Disney is studying Hulu’s business ‘very carefully:’ Iger

Disney, which has undertaken a massive reorganization following the return of CEO Bob Iger, is striving to improve the economics of its streaming business, including the future of Hulu.

The company, which maintains two-thirds ownership over Hulu, previously expressed interest in exercising its option under an existing agreement to buy out the remaining stake from Comcast. But according to Iger, Disney is deliberating all its options for the platform.

“We’re really studying the business very carefully, all those competitive dynamics with an understanding that we have a good platform in Hulu,” he said at the Morgan Stanley investor conference Thursday. Iger touted Hulu’s content library and how the platform is “very attractive” for advertisers.

However, he went on to say the environment for Hulu is “very tricky right now.” Apart from Netflix, the overall streaming business is a nascent business, and many consumers are still getting linear programming on traditional platforms.

“Before we make any big decisions about our level of investment, our commitment to that business, we want to understand where it could go,” said Iger.

Finding a rational pricing strategy

With regards to pricing, Iger commented one key focus for Disney is to figure out a pricing strategy “that makes sense.”

“While I’m pro consumer generally, I think we have to take a look at how easy it is for the consumer to not just sign on, but sign on sometimes under promotional circumstances where it’s not only less expensive, in some cases it’s free,” said Iger.

Upon releasing Disney+’s ad-supported tier in December, Disney bumped up subscription prices for Disney+, Hulu and ESPN.+

“You get one month free, watch all you want in a month, so sign off that and go to another one that’s doing the same thing,” Iger continued. “So I think we have a lot of rationalization to do from a pricing perspective.”

Disney in its recent quarter reported 46.6 million Disney+ subscribers in the U.S. and Canada as well as 57.7 million customers internationally. Iger noted while Disney+ is still relatively new in many markets outside the U.S., he’s optimistic about subscriber growth, particularly as Disney gets “more consistent in terms of our content delivery.”

He added the company’s restructuring will help address the “disconnect” between content production in the U.S. and content abroad.

“I think we might have created an imbalance of sorts, because territory managers of the Disney+ platform were leaning more into what they were producing locally, which has some value, but perhaps not relying as much on what was being produced for global consumption,” said Iger. “And that’s another opportunity for us in terms of reducing expenses.”

Exclusivity not as valuable for growing subs

Asked about content windowing and exclusivity, Iger spoke to the value of content existing both on streaming platforms and traditional linear networks.

“I think it’s already clear to us that the exclusivity that we thought would be so valuable in growing subs – while it has some value – wasn’t as valuable as we thought,” he said.

In the company’s recent earnings call, Iger had brought up the possibility of licensing out some Disney IP to third parties. This is an option that Disney wasn’t able to consider in the past, Iger added, as “we were so favoring our own streaming platforms.”

“If we get to a point where we need less content for those platforms and we still have the capability of producing that content, why not use it to grow revenue, and that’s what we will likely do,” he said, noting core franchise IP would stay in-house, should Disney take that route.

Regarding sports, Disney in its reorganization established ESPN as one of its core business units, along with Disney Entertainment and Disney Parks, Experiences and Products.

Iger said Disney remains bullish about ESPN, given the cable network’s ratings “have actually held up nicely” despite the overall decline of linear. As for ESPN+, which boasts 25 million subscribers, Iger considers it a “flanker business” to the main ESPN brand.

“When you combine the strength of live sports…and the value of advertising so that you can create a business that’s not just subscriber-dependent but dependent on advertising and subscription revenue, I think there’s a reason to be bullish,” he added.