Viacom, Scripps, Discovery Seen at Risk If Left Out of Hulu

  • Shares fall as analysts see no place in sports-oriented bundle
  • Hulu in talks to create Internet-based skinny pay-TV package

Viacom Inc., Scripps Networks Interactive Inc. and Discovery Communications Inc. will probably be excluded from a sports-oriented live-TV service planned by Hulu in order to keep the price down, Citigroup said.

“If we’re right, this poses a long-term strategic risk for these firms,” analysts including Jason Bazinet wrote in a research note. Citigroup downgraded Scripps and Discovery to sell from neutral and maintained a neutral rating for Viacom.

Hulu, the online video service co-owned by 21st Century Fox Inc., Walt Disney Co. and Comcast Corp., is said to be planning a live TV package of channels from its owners and their peers. Because the three represent the largest buyers of sports rights in the U.S., Citigroup expects one Hulu bundle to be sports-centric -- what it termed “NewLu.”

That package will probably include channels from Disney’s ABC and ESPN divisions, Fox, Time Warner Inc. and possibly Comcast’s NBCUniversal, and sell for $30 a month starting in the first half of 2017, the analysts said. It would exclude the others “to keep retail” prices down, according to the note.

Scripps fell 4 percent to $61.90 at 9:53 a.m. in New York and was down as much as 4.8 percent, the biggest intraday decline since February. Discovery slumped 3.3 percent to $26.55 and Viacom lost 1.7 percent to $38.74.

Disney’s Iger

Disney Chief Executive Officer Bob Iger confirmed Hulu’s plans to become a cable-like service Wednesday, saying the move will help his company as a part owner of Hulu and as a programmer.

“They’ve become a big buyer of our programs already and them becoming a distributor of our channels, we think is great,” Iger said at the MoffettNathanson Media & Communications Summit. “We’ve seen the interface because we’re partners. It’s a great interface, a tremendous user experience, and we’re in discussions with them about our channels and about prices.”

New pay-TV players offering smaller bundles will help the traditional media business, he said.

“Basically, it’s more mouths to feed in terms of buying our programming,” Iger said. “But I also think the new entrants will keep the legacy entrants more honest when it comes to, not just what they’re paying us, but the user interface.”

At the same conference, 21st Century Fox Chief Financial Officer John Nallen said Hulu’s live-TV service will include regional sports networks.

Shares of Disney and Fox both fell less than 1 percent Wednesday in New York.

Skinny TV

Created as a vehicle for its owners to offer films and TV shows on-demand over the Internet, Hulu LLC is the latest company to jump into the so-called skinny bundle business. Media companies and pay-TV distributors are beginning to offer smaller packages of live channels as an alternative to costly cable and satellite service and to draw new viewers to their channels. Dish Network Corp. and Sony Corp. already sell their own versions.

As the traditional cable bundle frays, sports networks like ESPN, Fox Sports and regional sports networks face the most acute risks because of long-term deals with sports leagues, the Citi analysts said. Yet they also see sports programming as having the most upside.

“Sports content is unique: it’s not fungible with Web-based video offerings from Netflix and Amazon,” they wrote in the note. “And, with Web delivery, the sports experience can dramatically improve.”

By going into live TV, Hulu would be competing directly with distributors like part-owner Comcast, AT&T Inc. and Charter Communications Inc. Without content deals in place, Hulu hasn’t decided when this service will debut or what it will cost.

Hulu is also funding more original programming to catch up with larger rival Netflix Inc. By adding 3 million customers last year, Hulu grew faster than other paid online video services, like HBO Now, but slower than Netflix.

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