Hulu is a key to the Comcast vs. Disney bidding war for Fox

Samira Wiley of "The Handmaid's Tale" on her character's new refugee life

The bidding war over the 21st Century Fox's entertainment assets between Walt Disney (DIS) and Comcast (CMCSA) has shined a light on the Hulu streaming service and the changing fortunes of the broadcast and cable TV networks.

Hulu, which was founded in 2007, is benefiting from a host of trends including the growing numbers of subscribers who either are quitting their pay-TV service (cord-cutters) or paring it back (cord-shavers). The company's subscription video on demand service (SVOD) is the third largest in the U.S., trailing only Netflix's (NFLX) 54 million subscribers and Amazon's (AMZN) 32 million as of 2017.

Fox's 30 percent stake in Hulu is among the assets it's selling, so whoever wins the bidding war will control the streaming service, in which Walt Disney, Comcast and WarnerMedia (formerly Time Warner) all have stakes.  

On Wednesday, Disney today raised its offer for the Fox properties to $71.3 billion, topping a rival $65 billion unsolicited offer from Comcast. Analysts expect Comcast to counter Disney's bid.

"Hulu is a nice asset," said Trip Miller, managing partner with the Memphis-based hedge fund Gullane Capital Markets, which owns shares of Disney. "Certainly, it's one of the gems that Disney sees in this whole deal."

Under CEO Bob Iger, Disney has made expanding into streaming a priority. Disney plans to pull its content from Netflix as it prepares to launch a family-oriented service in 2019. Disney launched its ESPN+ streaming service in April. Comcast also is eager to expand its streaming business after pulling the plug on its Watchable service last year.

Hulu, however, reportedly lost $920 million last year as it ratcheted up content spending to keep up with its larger rivals. Still, given the challenges facing the broadcast networks such as declining ad revenue and a slowdown in the growth of fees, the risks associated with Hulu may be worth it.

The year-old Hulu with Live TV service also is gaining traction in the increasingly competitive market for "skinny bundles" of TV channels. Hulu with Live TV has roughly 800,000 subscribers and offers more than 50 channels, 50 hours of cloud DVR storage and Hulu's SVOD service, home to the critically acclaimed dystopian drama "The Handmaid's Tale." Pricing starts at $39.99.

Actress Elisabeth Moss on dystopian series "The Handmaid's Tale"

A recent survey by UBS of 2,000 consumers found that more than half would consider signing up for Hulu with Live TV. YouTube TV ranked second with 41 percent indicating an interest, followed by DirecTV Now with 32 percent and Sling TV with 30 percent. YouTube is part of Alphabet (GOOG). DirecTV is owned by AT&T (T), while Sling TV is offered by Dish Network (DISH).

"The result was somewhat surprising as Hulu with Live TV and YouTube TV are the newest of the streaming TV providers," UBS Analyst John Hodulik wrote in a client note. "This could suggest that their recent marketing investments have helped increase awareness of and interest in their services or that both benefit from the other, non-linear content that they already provide."

The investment bank also found that the ranks of cord-cutters and cord-shavers increased over the past six months. Interestingly, UBS also noted that the numbers of consumers who are "doubling up" by keeping their pay-TV service and adding streaming are at the highest level since 2016.

According to UBS, Hulu's share of the streaming-TV market will hit 19 percent in 2022, up from its current 13 percent. UBS also argues that Hulu with Live TV would make a good partner for Verizon (VZ), which plans to offer a streaming service by the end of the year. 

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