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Twenty-First Century Fox Inc (FOX), The Walt Disney Company (DIS): Unlocking the True Value of This Online Video Provider

Twenty-First Century Fox Inc (NASDAQ:FOX)Hulu is a joint venture of NBCUniversal Television Group (owned by Comcast), Fox Broadcasting Company (owned by Twenty-First Century Fox Inc (NASDAQ:FOX)), and Disney-ABC Television Group, owned by The Walt Disney Company (NYSE:DIS). The owners declined the $1 billion offer for Hulu made by DIRECTV (NASDAQ:DTV), the largest U.S. satellite TV service provider, and Peter Chernin with AT&T Inc. (NYSE:T), respectively.

Instead, the owners decided to invest $750 million to compete against other online distributors like Netflix, Inc. (NASDAQ:NFLX) and Amazon.com, Inc. (NASDAQ:AMZN). At the same time, Hulu owners continue to talk to Time Warner Cable Inc (NYSE:TWC), the second-largest U.S. cable TV company, for a partial sale where Time Warner Cable was looking at a 25% stake.

Why selling in the first place?

While Comcast remains a silent partner due to government regulation, The Walt Disney Company (NYSE:DIS) and Twenty-First Century Fox Inc (NASDAQ:FOX) (split from News Corp.) had different ideas on how to operate Hulu, which led to the potential sale of Hulu in the first place. Now, The Walt Disney Company (NYSE:DIS) and Twenty-First Century Fox Inc (NASDAQ:FOX) seemed to have reached an agreement on Hulu’s future expansion, thus pulling out of the sale. With the new capital investment, Hulu can improve its content offering and enhance its operation. The Walt Disney Company (NYSE:DIS) Chairman and CEO Robert Iger indicated that the future of Hulu is bright, and current owners should hold on to it.

Where does Hulu stand and what’s next?

Hulu was struggling while its major owners had different ideas about its direction. However, Hulu has near 30 million unique monthly visitors and over 4 million paying subscribers generating $690 million revenue last year. Hulu is already generating a profit for its free version, while its $8-a-month Hulu Plus could turn a profit after 18 months.

If the owners of Hulu can come to an agreement on how to operate and expand Hulu, then it might have solved one of its fundamental problems. Twenty-First Century Fox Inc (NASDAQ:FOX), by splitting from News Corp., has separated from its publishing division. Twenty-First Century Fox Inc (NASDAQ:FOX) is now one of the fastest-growing entertainment conglomerates. Twenty-First Century Fox Inc (NASDAQ:FOX) and The Walt Disney Company (NYSE:DIS) now have a more similar focus.

However, the competition in the digital content space is also heating up. Netflix, Inc. (NASDAQ:NFLX), which positions itself as an expert programmer, continues to focus on boosting its content production. Netflix spends nearly 5% of its annual $2 billion programming budget on original shows. Netflix, Inc. (NASDAQ:NFLX) has recently signed an original programming deal with Dreamworks Animation Skg Inc (NASDAQ:DWA), allowing Netflix to access new series from the creators of popular franchises such as “Shrek” and “Madagascar.”

Another strong competitor, Amazon.com, Inc. (NASDAQ:AMZN), has also reached an exclusive-content agreement with Viacom to enhance its programming offerings on its Amazon.com, Inc. (NASDAQ:AMZN) Prime video services after the Netflix-Viacom agreement expired. The battle for content continues to escalate.

What now?

As Disney Chairman and CEO Robert Iger said “This thing could really turn out to be something big.” Hulu’s future looks bright with the new capital investment and aligned management. It is expected that Hulu will boost its content offering and enhance its paid service to keep up with strong competitions from Netflix and Amazon.

The company is also planning to turn Hulu into an industry-wide “TV Everywhere” service, the concept that cable and satellite subscribers should be able to stream shows and channels whenever and wherever they want. “TV Everywhere” could provide broader on-demand access to hundreds of television shows that are hard to find online now. Hulu could be the key to make this “TV Everywhere” concept work as content programmers and distributors have struggled. For this reason, it makes sense for current owners of Hulu to have Time Warner Cable come aboard to expand Hulu’s ecosystem.

Take away

With Twenty-First Century Fox Inc (NASDAQ:FOX) and Disney’s better aligned interest, Hulu could be aiming for something big with its “TV Everywhere” concept. Upon the progress of “TV Everywhere” concept, both 21st Century Fox and The Walt Disney Company (NYSE:DIS) will benefit significantly as entertainment and content providers while Comcast, as a cable operator, can better leverage into the new streaming ecosystem. For now, not selling Hulu is a sound decision for its current owners. More gains are expected to be realized from Hulu in the long-term by 21st Century Fox, Disney, and Comcast.

The article Unlocking the True Value of This Online Video Provider originally appeared on Fool.com and is written by Nick Chiu.

Nick Chiu has no position in any stocks mentioned. The Motley Fool recommends Netflix and Walt Disney. The Motley Fool owns shares of Netflix and Walt Disney. Nick is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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