Can Disney's Fox deal transform Hulu into a Netflix-killer?

Walt Disney (DIS) Chief Executive Bob Iger is willing to wager more than $50 billion to acquire most of 21st Century Fox's (FOXA) entertainment assets in the hopes of expanding the media giant's foothold in the increasingly crowded streaming video on demand market that's dominated by Netflix (NFLX).

Once the Disney-Fox transaction closes, Disney will have a controlling 60 percent interest in Hulu, which is currently jointly owned by Disney, Fox, Comcast and Time Warner. The service's ownership structure, however, also presents some challenges. According to Deadline.com, all four partners have tried to gain control of Hulu over the past two years and some have been approached by outside buyers. It remains unclear whether Disney will try to buy out its remaining partners' combined 40% stake.

In an interview with CNBC, Iger said Disney will be able to "direct" Hulu in ways that weren't possible when it was run by numerous partners, adding that the company will "be able to infuse Hulu with even more content. We will actually invest in content from both entities for Hulu."

The international assets that Disney is buying from Fox will also fit nicely with Hulu, according to Mary Ann Halford, senior adviser to OC&C Consultants and a former Fox executive, adding that Disney's partners are facing the same competitive pressures. "All of those companies have a vested interest in figuring how to build something that's viable vis-a-vis Netflix,"  she said, referring to Hulu's owners.

Speaking with Wall Street analysts Thursday morning, Iger said Disney planned to make Hulu -- whose "Handmaid's Tale" won the Emmy award this year for best dramatic series -- a more adult-oriented product with Fox content from its critically acclaimed FX cable network among other places. But turning Iger's aspirations into action won't be easy

For one thing, the streaming video market is becoming increasingly competitive thanks to new entrants such as Amazon (AMZN) and Dish Network's (DISH) Sling TV and Philo, which is offering a so-called "skinny bundle" of various cable program offerings for just $16 a month that excludes sports programs. 

In addition, Disney spent nearly $1.6 billion last summer to acquire a controlling interest in the BamTech live streaming platform and plans to offer a streaming service for its ESPN sports cable network early next year followed by a broader, family-oriented offering in 2019, which would be a compliment to Hulu.  

According to analysts, Hulu isn't profitable, further complicating the situation. "Disney understands how challenging it is to be a dominant player in a transformed medium of television and content," said Jacqueline Corbelli, CEO of BrightLine TV, which has been pushing for streaming services to use advanced advertising technology. "It's all about the scale and reach of the best content and with this acquisition, they have doubled down on that. Having a majority stake in Hulu gives Disney a point of distribution in this exploding space called 'streaming' and 'OTT" [for 'over-the-top']. It's going to be really important for their strategy going forward."

Netflix also has a huge lead in terms of spending on original content, with an $8 billion budget. However, under the terms of the Disney-Fox deal, Hulu might benefit from the addition of Fox content such as "The Simpsons" to its programming line-up. "Netflix has to be concerned," said Brad Adgate, an independent media analyst.

Netflix also has more than 100 million customers, more than three times Hulu's 32 million. According to Bruce Leichtman, one of the reasons for the disparity in the subscriber bases is that they were set up to serve different markets.

"If you look at Hulu traditionally, it has been a DVR service for non-pay TV customers," he said in an interview. "Netflix did a great job from the start of becoming ubiquitous being on all these devices."