• A news report states that Disney may be limiting Hulu's growth for purposes of minimizing the eventual buyout price of Comcast's stake.
• This move is obviously not optimal for Comcast shareholders, but it is likewise nowhere near the interest of Disney.
• Even if Disney's financial obligation is high because of expansion in Hulu's value, the conglomerate will benefit by not missing years of growth.
• Hulu also offers advertising opportunities, as well as the ability to experiment with different kinds of content for adults.
• Disney is a long-term buy that may eventually require a dollar-cost-averaging strategy if volatility to the downside emerges in the share price.

A recent article over at Bloomberg broke a very interesting bit of news regarding Disney (DIS): apparently, the company is reticent to engage a growth strategy with Hulu because, if it does so, then the price it will have to pay to Comcast (CMCSA) a few years from now under a deal for the Mouse to take full control of the service will become expensive. As shareholders will recall, Disney agreed to take Comcast out of the Hulu service post the 21st Century Fox purchase. The deal was structured at a floor price of a little under $6 billion, with some added elements involving NBCUniversal content and other aspects which the supplied link explains.

The article goes on to ultimately imply the following question: exactly, what is Hulu? What does it mean to Disney in the post-pandemic world?

I can understand the reticence on management's part, but I believe having to pay up to Comcast later on (I am long the cable giant) is a good problem to have if Hulu achieves a higher valuation and potentially acts as a catalyst for the stock. I also believe Disney is a long-term investment idea that, frankly, has surprised me in terms of how well the stock has held up (in other words, be prepared for better prices as the pandemic continues).

Hulu

I've found Hulu to be a bit of an odd experiment at times. When the over-the-top service was formed some years ago, and owned by Disney, Comcast, and other investors, it seemed to me that Hollywood was attempting to create a new market for its products, one that could offer competition to Netflix and perhaps offer better bids for content suppliers. Because the studios attempted unsuccessfully to sell Hulu at one point, it dawned on me that long-term ownership wasn't really the goal. The idea was to transfer the subscriber-growth/churn risk to another party and lock in lengthy library deals.

Now, everything's changed. Streaming boomed, declines in linear accelerated, and Disney's CEO Robert Iger decided that he'd continue his acquisition spree in the latter part of his tenure by buying 21st Century Fox's IP portfolio in a final bid to maximize the value of his company holdings, as well as going after Hulu in its entirety. Let's not forget, too, that Sky was also in Iger's sights; Comcast ultimately won that skirmish.