Walt Disney Co (DIS -1.46%) and FuboTV (FUBO -2.02%) just shook up the streaming sector.
The two companies surprised investors by announcing the combination of Fubo and Hulu + Live TV into a company that will be known as Fubo, though both services will continue to exist as separate branded entities. Fubo shares skyrocketed on the news, more than tripling on Monday, while Disney initially posted modest gains but closed down 0.1%.
Disney will own a 70% stake in the resulting company, and Fubo will retain a 30% share. Fubo's management will run the new company, while Disney will appoint the majority of the board of directors. Both brands will continue to operate as they are today.
Is the move a win for Disney? Let's take a look at the key details.
Image source: Getty Images.
What Disney gains from the Fubo deal
For Disney, Hulu + Live TV is a minor service, and it has arguably been a disappointment since its launch in 2017.
As of the end of the third quarter, Disney had 4.6 million Hulu + Live TV subscribers, well below the 47.4 million it had for just Hulu streaming, though the Live TV subscribers pay nearly eight times more, at $96.11 per month compared to $12.73 for Hulu streaming. At that price, Hulu + Live TV was bringing in roughly $5 billion a year. A Hulu + Live TV subscription also includes Disney+ and ESPN+.
Hulu + Live TV is Disney's offering for cord-cutters who still want access to traditional cable TV programming. It competes with alternatives like YouTube TV, Sling TV, and FuboTV, as well as cable-based options like Xfinity and Spectrum. Spectrum, run by Charter Communications, is the largest cable operator in the group with about 13 million subscribers.
Fubo is the smaller of the two properties with just 1.6 million subscribers, but the deal will give Hulu + Live TV increased scale, and give consumers a better offering.
The combination eliminates a smaller competitor for Disney and also resolves a lawsuit from Fubo that resulted from Disney's joint venture with Warner Bros. Discovery and Fox Corporation to launch Venu, a sports streaming service.
In addition to the economies of scale behind the move, Fubo will leverage Disney's content to launch a sports and broadcasting service.
The move is clearly a bigger deal for Fubo than for Disney, but it should clear the way for the launch of Venu, which had been tied up in court by Fubo's lawsuit. That could be the key to the deal for Disney as the company has not fully tapped the power of sports content for streaming.
What Disney investors need to watch
While the Fubo deal isn't insignificant, there's a bigger event that Disney investors should watch this year, and that's the expected launch of the ESPN flagship streaming service, which will make the content on the ESPN network available without a cable subscription for the first time.
The press release announcing the Fubo/Hulu deal didn't reference the ESPN flagship launch, but an alliance with Fubo could help Disney with that. It's possible that Fubo could eventually be subsumed into a larger ESPN/Hulu + Live TV service as Disney is likely to want to bundle its services, and it will be the majority owner of the new Fubo. The ESPN streaming service is likely to compete with Fubo, so some sort of alliance between ESPN and Fubo makes sense given that Disney already has a joint venture with the sports streaming app.
Is Disney a buy?
Few companies combine the kind of evident competitive advantages that Disney has with such a woeful stock performance. Over the past decade, Disney stock is up just 20% while the S&P 500 has nearly tripled.
Like other legacy media companies, Disney has struggled with the transition to streaming, and it arguably overpaid for Fox's media assets.
However, it's now profitable in streaming, and sports appears to be the final piece in the streaming puzzle. If the Fubo deal, the Venu launch, and the ESPN flagship streaming service all come to fruition, Disney should close 2025 in a stronger position than it started the year.
The Fubo combination may be a small piece of that equation, but it also could be a harbinger of a wave of consolidation that's likely to hit the industry. That would also favor Disney by reducing competition, clearing the way for those that remain to raise prices.
Over the long term, Disney stock still looks like a smart bet thanks to its flywheel business model, competitive advantages, and ability to strike deals in streaming.
