The Deal of 2025: Disney and FuboTV Merger – What Are the Implications on NFLX?

Investors of FuboTV (FUBO) received their biggest Christmas gift right after the holidays. The stock surged 250% last Monday after the company agreed to merge with Hulu+ Live TV, owned by Walt Disney (DIS). The deal is still not 100% confirmed but the potential impact for the whole streaming industry will be quite significant.

Financial Details of the Deal

Disney will transfer the ownership of its Hulu+ Live TV to FuboTV in exchange for new shares in FuboTV. With this transaction, Disney will acquire 70% ownership of FuboTV. Disney will provide a cash settlement payment of $220 million plus a loan commitment of $145 million to FuboTV.

If the deal fails by any chance, Fubo will pay a $50 million termination fee to Disney, meanwhile, if Disney cannot get regulatory approval, they will pay $130 million (a rather small fee for the size of the entertainment giant) to Fubo.

Irrespective of whether the deal passes or fails, the above-mentioned $220 million settlement payment will be paid to Fubo – enough to cover all the debt they have.

Source: FuboTV Investor Presentation

Strategic Implications for Various Parties

What does Disney (DIS) Try to Achieve

An important point worth mentioning is the deal does not include the Hulu on-demand streaming platform which is different from Hulu + Live TV. Hulu on-demand is a similar product to Netflix and also provides original content, unlike Hulu + Live TV which focuses on TV broadcasting. Hulu on-demand business has a much larger subscriber base of over 48 million users, while Hulu + Live TV has just below 5 million. However, the average subscription fee for Live TV is much higher than for Hulu on-demand.

Source: SEC EDGAR Data

A well-known fact across the investment community is that the margins for live TV streaming are quite bad. Even post-merger, the new live TV entity (Fubo and Hulu + Live TV) is expected to have EBITDA margins well below 10%. That is much lower than on-demand streaming, as Netflix's operating margins have been slightly less than 30% in recent quarters. Add back amortization, and the EBITDA margins of the streaming giant reach an enormous 70%.

Source: FuboTV Investor Presentation

In other words, Disney wants to get rid of a non-core live TV business and give it to FuboTV to control it. Meanwhile, this will provide more capacity for Disney’s management to focus on a higher quality on-demand streaming with Hulu so they can better challenge Netflix.

However, the most important implication of this deal is the fact that last year Disney, Fox and Warner Bros decided to join forces and create a big joint venture, to be called Venu Sports, focusing on sports streaming. At that time, Fubo as a smaller sports broadcast player saw that as an existential threat to its business and launched a legal action accusing them of anti-competitive activities, as Venu Sports would potentially have an absolute market share dominance in the sports entertainment industry.

Now that Fubo will officially become under Disney's control, they will automatically give up on their legal action and this will clear the biggest obstacle for Disney in creating the joint venture. Thus, the deal can also be seen as Disney sacrificing its live TV business for the much more lucrative sports streaming opportunity.

A Lifebuoy for FuboTV

FuboTV is a television network provider that focuses mainly on live sports. In fact, before the deal, Fubo was operationally unprofitable with a weak balance sheet (total debt exceeding the cash possessions). In other words, the prospects in front of the company were quite bleak due to years of operating losses and negative cash flows. This is reflected in the stock price performance in recent years. With the financial injection and the backing from Disney, Fubo investors do not need to worry about potential default, as the net debt position of $171m becomes a net cash position of $49m.

Source: FuboTV Investor Presentation

Source: TradingView

With the deal, Fubo significantly expands its scale. FuboTV has 1.6 million subscribers, and Hulu+ Live TV has 4.6 million, after the deal Fubo will accumulate 6.2 million subscribers. The combined revenue of the entities will be around $6 billion, placing it not so far behind YoutubeTV.

Source: FuboTV Investor Presentation

The main Takeaways for Netflix and the Streaming Industry

The stock price of Netflix, the most popular streaming company, remained largely unaffected. However, the deal has certain implications for Netflix’s future.

First, with this move, Disney management demonstrates their desire to focus on original Hulu content so they can challenge Netflix in the on-demand streaming field.

Second, mergers and acquisitions within the industry will probably become a trend in the years to come, as the market is already quite fragmented and the viewership in North America is relatively well penetrated. The best way to accumulate scale and achieve better pricing is with corporate combinations.

Third, sports events are becoming the most intense battlefield for streaming companies. It is a high-risk/high-reward venture, as the market is attractive with its global reach and stable fanbase, but it also poses challenges as sports broadcasting rights are becoming increasingly expensive.  For Netflix, sports can be the key to fueling their subscribers’ growth, which has gradually decelerated to around 10% in recent quarters. However, we can observe that with the deal, established players like Disney, Fox and Warner Bros unite forces against Netflix, and this will make it more difficult for Netflix (more marketing expenses and capex) to compete. This is another headwind for Netflix in addition to the technical difficulties they have experienced with sports streaming in recent months.