originals spending by 2024; Netflix, on the other hand, dropped

$13 billion in cash on content just last year, with an increasing portion dedicated to originals.

Are the streaming wars real?

Financial writers (myself included) love a story about competition. Plenty of ink has been spilled on grocery wars, cola wars, and the

"streaming wars." Setting up a story like that creates drama, and makes it easy for the reader to understand what's happening.

But in the case of streaming, is it really accurate to call it a battle in the traditional business sense? Often these services are

complements for each other, rather than substitutes. Plenty of Americans subscribe to multiple streaming services, just as a lot of

people pay for both a Costco membership and Amazon Prime. A 2016 survey even found that Amazon Prime subscribers were more

likely to subscribe to Netflix than non-Prime members.

There's a big difference between that competition and those involving, say, Uber and Lyft in ridesharing, or Apple and Android in

smartphones: There, the services and products are clear substitutes, not complements. If you want an app-based ride across town,

you're probably choosing either Uber or Lyft, not both. Similarly, if you're in the market for a new smartphone, you're likely to buy

either an iPhone or an Android.

Consumers can subscribe to both Disney+ and Netflix...and plenty will.

Disney+ could actually be good for Netflix

There's one business that Disney+ is a clear negative for, and that's traditional pay TV. If subscribing to the Disney Channel was one

of the main reasons you paid for cable or satellite TV, you're much more likely to cut the cord now.

Despite all the talk about cord-cutting in recent years, there are still about 91 million subscribers to satellite and cable TV. The decline

has been slow -- Hastings predicted in 2015 that the transition would take at least 20 years -- but there are still many more subscribers

to satellite and cable services than to Netflix, which finished last year with 58.5 million paid domestic subscribers.

While streaming services do compete against one another, they also compete against the traditional cable bundle; the more consumers

who can be convinced to cut the cord, the more of their entertainment dollars become available for streaming services like Netflix. In

that sense, If Disney+ and ESPN+ hasten the cord-cutting process, Netflix could actually be a winner.

With Netflix's first-quarter earnings due out on April 16, we'll likely hear more of Hastings' thoughts on the new Disney offering, but

the Netflix chief was right to downplay the threat from the beginning. In the vast global entertainment universe, both services can

thrive.