Many devoted theme park fans know that Universal is building an ambitious new theme park in Orlando - Universal's Epic Universe. But did you know that Universal's arch rival Disney is going to be paying for it?
Okay, Disney isn't writing "For Epic Universe" in the memo field on the check it's going to be sending. But The Walt Disney Company is just weeks away from paying billions of dollars to Universal Studios owner Comcast - enough money to cover the cost of designing and building Epic Universe, many times over.
That's because both companies have hit the deadline for Disney to buy out Comcast's ownership share of the streaming service Hulu. When Disney bought Fox in 2019, that deal gave Disney controlling interest in Hulu, with Comcast holding on to the remaining 33% of the company. The two companies agreed then that Disney would buy out Comcast within five years, and now both companies have hired investment banks to appraise a value for Hulu so that they know exactly what that buyout cost will be.
The companies' original agreement set a floor of $27.5 billion for Hulu's valuation, but Comcast managers have said that they believe the streaming service is worth much more now. So we likely are looking at least $10 billion that Disney will have to pay Comcast to get full ownership of Hulu.
Why is this important to theme park fans? Disney and Universal have grown to be the market leaders in theme parks in large part because both companies are major entertainment conglomerates, with movie and television studios and networks that can provide the parks with both IP and promotion. But the entertainment industry is going through perhaps its most profound transition in its history right now. How each company manages that transition will determine which companies survive, even Disney and Universal.
Of all the technology that Apple and Google crammed into their mobile devices - telephones, still and video cameras, audio recorders, Web browsers, step counters, heart-rate monitors, compasses and level-measurement tools - they did not include radio or television receivers. And that decision - however justified technologically - is destroying the broadcast media business.
Without access to the one device that people now use overwhelmingly to consume information, broadcast radio and television ratings are collapsing, and the businesses that run those stations are losing value, fast. That extends to the networks that program content for those stations, as well. Broadcast television long has been taking hits from cable, but with streaming, not cable, becoming the means by which people access TV content on their ubiquitous mobile devices, cable networks have entered their death spiral, too.
The entertainment conglomerates know all this, of course, which is why they have been scrambling to launch and capture market share for their own streaming services. But the companies are taking huge losses on those streamers. They have discounted prices to attract subscribers, so they are not making enough to cover the costs of starting up the services along with obtaining and producing content for them.
The strikes that have stopped major studio production have, in large part, been about streaming. The old contracts that actors, writers and directors agreed to treated content made for the Internet as if they were little YouTube videos. The unions agreed to trivial compensation for those productions because they were considered trivial at the time those deals were made.
Now that streaming is threatening to become the leading medium for entertainment distribution, the people who make that entertainment want to be paid for making it like they have been paid for making movies and television. The directors and writers have their new deals, but the association that represents the studios this week walked out of negotiations with the actors.
Eventually, the studios will make a deal with the actors. Combined with the new deals for the writers and directors, the cost of producing shows for streaming services will rise. So when the strike ends and that new deal goes into place, the music stops for the game of musical chairs that the studios have been playing, with their deeply discounted streaming plans. Losses will grow, and investors will grow even more impatient.
Did anyone else get an email this month about Disney+ raising prices? Who's going to cancel their subscription, instead? Studios will try raising prices to cover their losses, but that could result in lower subscription numbers, instead. Major studios' stock prices have been dropping over the past couple of years, with only Comcast showing any recent signs of recovery. Eventually, whoever's stock price is losing the most is going to become a takeover target, as major investors look to cash out the studio's remaining assets for whatever they can get.
In this environment, no entertainment company wants to be holding any depreciating assets that could be a drag on its stock price. That's why Disney and Warner Bros. and everyone else are aggressively writing off or looking to sell anything that is not driving profits for them right now. (Rest in peace, Star Wars Galactic Starcruiser.) Studios' business plans depend upon other streamers to fail, leaving more market share for themselves and the market power to raise prices to make their streaming service profitable. It's race to see who can outlast the competition.
