Catch Me or I Go, HuDisney

Media & Entertainment | M&A

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CATCH ME OR I GO, HUDISNEY

M E D I A & E N T E R TA I N M E N T | M & A

PROMPT:
Your client is Disney, they’re a global leader in entertainment and have a diverse portfolio of
media networks, including Disney+ and Hulu. Disney+ is the flagship streaming service and BEHAVIORAL
focuses on family content, whereas Hulu offers a wider range of TV shows and movies. As the INTERVIEW QUESTION:
streaming market grows more competitive and consumers prefer consolidated services (i.e.,
multiple networks in one platform), Disney is considering merging Hulu with Disney+ to What industry fascinates
streamline offerings. You’re tasked to analyze this integration’s viability and strategize its you? Please share
implementation.
something current that is
happening in that industry.
CLARIFYING INFORMATION: Provide this only if corresponding questions are asked

1. What is Disney hoping to achieve with this merging of platforms?

Disney hopes to increase revenues from its streaming channel.

2. What are differences between the platforms’ content, size, or genre?

Disney+ focuses on family-friendly content including Pixar, Star wars, and Marvel content. Hulu offers a broader range of
content from network (i.e., ABC Network) TV shows, movies, and original content.

3. What geographical markets do Disney+ and Hulu serve?

Both services have subscribers across the globe, and the two streamlining platforms serve similar geographical markets.

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Framework Guidance:
Note: There are many possible alternatives to this framework. These are only provided as possible suggestions.

Streaming Market Profitability Internal Capability Marketing

• Market Trends: Current and • Revenue: Subscription model, • Human Capital: Organizational • Content: Leverage strengths of
emerging trends advertising model, increased change to support integration – both assets (family content +
• Consumer Preferences: revenue per user team restructuring, cultural Hulu’s diverse content)
Segmentation – ability to • Costs: Upfront costs, cost impact, and trainings • UX: Personalized
cross-sell with integration; synergies (savings), tech • Technological capability: recommendations based on
Demand for streamlined infrastructure, marketing, etc. Integration of technologies – database from both platforms
platform • Need to conduct break-even streaming infrastructure, to improve user interface
• Competition: Other key analysis to determine viability content management, • Brand Perception: Perception
competitors and market of integration subscriber database from consumers on the
position (%) integration; what are some
implications?

How to Move Forward:

To move forward, the interviewee should raise the question of what benefits Disney and Hulu will each realize in this deal. An excellent candidate will recognize that
both parties will have to have projections that will show a meaningful and tangible benefit for themselves, thus making the integration worth it. Mergers can fail for a
variety of reasons, so it is important that the candidate acknowledges this risk and that they show interest in calculating the financial benefit of the merger.

However, to move forward to the exhibit, the interviewee should ask if there is information on the current streaming market.

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EXHIBIT 1
Streaming Service Market Share

5%
10%
Netflix

Disney+
40%
15%
Amazon Prime

Hulu

Others (Apple TV,

Max, Peacock, etc.)

30%

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Question 1
Ask the following question after the candidate has made comments on Exhibit 1:

• How do you think the integration of Hulu into the Disney+ platform could alter Disney’s position in the market?

Exhibit Guidance
After looking at Exhibit 1, candidates should be able to identify and call out the following:
• Competition: 3 players make up 85% of the market. Netflix is currently dominating the market, but there another significant players are
Disney+ and Prime.
• Hulu and Disney+ currently account for 40% of all streaming revenues, equivalent to Netflix. If this integration results in increased
revenues, Disney will become the leader in the streaming space.
• Market: The current streaming market is fragmented at the bottom, given the 5% “Others” category. This suggests there will not be many
future opportunities for competitors to beat Disney through acquisitions.

Question Guidance & How to Move Forward

• Synergy: Benefit post-integration, including cost savings, platform infrastructure, content bargaining
• Content: Content diversity and quality in attracting and retaining subscribers – improves value proposition
To move forward, the interviewee should address any form of cost-savings. Mention the text below.

