Hulu Finally Has Momentum. Why Won’t Disney Unleash Its Full Potential?

Photo by Todd Williamson/Getty Images for Hulu
Hulu's 2017 Emmy After Party
Matthew Belloni
September 2, 2021

Have you seen Vacation Friends? For whatever reason, the Hulu algorithm has been insisting that I check out this movie. Maybe it’s because I recently watched the equally raunchy second season of Dave, or maybe Vacation Friends is being pushed on everyone because it’s the first film from Disney’s 20th Century Studios to debut on Hulu.

Regardless, my wife and I watched it the other night. It … wasn’t for us, but something struck me about the film. Vacation Friends is basically the direct-to-video version of a traditional studio comedy: high concept; a couple of known actors (the theatrical version probably would have starred Dwayne Johnson and Kevin Hart, not John Cena and Lil Rel Howery); professionally made; moderately fun; and almost instantly forgettable. In other words, it was like most Netflix films.

That’s not an insult. Netflix movies appeal to the masses. And Vacation Friends, along with the new Steve Martin series Only Murders in the Building, and a few other recent originals, seem like bigger, broader steps in the right direction for Disney, which has grown Hulu quickly and successfully differentiated it from Disney+ since taking operational control in 2019. In August, Hulu hit 39.1 million subscribers for its on-demand service, plus 3.7 million subscribers to its Live TV offering, up 22 percent and 9 percent, respectively, from the same quarter last year. That’s thanks in part to its inclusion in the so-called “Disney bundle,” the $14 tie-up of Disney+, Hulu and ESPN+. Not surprisingly, Disney raised the price of on-demand Hulu this week by $1, to $7 with ads and $13 without, while keeping the bundle the same. (Hulu’s Live TV plans also remained unchanged).


Disney clearly wants to nudge people into the bundle, and most believe that Hulu will eventually sunset as a standalone service and become fully integrated into Disney+ as a “tile” next to Pixar and Star Wars, similar to how the Indian TV service Star has been incorporated in many markets overseas. (Disney says there are no plans for this.)

Until then, the bundle seems to be working for Hulu. It’s generating much higher revenue-per-subscriber than Disney+, which is heavily discounted overseas. Hulu still loses money, but it is also benefiting from increased content spend, which Disney C.E.O. Bob Chapek promised investors last year. FX now sends most of its upcoming series directly to Hulu. (Though not Impeachment, its most high-profile show this year, thanks to a long-ago Netflix deal for the American Crime Story franchise that has caused many at Disney to shake their heads and do the face-palm thing.)

Dana Walden’s TV content team also knows Hulu is a priority. And the 20th Century and Searchlight units alone have dozens of movies and shows in development for Hulu. Searchlight’s first big effort, The Dropout, based on Rebecca Jarvis’ ABC News podcast, is now in production with Amanda Seyfried playing Elizabeth Holmes. Disney’s Peter Rice personally halted an agency auction for that project, infuriating studio bidders, and instead directed it to Searchlight, which is producing with Disney’s 20th TV. This synergy is now the rule for scripted television not based on the Disney I.P. (those go to Disney+). Hulu and its new president, Kelly Campbell, a Google-trained marketer who replaced the re-orged out C.E.O. Randy Freer last year on the same day that her boss, Kevin Mayer, found out he wasn’t getting the Disney C.E.O. job, should really benefit. (A visibly-riled Mayer left a Hulu town hall in Santa Monica that day after being summoned for his fateful meeting with Bob Iger; he’d be gone from the company a couple months later.)

Yet for all this positive momentum, Hulu still feels like the also-ran in the Disney streaming universe. Why? First, Hulu isn’t global. Second, and related, it’s mired in a cross-conglomerate dispute with Comcast, Disney’s arch enemy, that holds the service back. It’s way past time for Disney to resolve this fight and fully unleash Hulu, and there may now be an opening to do it.

