Why a Hulu sale could usher Disney out of the advertising business
From ad tech powerhouse to also ran?
A few weeks ago, I wrote Bob Iger a letter outlining my suggestions for what to do with Hulu. I still haven’t heard back. As of now, it looks as though the new/old Disney CEO may go a very different way, as he very carefully and deliberately opened the door to a possible Hulu sale - while also throwing shade on ‘general entertainment.’
Most people hearing this news would start by breaking down who might buy Hulu and what that means for the streaming wars. I’ll get into that later. But my first thought was, what does this do to Disney’s advertising business?
Is it crazy to think this could be the beginning of the end?
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Since it fully took control of Hulu in 2019, Disney has spend the past few years using the service as its foundation for a CTV-centric, future-leaning, ad tech-infused TV ad offering. In fact, the company just hosted its second annual ad techy upfront-like event.
Essentially, Disney has been using its clout and size to build a powerful walled garden, using Hulu’s reach, ad tech and logged-in user bases of 43.5 million US subscribers.
To review, according to AdExchanger, Disney boasts of:
A proprietary ad tech stack
An ID graph that can connect brands with “235 million unique viewers, 110 million households and over 1,800 audience segments”
A public plan to shift half of its advertising sales to automated channels by 2026
If you sell Hulu tomorrow, does that rip the guts out of this platform - and this entire strategy? What kind of domino effect on Disney’s entire ad business would we see? I spoke to some experts for help.
One question that came up was whether Disney’s ad tech was still ‘part of Hulu,’ or essentially Disney’s. Folks I spoke to suspected the latter to be true, meaning that if Hulu goes, the stack, or at least some of it, stays. But it’s unclear, and it probably depends who buys it.
What about all those IDs? Does Disney keep Hulu’s first-party data, or does it go with the sale? A tricky question, but one would presume that these are Disney customers, and Disney would retain some ability to interact with Hulu users even after Hulu is gone. As for whether they should remain part of this ‘graph’ - your guess is as good as mine (assuming you, unlike me, actually understand audience graphs and don’t worry the regulators will blow them up someday).
Either way, Disney would find itself with far less CTV inventory and data at a time when CTV and data are the future of the TV advertising business.
Not to mention that whatever ad tech assets that remain would be presumably used to power ads on Disney+ - which only just rolled out its ad tier. That’s not the most economical use of ad tech in the world.
“I could see Disney licensing its tech to Hulu for a short period, but eventually do they just switch vendors?” asked one source. “Whatever happens this sets them back on scale.”
It also sets them back on clout. It’s easy to play big dog walled garden when you’re selling the largest, oldest CTV ad player this side of Netflix. Sure, Disney could still put together massive linear TV ad packages, including loads of ABC and ESPN. But it’s hard to talk about how vast your ID pool is when it get thinned out in one fell swoop.
Plus, we don’t know what happens with ESPN. Does Iger spin it off? Go full direct-to-consumer by putting the best stuff on ESPN+? Puck's Matthew Belloni and Bloomberg’s Lucas Shaw had an excellent discussion about this on The Town this week.
Right now, how much is ESPN the center of Disney’s digital ads sales? You tell me. Several people noted to me that ESPN’s value has always been more centered on carriage fees, and less ads. Still, there’s a lot of money to be made in selling ads during Monday Night Football and the College Football playoff.
If ESPN goes, there’s not much ad space left to sell.
Speaking of things that could go, Iger also sorta hinted that anything not Disney-Marvel-Star Wars-Pixar could be on the chopping block, as he told CNBC that “general entertainment” wasn’t a “differentiator.” Apparently the possibilities for Grey’s Anatomy theme parks and merch are limited.
In Q4, Disney’s linear networks brought in $ 7.2 billion, down 5% year over year. That’s no small chunk of change - but a huge part of that figure is carriage fees, which likely won’t last forever.
So does Disney start by breaking up its digital ad tech beast, and eventually move on from selling ads on ABC and Freeform and its local stations? “It’s not out of the question,” said a connected streaming TV expert. “The thing to remember is that Iger doesn’t care about this stuff.” Certainly not ad tech.
Of course, this could all be a public head fake by Iger, and maybe he ultimately keeps Hulu to build it up or bake it into Disney+. Selling Hulu is highly complicated, given Comcast’s rights in the deal. Still it’s fun to speculate:
Comcast, which owns 33% of Hulu, makes a ton of sense. They have FreeWheel, so ad tech is not an issue, and it’s easy to see mushing together Hulu and Peacock
LightShed’s Rich Greenfield floated the idea of Microsoft jumping in as a buyer, especially if the FTC sinks the Activision deal. This would definitely fit Microsoft’s growing ad ambitions, and Xandr would likely plug in nicely to Hulu. Plus, the Xbox could serve as an excellent marketing and distribution vehicle. The challenge is, what is Hulu when and if it loses all of Disney’s programming? That question hangs over any potential buyer. One other thing to consider - Microsoft buying Hulu could really piss off Netflix.
What about Google? The programming thing would be an issue, but Hulu would conceivably help the company in its quest to upsell YouTube to TV buyers (packages!). Plus, Hulu’s live skinny bundle offering could be melded with YouTube TV to create an even bigger player. This would all hinge on regulators letting Google buy…well, anything.
If Iger does indeed sell Hulu, his next move should be to snatch up Roblox, which unveiled impressive earnings this week. Roblox would have so many natural synergies with Disney’s kids businesses. Plus, it could serve as a natural IP incubator, where users make the games and characters for you. But Roblox is probably a conversation for another newsletter.
In the meantime, enjoy Disney’s upfront this year. Who knows how many more there will be?