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Why is Disney Ignoring Hulu’s Losses?

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Hulu posting losses

Streaming service provider Hulu, which is jointly owned by Walt Disney (DIS), Comcast (CMCSA), Twenty-First Century Fox (FOXA), and Time Warner (now known as WarnerMedia), has been steadily posting losses. In the second quarter of 2018, Hulu lost $357 million, which compares to a loss of $173 million in the year-ago quarter. Comcast, which owns 33% of the Hulu streaming service, reported a $107 million loss in the second quarter of 2018. Hulu has already made losses of $238 million for Comcast through the first half of 2018.

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Hulu investing in original content

Disney has agreed to buy Fox’s assets for $71.3 billion. The assets include Fox’s 30% stake in Hulu, which will give Disney a 60% stake in Hulu. According to CNBC, Hulu’s consecutive losses might dent Disney’s bottom line by $1 billion or more for the year after the Fox acquisition is completed. However, it seems that Disney doesn’t foresee any harm, even though Hulu has posted losses in each of the last two earnings releases.

According to Disney, Hulu has been increasingly investing in content, marketing, and labor, which has increased its costs and resulted in losses for its owners. However, it also increased its number of titles and enhanced their quality. Hulu has also delivered higher subscription and advertising revenue in the second quarter of 2018.

Hulu has been investing in original content since 2013 to attract subscribers. The Handmaid’s Tale won an Emmy for best drama. Netflix (NFLX) had three category nominations. Hulu also launched a skinny bundle of live television channels in 2017, which further shot up its marketing and content costs.

Hulu has spent ~$2.5 billion on content in 2017 and is expected to invest that much in 2018. Netflix, on the other hand, spent $6.3 billion on original programming in 2017 and is planning to spend ~$8 billion on original shows this year. Amazon (AMZN) has invested ~$4.5 billion on original content in 2017, while Apple and Facebook allocated ~$1 billion each last year to acquire new content.

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