It’s kinda crazy that Hulu doesn’t dominate streaming, considering it enjoyed such a jump on its competitors. Launched in 2007, largely as Hollywood’s oh-shit response to YouTube, Hulu was streaming top-tier primetime shows while Ted Sarandos was still hustling for TV library castoffs. As business school professors like to point out, Disney, Fox and a pre-Comcast NBCU could have owned subscription streaming, if only the legacy TV crack pipe wasn’t so hard to quit. It’s the classic incumbent vs. upstart, innovators’ dilemma lecture, with the added allure of Hollywood people looking stupid. Hulu’s techie rivals famously called it ClownCo; Jason Kilar, its first C.E.O., fired off email manifestos calling his bosses Luddites; and the whole venture was held up for a couple years as its owners argued over whether to sell the damned thing.


They didn’t, and in 2016, Time Warner C.E.O. Jeff Bewkes—yes, the same guy who once compared Netflix to the Albanian army—paid $583 million for a 9.5 percent stake. That gave Hulu a big-boy valuation, even if it didn’t quite give Netflix or Amazon Prime Video a real rival for the streaming throne. Then in 2017—almost by accident, insiders will tell you—Hulu’s The Handmaid’s Tale rode anti-Trump fervor to the top drama series Emmy, beating Netflix and Amazon to the milestone. In the eyes of the creative community, Hulu was no longer just a place to find last night’s Bachelorette. Disney saw control of Hulu as one of the perks of its 2019 acquisition of most of Fox, which included its 30 percent stake in the streamer. AT&T, having bought Time Warner, soon sold its Hulu share back for $1.43 billion. A couple months later, Comcast agreed to let Disney buy out its one-third stake. Suddenly, ClownCo was valued at $27.5 billion. And Disney controlled it all.

But despite that control and investment, Hulu still is defined mostly by the rich TV libraries of its studio partners. According to Parrot Analytics, Hulu has the highest “catalogue demand” among the majors, accounting for 21.4 percent of “demand share” across its entire catalog.

When you look at the same “demand metric” for originals, however, Hulu falls to fourth place among the majors, with 7.2 percent, behind Netflix (46 percent!), Prime Video (9.3 percent), and Disney+ (8.1 percent). Hulu has been putting out a lot of press releases lately about viewership, but the boasts are so vague and nonsensical that they make Netflix ratings disclosures seem like an I.R.S. audit. The reality is that for all the momentum, nothing except Handmaid’s Tale ever shows up consistently on Nielsen’s minutes-viewed charts, mostly because Hulu has fewer subscribers than the big three (Netflix, Prime Video, Disney+). And Hulu will really suffer if and when that partner content goes away.

That’s why Disney is investing so much. And that’s where the Comcast dispute becomes so problematic.

Going back to that 2019 buyout deal, Disney wanted to keep NBCUniversal content on Hulu, and Comcast enjoyed that licensing revenue. So the two sides agreed that NBCU content would stay on Hulu until at least 2022, and Disney wouldn’t assume full control of the service until 2024, when Comcast’s stake would be valued at $9 billion-plus, should Hulu’s valuation exceed $27.5 billion by then. That complex deal meant that Disney would benefit if it grew Hulu, of course, but if Hulu grew too much then Disney would have to pay Comcast a lot more money based on Hulu’s future valuation. Cut to 2020, when Chapek announced Disney’s overseas streaming strategy would focus on Disney+, which would now include a tile showcasing content not from Hulu but rather the Star service it acquired from Fox.


Chapek explained the rationale by saying that “Hulu has no brand awareness outside of the U.S., and nor does Hulu have any content that’s been licensed to it internationally.” But few believed that was the real reason behind the shift. Branding the international expansion as Star, not Hulu, allowed Disney to limit Hulu’s growth—and potentially the amount it would have to pay Comcast. Comcast’s Brian Roberts was livid, believing Disney had simply expanded Hulu overseas under another name (and without Comcast’s consent).