Comcast's upcoming $10 billion-plus windfall, coupled with its increasing stock price over the past year (which probably reflects that impending windfall), puts NBCUniversal's owner in a better financial position than its competitors. The theme parks have been helping Disney's bottom line, but it really needs to come up with something to replace the cash it is about to have to pay Comcast. That's why Disney has been looking for a minority investor in ESPN and has been considering selling off its ABC broadcast network and local stations, perhaps to someone like Byron Allen, who has publicly campaigned to buy them. An ABC sale also would rid Disney of one of a big depreciating asset.
Many people inside the entertainment industry have been rooting for Warner Bros. Discovery to be the studio left without a chair when the strikes end and the industry faces its new economic reality. CEO David Zaslav is widely disliked for he's done since Discovery, Inc. took over WarnerMedia from AT&T. A Comcast takeover of WBD would give the Universal theme parks ownership of the Harry Potter theme park rights it is now licensing from Warner Bros., as well as access to Warner Bros.' deep library of IP. (Six Flags would retain ownership of their license for Warner Bros.' DC and Looney Tunes franchises, however.)
A Comcast/Warner deal would allow that company to combine the Peacock and Max streaming services to better compete with Disney's bundle of Disney+ and Hulu. But Netflix and Apple are big players in this business now, too, with Paramount Global also in the mix with its Paramount+ app, Paramount studios and the CBS network. Sony, the owner of Colombia, has sat out the streaming wars and might instead be looking to sell its Sony Pictures Entertainment division, which licenses some theme park franchises, as well.
The Hulu sale might give Disney a better long-term position in the streaming war, but it comes at the cost of providing Comcast and NBCUniversal a significant immediate financial advantage. What happens next in streaming will help determine the financial ability of Disney and Comcast to continuing building and operating world-leading theme parks.
Or even whether those companies will be able to continue independently at all.
* * *
To keep up to date with more theme park news, please sign up for Theme Park Insider's weekly newsletter.
And to help support Theme Park Insider while saving money on discounted theme park tickets, please follow the ticket icon links our Theme Park visitors guides.
By the way, this song just dropped from THC's 'Broken Record' label: "Does anyone have any definitive information about Comcast adding any major new attractions to USF or IOA?
I wouldn’t bet against Nintendo drawing guests after their success at Universal Hollywood and the Mario movie box office. And I’m expecting only two attractions to have a height requirement higher more than 44”: the Starfall Racers launched dueling coaster, Dragon Sky Fly and the Universal Monsters Kuka arm ride. So a significant percentage of the park should be accessible for Universal’s target demo of families with kids over six years old.
I think it’s obvious that Animal Kingdom will be the Florida park most hit by Epic Universe as Disney has teased its biggest fresh IP Encanto as an awkward fit into the park.
Robert, do you have a sense of the value of Hulu to Disney beyond the value of the brand itself? If I understand correctly, it was created by Fox, Disney, and Universal to compete with Netflix. But if Universal sells their share, will they still put NBC and other programming on Hulu? In other words, would Disney buying out the platform also cause the gutting of its unique content—specifically the content that couldn’t or wouldn’t be released on Disney+? Or would Comcast Universal commit to still using the platform to distribute syndicated programming as one of the conditions of the sale?
Really great analysis!
I'm not certain how much the Hulu sale will end up actually funding Epic Universe at the end of the day. Comcast's CEO says they will return proceeds of the sale to shareholders (https://www.cnbc.com/2023/10/12/comcast-disney-hire-morgan-stanley-jpmorgan-to-value-hulu.html).
I find it interesting it was phrased as "returning proceeds to shareholders" rather than "adding value for shareholders." Adding value for shareholders could take many forms: an acquisition, paying down debt, investing into its core businesses (including funding for EU), but the most direct (and in my opinion most likely) scenario, is a large chunk of stock buybacks to juice the share price. Hence "proceeds to shareholders."
