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Is Walt Disney abandoning Hulu?

There’s no doubt that the coronavirus pandemic has been a boon to the video streaming industry. Subscriptions to services such as netflix (NASDAQ:NFLX) have increased, and third-party aggregators like Reelgood have also reported a big increase in streaming time.

This trend comes as no surprise given the stay-at-home mandates and advisories during the crisis, but one well-known streaming brand seems to be missing the party. waltz disneyit is (NYSE: DIS) Hulu, born as a joint venture of major broadcasters, has long lagged behind Netflix and Amazon First in terms of subscribers, even though the service has a strong content slate – it offers TV programming straight from broadcast networks and won an Emmy Award for Outstanding Drama for The Handmaid’s Tale, something Netflix has yet to accomplish. Its longstanding status as a joint venture made it something of a forgotten son-in-law in the streaming industry, but that was supposed to change when Disney took majority control with its deal with Fox last year.

Former Disney CEO Bob Iger touted Hulu’s potential and planned to infuse it with new original programming and launch the service internationally. He also liked the service’s appeal to young adults, which advertisers favor.

However, more than a year after the Fox acquisition, Hulu is starting to be forgotten again. In its recent earnings call, Disney said it would launch an international streaming service under Star, an Indian television brand acquired as part of the Fox deal, rather than Hulu. And Hulu’s growth has been disappointing during the pandemic, especially since we’re in the midst of a streaming boom.

The streaming service, which is only available in the United States, added 5.1 million subscribers in the first half of the year, rising from 30.4 million to 35.5 million. This figure includes Hulu’s ad-free and ad-free levels, as well as subscribers to Disney’s recently launched bundle of Disney+, ESPN+ and Hulu, and live TV packages bundled with Hulu. That’s not necessarily bad – Netflix saw similar subscriber growth in the US in the first half of the year, despite having market penetration roughly twice that of Hulu. But Hulu appears to have missed its best opportunity to gain market share, and with the ripple effect of the pandemic, subscriber growth is expected to slow significantly now.

What’s going on with Hulu? Here are some explanations.

Image source: Hulu.

Disney+ stole the show

Disney+ has become the juggernaut of Disney’s streaming arsenal. The service has attracted more than 60 million members since its launch last November, and that’s naturally where Disney invests most of its streaming resources. It is the platform that hosts highly anticipated releases like hamilton and Beyoncé’s black is king, and will continue to receive this type of selection content.

The platform has upended the company’s expectations, as management initially predicted it would reach 60-90 million subscribers worldwide by 2024. It reached that range in less than seven months.

But the success of Disney+ leaves an even bigger question mark over Hulu, as Disney seems to be getting a better return on investment and overall brand improvement from Disney+, a global platform, rather than Hulu. , which is only available in the United States, and whose brand identity seems confusing.

Disney restructured Hulu earlier this year, turning what was an independent business into a cog in Disney’s direct-to-consumer segment. Among the changes were the departure of the CEO of Hulu and the loss of wonder shows on Hulu that moved to Disney+. As part of Disney’s biggest direct-to-consumer business, Hulu is unlikely to get the resources and attention of Disney+, increasing its chances of underperforming.

He will not play internationally

Earlier this year, Iger said Hulu will likely launch internationally next year; However, with plans to make Star its new international streaming service, the prospect of Hulu going overseas now looks uncertain. Launching two separate streaming services on top of Disney+, which continues to expand globally, just doesn’t make sense. And CEO Bob Chapek’s comments on the earnings call seemed to put the kibosh on any kind of Hulu International.

Chapek explained on the earnings call that Hulu aggregates third-party content, while the Star service will host Disney-owned content from ABC Studios, Fox TV, FX and other similar sources. Chapek also added, “And Hulu too, I have to say, has no brand awareness outside of the United States, nor does Hulu have any content licensed to it internationally. .” This shows that Disney would essentially be starting from scratch if it took Hulu outside of the United States. Additionally, Hulu’s advertising business will not easily transition to international markets.

Looking at these reasons as well as Star’s strength in India, it is clear why Disney is elevating this brand and not Hulu.

Is he ditching Hulu?

Hulu was launched in 2008, but the brand has always been a money loser. It was expected to lose $1.5 billion last year, but now that it’s part of Disney, its results are included in the direct-to-consumer segment and not split across an individual business.

Hulu has a number of strengths, including a strong ad business, a much higher average revenue per user than Disney+, and a wide range of content, but the brand exists in a corporate no-man’s land. Disney agreed to take full control of Hulu in 2024, buying Comcastfor at least $5.8 billion, but its future looks uncertain after the meteoric growth of Disney+ and the announcement of Star.

With Hulu’s growth likely to plateau after the lockdown period, Disney may consider other options for the tangential streaming service, such as selling it or bundle it with a premium version of Disney+. As it stands, conducting the loss-making business with no intention of investing in or expanding it seems like a mistake.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.