Disney's Hulu Strategy Is Emerging

When Walt Disney (NYSE:DIS) acquired most of 21st Century Fox in a blockbuster transaction, it was clear right away that streaming was at the heart of the deal. With Fox's stable of media properties added to its own impressive library, Disney was poised to challenge Netflix (NASDAQ:NFLX) with an all-new subscription video on demand (SVOD) service. That streaming service, we've since learned, is Disney+.

However, Disney's acquisitions also put it in a somewhat awkward position regarding Hulu, Netflix's oldest rival. Hulu started as a joint venture, with ownership spread among Disney, 21st Century Fox, Comcast (NASDAQ:CMCSA), and AT&T. Disney+ looked like it was destined to be a de facto competitor to Hulu, and it was all starting to look a bit messy.

Some questions remain, but Disney's streaming strategy is beginning to emerge -- and the way it's handling the Hulu-Disney+ question is encouraging.

Purchasing power

It's one thing to have two similarly positioned services in one market. It's another to have 1.6 of them. Disney's weird position existed in part, because it controlled Hulu but not exclusively. As long as that was true, Disney+ would presumably be the favorite -- all the more reason for Hulu's other owners to be less than eager to cut sweetheart content deals with "their" platform.

But Disney is cleaning up this situation by consolidating its ownership of Hulu. After rumors swirled that AT&T would divest its share of the streaming service, the company did just that, selling its shares back to the jointly-owned Hulu LLC. And now Comcast, too, has agreed to sell -- despite previous statements to the contrary. Disney's arrangement with Comcast means that the sale will happen years down the road, but the bottom line is that Disney will own Hulu in its entirety. That simplifies Disney's streaming priorities enormously.

Differentiation and synergy

Disney has been saying the same thing for a while regarding the difference between Disney+ and Hulu. The former be more family friendly, while the latter will have a larger selection of content for mom and dad.

There are some reasons to be a little wary of this approach -- Netflix doesn't divide its offerings in any such way, and some of Disney's content, like PG-13 Marvel Studios films, would toe the line a bit on the "family friendly" front -- but the issues feel a little less dire in light of Disney's pricing scheme. Hulu recently dropped its on-demand service's price, and Disney+ is undercutting Netflix significantly (Disney+ will boast a much larger library than what Netflix offers, too). The two subscriptions combined only cost about as much as what subscribers currently pay for Netflix's most popular plan.

In this light, Disney's strategy looks like an a la carte pricing model for what, differing brand names aside, could be considered a two-part competitor to Netflix's unified offering.

Hulu's content and remaining questions

There's one more encouraging sign that Disney is taking its Hulu responsibilities seriously: Hulu is getting some love from Disney's valuable intellectual property. Making good on earlier promises to invest significantly in the service, Disney is planning some big new shows, including two that make use of the valuable Marvel brand: Ghost Rider and Helstrom.

The flip side of this, though, is that Hulu's other content providers may be on their way out. Disney buying out Comcast's stake makes sense for all involved, but that's partly because Comcast is starting a streaming service of its own. Comcast-owned NBC is likely to yank shows like The Office from Netflix as soon as possible, and it would be naive to assume that a post-Comcast Hulu would fare much better.

In a marketplace where studios stay loyal to their parent companies' streaming services, Disney's own properties will have to carry both of its subscription offerings. CEO Bob Iger has said that preserving content relationships would be a priority under any Hulu deal, but whether that will actually work out remains to be seen. The fact that the deal postpones Comcast's exit may help Disney's chances of holding onto some NBC content.

Hulu's position isn't perfect, and it still looks more like a Disney+ competitor than not. But this emerging strategy should ease concerns that the company is at risk of cannibalizing its subscriber base. With hugely popular media properties, competitive pricing, and at least some semblance of differentiation between the two services, Disney is doing its best to make the most of a powerful and sprawling streaming arsenal.

Stephen Lovely owns shares of AT&T and Netflix. The Motley Fool owns shares of and recommends Netflix and Walt Disney. The Motley Fool recommends Comcast. The Motley Fool has a disclosure policy.

This artilce originally appeared in The Motley Fool.