Discovery (DISCA) has signed a new long-term deal with Walt Disney’s (DIS) Hulu. Bloomberg reports that the deal paves the way for Discovery to make many of its popular shows available exclusively on Hulu’s live-TV service, citing unidentified sources.
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According to Bloomberg, Hulu has both a live service, intended to replace cable TV, and an on-demand service. All of Discovery’s cable channels will continue to be broadcast on Hulu’s live service. At the same time, Discovery will pull off some shows including, “90 Day Fiance” and “Fixer Upper” from Hulu’s on-demand service, and broadcast them exclusively on its new streaming platform, Discovery+.
According to the report, Discovery has secured rate increases from Hulu in order to air some of its shows. (See Discovery stock analysis on TipRanks).
The new agreement with Hulu underscores how media giants are increasingly shunning cable networks, instead opting to stream content on their own. The net effect has been people cutting the cable cord in favor of streaming networks.
Yet Bloomberg reports that the cable business continues to provide the much-needed financing that is helping some of the media companies fund new streaming services. This explains why Hulu offers both on-demand service and cable TV replacement package.
Barrington Research analyst James C. Goss has reiterated a Buy rating on Discovery. He is impressed by the growth of direct-to-consumer (DTC) subscribers to 15 million in Q1 2021.
“Growing consumer awareness of the service supported by the company’s marketing efforts are important for driving adoption. The growth of this product opens up high-value ad inventory as well as working to improve overall subscriber trends, while boosting subscription revenue growth,” Goss wrote in a research note to investors.
However, the analyst has cut the price target to $50, implying 36.91% upside potential to current levels.
Consensus among analysts is a Moderate Buy based on 6 Buys, 8 Holds, and 1 Sell ratings. The average analyst price target of $48.29 implies 32.23% upside potential to current levels.
DISCA scores a 6 out of 10 on TipRanks’ Smart Score rating system, implying its performance is likely to align with market averages.
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