Remember, the Disney-Comcast feud goes back years. The Robertses attempted a hostile takeover of Disney in the mid-2000s, and Comcast bid up the price of the Fox assets when Disney thought it had a deal with the Murdochs. Roberts presumably felt no qualms about initiating an arbitration over the valuation of Hulu.

That’s still going on, and it’s said to be heated. The Information reported in June that Comcast had stopped funding Hulu, which is its right under the 2019 deal. (Its share simply becomes diluted.) Neither Disney nor Comcast will comment on the dispute, but if Chapek did indeed pull an unwarranted switcheroo, he should be held accountable. Then again, I don’t feel too bad for Comcast. If Roberts wanted to make sure Disney poured money into a Hulu-branded launch overseas, his lawyers should have guaranteed that in the contract. In my opinion, Disney can’t really be faulted for taking advantage of its rights.

But regardless, the result of the dispute is that Hulu, once again, sits mired in conflict and delay, only this time it’s not just Netflix and Amazon growing unencumbered; HBO Max, Discovery+, AppleTV+ and the rest are figuring out their own global strategies. And if Disney wants Hulu to compete long-term in a global game, the clock is ticking.

Few believe Disney and Comcast will allow the fraught partnership to last until 2024, especially as Comcast is expected to start pulling NBCU content from Hulu in 2022. (Alas, I might need to get Peacock for my Sunday morning SNL fix.) But here’s where it gets even more intriguing. There’s another big Disney-Comcast negotiation brewing, and this one is a doozy.


Ten years ago, Comcast signed a wide-ranging television carriage arrangement for Disney’s dozens of channels and stations, a deal that has been valued at $20 billion. That’s now coming up for renewal, and a lot has happened in these ten years, which should make for an interesting negotiation. Remember, for instance, how powerful ESPN was in 2011, and think about how weakened it is today. Although neither Disney nor Comcast will comment on the negotiations, analysts like Rich Greenfield hope one global settlement can be achieved to both update those carriage arrangements and “resolve Hulu ownership immediately so that Disney can seamlessly integrate Hulu into Disney+ and enable Comcast to have more exclusive programming on Peacock versus being shared with Hulu,” he wrote in a note to investors today.

It’s not that simple, I’m told. The carriage deals are heavily regulated, and Disney and Comcast are both terrified of antitrust scrutiny, so they can’t just horse-trade stations for streamers, or whatever. But even if the carriage deals and a Hulu buyout aren’t officially lumped together, perhaps the negotiation can serve as a catalyst for resolution of the companywide disputes. Given the urgency, Disney shouldn’t be afraid of writing a fat check. Both Disney and Comcast need to focus on their streaming futures, and Disney, at least, has a legitimate shot at matching or beating Netflix. Again, the clock is ticking.

Of course, even a global settlement still wouldn’t resolve the long-term questions surrounding Hulu. Namely, if Disney really does want to use Hulu and even ESPN to turn Disney+ into one streaming “super-brand,” as shareholder Dan Loeb has dubbed it, the company would need to figure out how to integrate the huge advertising businesses of Hulu (set to hit $3 billion next year, per eMarketer) into a platform that currently doesn’t carry any ads. And there would be problems moving Hulu titles that Disney that doesn’t own from one platform to another without paying major fees. But early data points indicate that integration does work. In February, for instance, Disney launched Star in Australia as a tile on Disney+, which saw its share of minutes viewed increase from 11 percent to 17 percent, according to AMBO Research.

For now, however, while Disney+ is a necessity in households with kids (like mine), Disney executives know that there is a ceiling for families and fans of Marvel and Star Wars. True growth requires adults without children—an all-audience streaming service that can truly take on Netflix—and that means growing Hulu with general-audience hits, the toughest and most-competitive category of content. Hulu is certainly getting better—or at least more commercial, in the case of Vacation Friends—and more plentiful. The next step is clearing the runway so Hulu can really take off.