I think this deal can work out okay for the Mouse so long as Iger doesn’t bury his most successful streamer within a tile on Disney Plus. Hulu has done well after losing most of its Kabletown Kontent with 20th Century originals and FX Series, and it might even make sense to go back to the original multi ownership structure by offering Sony and Paramount ownership stakes. Keep Disney Plus as a pricey add on to a Hulu subscription.
The Kabletown - WB Discovery combo makes a ton of sense, but I am wondering if a spin off of NBC Universal similar to how AT&T spun off WB might help the combination pass regulatory muster over an outright purchase.
This article has been archived and is no longer accepting comments.
Wow! RN sure puts a lot on the table.
I suppose he has a point when he writes that the Hulu sale provides "Comcast and NBCUniversal a significant immediate financial advantage". But in a world where costs for content production and construction of attractions continue to climb, I wonder how long the wind will stay in Comcast's sails.
Much has been written about Disney's debt. But if the stories I am reading are correct, Comcast owes a good amount of money as well. Yahoo Finance (07/13/23): " Comcast had US$100.7b in debt in March 2023; about the same as the year before. However, because it has a cash reserve of US$5.54b, its net debt is less, at about US$95.2b."
Additionally, Comcast has unique concerns related to cord cutters -- including both a loss of cable subscribers as well as internet customers. This from Cordcuttersnews.com (04/26/23): "Cord Cutting has forced companies like Comcast to expand their business into new areas. To help offset the declining number of TV subscribers, Comcast has expanded into areas like wireless phone service and even home security. Now though, Comcast is facing a newer threat, this time to its home internet service. Recently new internet options are starting to come to markets Comcast has dominated in the past. Now SpaceX, T-Mobile, Verizon, and even AT&T have all launched wireless home internet services. Other companies have launched traditional internet services in areas Comcast serves. According to Benzinga, Comcast now has a total debt of about $99.98 billion. Comcast also reportedly has $257.27 billion in total assets with a debt ratio 0.39."
Same source (02/28/23): "Comcast is facing a tough 2023 when it comes to its traditional TV business. In Comcast’s 2022 Q4 earnings report released this morning, the company reported a 440,000 video customer loss. Hopes that internet would offset TV losses ended when they added just 4,000 broadband customers for the quarter."
With all that in mind, the Hulu windfall is not all necessarily all gravy. On September 16th Mr. Niles posted (perhaps as snark): "And when Universal finishes forcing Disney to buy out its share of Hulu, Disney will have paid for Epic Universe, too."
I'm not sure it's that simple. It may pay for part of Epic -- such as the substantial construction costs which were added when Comcast jump started construction after a COVID-related pause.
But the money cannot be completely earmarked to pay for Epic's construction. It might also be needed to provide insurance on the substantial challenges facing the new park. Certainly both expected and unexpected (COVID) situations can have an impact of the park's success. The economy, the weather (heat), airline ticket, park entry ticket and resort prices, international situations (Israel, Ukraine, etc.) Orlando traffic, staffing shortages and cannibalization of attendance at its existing Central Florida parks are just some of those considerations. What's more, there are the inevitable technical problems that come with the operation of new attractions. Additionally, if rumors are true, a sizable chunk of the new park may not be deemed suitable for families with younger children. The emphasis on coasters, aggressive Kuka arm ride systems, darker themes like Universal's classic monsters and the Harry Potter franchise might make parents with youngsters think twice before dropping $100 (or maybe $200) to enter a park where they wouldn't want able experience a third of the attractions.
Certainly out of the box the park is going to be a massive hit. I have no doubt it will be ranked among the most amazing productions in the history of themed entertainment. But in order to have some staying power it will, over time have to, manage the challenges I list above while footing the bill to add exciting, groundbreaking new attractions (not just more coasters) to both the new park as wells as at USF and IOA.
Just sayin'.