Comcast/NBCUniversal and YouTube TV are both dug in for a carriage battle, the catalyst of which could be at least partially traced back to Hulu.
On Sunday, NBCU revealed that unless a new distribution agreement with YouTube TV could be reached by midnight on September 30, the streaming TV service will lose access to all local NBC and Telemundo stations, the NBC Sports regional sports networks and the company’s cable channels including USA, E!, Golf Channel, Bravo, Universal Kids, CNBC, Oxygen, SyFy and more. NBCU is seeking “fair rates” and Google is looking for “equitable terms.” If no new deal is reached, consumers will lose a big chunk of channels but also begin paying $10 less per month for YouTube TV.
Whether the outcome is a zero-hour deal, an extension or a blackout (UPDATE: There's an extension), it won’t change the deeper implications within the impasse.
According to Lightshed analyst Rich Greenfield, one of the sticking points in the negotiations is NBCU trying to get YouTube TV to bundle and pay for Peacock Premium as part of a new affiliation agreement for the NBCU channels.
“So, the question becomes why is NBCU trying to do this? We sense the leading reason is that Peacock has been underwhelming to-date beyond usage on Comcast/Cox set-top boxes, where it effectively functions as an updated version of on-demand programming for cable subscribers…With NBCU struggling with marketing Peacock direct-to-consumer (evidenced by their talking about ‘registrations’ vs. ‘paying subscribers,’ they are falling back on their legacy business model of wholesale bundling to drive distribution. If they can force YouTube TV to carry Peacock, we suspect they will try to force other vMVPDs and MVPDs to do the same…,” wrote Greenfield in a research note.
In July, Comcast said Peacock now has 54 million sign-ups and more than 20 million monthly active accounts.
Peacock since launching last year has faced many uphill battles including pandemic-related production delays and the postponement of the 2020 Summer Olympics, which were slated to be the marquee Peacock launch content. Another issue—and perhaps part of the reason the NBCU is reportedly pushing Peacock in linear distribution deals—is that much of NBCU’s best content is still tied up in Hulu.
During a recent investor conference, Comcast CEO Brian Roberts said that 10 years ago, when his company bought NBCU, it inherited a company that had committed really all of its content to Hulu.
“And all that content still resides on Hulu. So, the biggest and best -- most relevant part of our content, at least from television, historical NBC and our cable nets and particularly NBC, are all licensed away, and that can change over time,” he said.
Comcast still owns 33% of Hulu—though Disney holds full operational control over the streamer—and Roberts described it as a “wonderful company” and a growing asset that many NBCU investors are still riding. So, Comcast is being careful to balance investing in both Peacock and Hulu.
However, Comcast as early as 2024 can require Disney to buy its 33% stake in Hulu, and Disney can require Comcast to sell that stake at a fair market value. Disney is guaranteeing a minimum total equity value of Hulu at that time of $27.5 billion, meaning Comcast would be due approximately $9 billion.
But, according to MoffettNathanson analyst Craig Moffett, Comcast’s lengthy carriage agreement with Disney just expired and it could present a good opportunity for an early exit from Hulu. If a such a deal occurred now instead of in 2024, Moffett said it could boost Peacock by establishing a premium price for Hulu and helping validate the similar hybrid subscription-advertising model at Peacock.
MoffettNathanson is highly skeptical that Disney will do an early deal with Comcast for Hulu. Disney could still benefit more than Comcast is Hulu’s valuation rises significantly between now and 2024—MoffettNathanson forecasts the value to reach around $57 billion by that time—and Hulu doesn’t seem as important as the Star brand for Disney’s international plans, meaning Disney has less incentive to fully own Hulu now and lock up all future value creation.
Still, it’s easy to see why Comcast would be motivated to get clear of Hulu early. It would mean the company could bring more of its best content to Peacock; it would bring in significant amount of money, some of which could be funneled toward content for Peacock; and it would take a lot of the complexity out of Comcast’s streaming strategy. And, it could make Peacock more of a compelling standalone proposition for consumers and potentially less of a monkey wrench in distributor negotiations.