Still in the game with Hulu
The plan prior to the Allen & Company conference in Sun Valley, Idaho was for Disney and its partners Comcast Corporation (NASDAQ:CMCSA) and 21stCentury Fox to sell Hulu to the highest bidder. However, during the conference the owners had a change of heart and are now going to invest $750 million in building Hulu.
With the growing popularity of Netflix, Inc. (NASDAQ:NFLX), it really didn’t make much sense to sell Hulu considering that all three partners produce both film and television shows. Hulu has 30 million monthly visitors, revenues that doubled to $690 million last year, and 4 million paying subscribers. The reason for selling Hulu prior to the conference was a disagreement between Disney and 21st Century Fox on Hulu’s direction. Now The Walt Disney Company (NYSE:DIS) and 21st Century Fox are in agreement on the strategy for Hulu. By investing money into Hulu, Hulu can now buy additional programming and compete better with Netflix, Inc. (NASDAQ:NFLX) and Amazon.com, Inc. (NASDAQ:AMZN).
For 21st Century Fox, retaining its ownership stake in Hulu continues its path of being a pure-play entertainment company now that it has separated from News Corp. and its newspaper business. Part of 21st Century Fox’s disagreement with Disney comes from CEO Rupert Murdoch’s competitive nature. He remains Disney’s biggest competitor and is going after Disney’s bread and butter with the launch of Fox Sports 1 next month to compete head-to-head with ESPN. He is also looking to go after Disney’s success on Broadway and develop musicals based on Fox movie characters. The musical possibilities include adaptations of Avatar, X-Men, and There’s Something About Mary.
Foolish assessment
They say imitation is the sincerest form of flattery. In Disney’s case, as the world’s largest media company everyone wants to be like them. No other company does a better job than The Walt Disney Company (NYSE:DIS) of turning its characters into new businesses and assets.
Disney has a lower forward P/E of 16.73 compared to Fox’s 18.63. Disney also has a higher operating margin of 21.19% versus 16.15%. The future looks bright for Disney and the stock still remains attractive as a long-term investment.
The article The House Of Mouse Is Still Roaring originally appeared on Fool.com and is written by Mark Yagalla.
Mark Yagalla has no position in any stocks mentioned. The Motley Fool recommends Walt Disney. The Motley Fool owns shares of Walt Disney. Mark is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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