• The client is interested in understanding how this strategic move could affect the average revenue per user and overall market
share in the context of increasing competition and subscriber expectations for content. (Move to Question 2)

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Question 2
If the integration is successful, Disney+ plans to introduce a bundled subscription model to attract more subscribers and increase average
revenue per user. The bundle will offer access to both Disney+ and Hulu content at a discounted rate compared to subscribing to each
service separately. Calculate the expected annual revenue from the new subscription model and compare it to the current revenue
generated by separate subscriptions to Disney+ and Hulu.

Data needed to solve calculation:

• If the interviewee did not already ask for the follow information, please provide it to them:
- Current Subscribers: Disney+: 100M subscribers; Hulu: 35M subscribers; 15M are subscribed to both
• Ensure that they also ask for the following information before beginning the calculations. If you need to move along more quickly, use your discretion as to
providing it yourself.
- Current Pricing: Disney+: $7/month; Hulu: $11/month
- Bundled Pricing: Both services: $15/month
- Estimated Customers: 20% of current Disney+ only subscribers and 25% of current Hulu only subscribers will switch to the new bundle in the first year.

CALCULATIONS ON NEXT PAGE

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Calculation
• Current Revenue:

- Disney+:100M subscribers x $7/mo x 12mo= $8.4B

- Hulu: 35M subscribers x $11/mo x 12mo=$4.62B

• Projected Subscribers to Bundle

- Disney+ Subscribers switching to bundle = (Disney+ subscribers – currently subscribed to both) x 20%= (100 mn−15 mn) × 20% =17M subscribers

- Hulu Subscribers switching to bundle = (35mn-15mn) x 25% = 5M subscribers

- Total Bundle Subscribers: 17mn + 5mn + 15mn (overlap) = 37M subscribers

Expected Bundle Revenue: 37mn subscribers x $15/mo x 12mo = $6.66B

Expected Disney+ Only Subscriber Revenue: (100mn-15mn-17mn) = 68mn subscribers x $7 x 12 = $5.712B

Expected Hulu Only Subscriber Revenue: (35mn-15mn-5mn) =15mn subscribers x $11 x 12 = $1.98B

• Annual Revenue Today = $13.02B

• Annual Projected Revenue with Merger = $14.35B

To move forward, the interviewee should share thoughts about the viability of the integration:

• Market Position, Subscriber Base Growth (Sensitivity Analysis), Potential Counter-Moves from Competitors, etc.

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BRAINSTORMING
If the network integration goes through, what marketing strategies should Disney deploy to maximize both subscriber retention and
growth?

Brainstorming Guidance:
Note: This is just one possible set of categories and answers. Many more are possible, and interviewers should assess both the volume and relevance of answers.

Digital Advertising Content Marketing Customer Engagement

• SEM campaigns; SEO optimization • Exclusive releases and previews • Subscription incentives – loyalty
rewards
• Targeted social media campaigns • Influencer partnerships across
social media platforms • Subscription flexibility – family
• Personalized ads plans

• Community building through

reviews

• Interactive experiences – live

events

Best candidates display:

The candidate should reference the following strategies: leveraging the strength of a diversity of content, leveraging various online platforms for
advertising, and fostering a deeper connection between the brand and its customers.

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CONCLUSION
To conclude, the interviewee should provide the following:
Recommendation:
• (FOR): Proceed with the integration of Hulu into Disney+’s platform, accompanied by the launch of a new bundled subscription
model. Leveraging the combined strengths of both platforms allows Disney to enhance it competitiveness in the market while
generating 1+ billion dollars in revenue gains.
• (AGAINST): We should not move forward, as integrating Hulu into Disney+’s platform could lead the firm into a financial hole.
Although we project 1+ billion dollars in revenue gains, Hulu subscribers may be turned off more than anticipated if ingrained into
the Disney brand, which may prohibit some preexisting content of a more adult nature from being shown, thus losing out on
expected revenue.
Risks:
• Subscriber churn: Existing subscribers may react negatively to changes in platform interface, content, or subscription model.
• Brand dilution: Disney+ and Hulu have different customer bases, and combining content may impact brand perceptions
Next Steps:
• Develop a detail integration plan and effectively communicate the phased roll-outs to mitigate risks.
• Market test the bundled subscription model in select markets to gather data on subscriber response

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