Hulu: Escaping the JV Torture Chamber

Joint ventures can be an exquisite form of corporate torture. A JV “chamber” can feel like it’s rivaling a Game of Thrones torture scene, especially when JV partners are competitors.

Until recently, Hulu was a complicated joint venture. Too complicated. Almost tortuous. Not anymore.

We used Word2Vec to process the 1072 articles that appeared on Dow Jones/Factiva in April and May, in which the word Hulu appeared at least twice. (Word2vec processes raw text and positions words in a high dimensional vector space where semantically similar words are placed at nearby points. Factiva is a global news resource with over 32,000 premium publications.)

We next used t-SNE, a prize-winning technique for visualizing high-dimension spaces, to reduce our Hulu vector space from 64 dimensions to 2. Here’s the resultant concept space, with key words closest to Hulu placed on the two-dimensional grid generated by t-SNE.

t-SNE does an amazingly good job in reducing the 1072 articles on Hulu to a meaningful 2-D concept space. To understand these data points (most are bolded below), note that:

1)      At the start of 2019, Disney, Fox, and Comcast each owned 30% of Hulu joint venture, and AT&T owned 10% as result of its acquisition of Time Warner. In March, Disney completed its purchase of Fox, giving it majority (60%) control. In April, Hulu acquired AT&T’s ~10% for $1.43B. And in May, continuing its Hulu deal spree. Disney assumed full operational control of Hulu by agreeing to purchase what was the now 33% share that Comcast held after the AT&T deal.

2)      Disney entered into a put/call option agreement that valued Hulu at a minimum of $27.5 billion as early as January 2024 and extended the Hulu license of Comcast/NBCUniversal content until late 2024. The put/call arrangement means Disney can require Comcast to sell and Comcast can require Disney to buy its 33.3% ownership interest in Hulu for assessed fair market value at that time (with a floor of $27.5 billion).

While the deal is quite good for Comcast (another story), our focus is on Disney’s Houdini-like escape from the Hulu JV stricture.

With full operational control of Hulu, Disney now has the ability to:

·        bundle Hulu with other Disney DTC offerings (such as Disney+ and/or ESPN+);

·        deploy BAMTech’s impressive technology (majority ownership acquired from MLBAM in 2017) across all of its streaming platforms. BAMTech, located in a Manhattan factory once occupied by the National Biscuit company, has successfully delivered tens of millions of simultaneous live streams. BAMtech is so good that it very well could sell its services to other media companies moving into streaming;

·        gain access to valuable data used in the direct-to-consumer sale of everything from Disney-branded toys to theme park tickets;

·        expand its scope in generating advertising revenue; currently about 70% of Hulu’s viewers are on its ad-supported plan;

·        roll out Hulu internationally without having to deal with potentially stifling partner conflict. (Comcast’s $39 billion purchase of Sky, a European pay TV giant that offers the Now TV streaming service could have certainly triggered Hulu expansion headaches.)

Disney will enjoy a high-class problem if it turns out that Hulu is appraised at a high value when it comes time to buy out Comcast. A healthy valuation will imply that Hulu will have made significant progress in competing with Netflix.

If so, torture will have been transformed into treasure.