Disney may have to pay $5B more for Comcast's stake in Hulu

CFRA research director of equity research Ken Leon joins Catalysts to discuss the state of the streaming industry and some of the challenges traditional media giants are up against.

Leon believes that Netflix (NFLX) is the streamer best positioned to capitalize off of ad revenue. He also points to Spotify (SPOT) as a top player in music streaming.

"Advertisers follow where viewership is growing, which is the continued pivot from legacy networks," Leon says. He notes that advertising is increasingly digital, making it "very agile in terms of turning it on and turning it off." Therefore, traditional media giants are now competing against platforms like Google's (GOOG, GOOGL) YouTube TV and TikTok.

As Disney (DIS) may have to pay $5 billion more to buy Comcast's (CMCSA) stake in Hulu, Leon explains that CEO Bob Iger is "looking at streaming besides sports and saying we need general entertainment. So Hulu rounds out our offering along with our family Disney+. That's where we are. The deal will get done." He anticipates the deal to close by January, and while it may be a significant move for Disney, he adds, "I'm not sure that's a driver or a catalyst for the stock."

Disney reported an overall earnings beat on its top and bottom line for its fiscal third quarter, the media giant expecting profitability in its streaming segments despite some pressures.

For more expert insight and the latest market action, click here to watch this full episode of Catalysts.

This post was written by Melanie Riehl

Video Transcript

If the bullish signal from your you can, is that a revenue?

But you don't just cover Disney.

You've got Paramount Warner Brothers, Netflix, of course, among others, which of those names do you think stands to gain the most from capitalizing off at revenue moving forward?

It, it certainly is Netflix, but it's also a music streaming, Spotify and advertisers fo follow where viewership is going, which is the continued pivot from legacy networks which the other companies you mentioned have including Disney and Netflix doesn't.

Uh But then again, it's also digital.

So it's very agile in terms of turning it on and turning it off, what is called the spot market.

Uh And then you're also competing against Amazon, uh youtube TV, um tiktok and others.

So, you know, it's not like the companies here in traditional media entertainment have it to their own.

They don't ken when it comes to some of the headlines coming out of the earnings call.

Uh Just moments ago, there was some talk about Hulu Disney saying that it might have to pay 5 billion more for the Hulu stake.

I'm sure you were on the call, but we saw the shares extend the decline to just about 3.5% on those Hulu negotiations.

I'm curious just your reaction to that and how big of an overhang is that going to be an overhang year for the stock moving forward?

Well, it was kind of a brush over on the call, not much said there but essentially that they're talking.

So what do we have here?

We have an option.

Put call where Comcast, which owns the minority share of Hulu put it to Disney to buy it out.

Uh At least 9 billion, maybe more.

Uh which is what the market investors expect.

Um Not sure why it's taking so long.

But uh Bob Iger did a 360 maybe 12 months ago.

Uh didn't like general entertainment, then he's looking at streaming besides sports and saying we need general entertainment.

So Hulu hands out our offering along with our family Disney plus that's where we are.

Uh the deal will get done.

Uh They'll probably close this deal year end or January.

Um I'm, I'm not sure that's a driver or a catalyst for the stock.