Welcome back to What I’m Hearing+, my weekly dispatch on the streaming industry and the analytics behind it all. Tonight, my inside look at Hulu’s real value to Disney—the one thing that Bob Iger and Nelson Peltz might actually agree on.

Then, in 2019, with its streaming ambitions growing, Disney agreed to acquire the rest of Hulu from Comcast, NBCU’s parent company, as early as 2024. (They also bought out Time Warner.) Now that arranged marriage is under renewed focus. Peltz, the Trian Partners investor now pointing his proxy missiles at Disney C.E.O. Bob Iger, said in a viral CNBC interview last week that the company should buy it out pronto or get out of the streaming industry altogether.

But buying Comcast out of Hulu isn’t a simple matter. There are, of course, the profound questions of what it’s worth—and, ergo, what C.E.O. Brian Roberts believes its stake is worth. Disney has suggested $27.5 billion. Comcast has suggested much much more, like a pandemic-era-ish $50 billion. And, should Disney pass that significant gating issue, how should Hulu’s assets be integrated into the Disney streaming universe? Is the cost of acquiring it (and pronto, with Peltz on Iger’s back, jacking up the trading price) so high that it would become an unruly burden on Disney’s balance sheet? Disney’s purchase would likely rely heavily on debt. Or is Hulu now a necessity that should be integrated as a tile on Disney+, and perhaps operate in a more lean and efficient David Zaslavesque manner? Would the increased content volume add value to an advertising tier?

These are the questions that keep analysts—and presumably Iger, Roberts, Peltz, their competitors, and every agent and creative in town—up at night. Fortunately, some practical answers are emerging.

Still, Hulu subscriptions outpaced Disney+ in the domestic market in 75 percent of the 24 months leading up to July 2022, according to Antenna and as reported by the Wall Street Journal. While standalone Hulu subscribers were seen as less loyal (i.e., at higher risk of churning), those who signed up for Hulu as part of the Disney bundle were far less likely to cancel, Antenna added. Hulu has also seen consistent growth in demand for original content within Q2 and Q3 2022, according to Parrot Analytics, where I work as director of strategy, jumping to 7.4 percent of total demand share across all SVOD platforms. That puts it in fourth place, behind Netflix, Amazon Prime Video, and Disney+. But Hulu’s demand share for its entire platform—which includes hits like Criminal Minds (CBS), Law and Order: SVU (NBC), Rick and Morty (WBD)—puts it in the top spot at 19.6 percent, higher even than Netflix at 18.2 percent. This means when it comes to attention across the entire catalog, Hulu stands above all.

In international markets, streamers are focused on growth and penetration. In the oversaturated U.S. market, it’s all about managing churn—a malady often cured by bundling. Disney+ has some of the lowest churn domestically as a combined offering: 2.2 percent as of January 2022, according to Antenna. Removing Hulu from the bundle, or taking all of the Fox stuff and throwing it on Disney+, doesn’t necessarily create a bigger flagship streaming service. It does, however, impact the subscriber insurance Disney has found in Hulu.

Admittedly, part of the reason to buy Hulu is to ensure that others cannot—an expensive strategic chess move that reflects the increasingly zero sum nature of the business. Disney may be managing some $50 billion in reasonably-priced debt, but buying Hulu outright would entitle the company to around 47 million subscribers at a higher average revenue per user than Disney+ alone. In keeping Hulu as a separate, “discounted” app that’s part of a bundle, Disney gets to appeal directly to more price sensitive customers at a time when many subscribers are looking for an excuse to churn. Not inconsequentially, in keeping Hulu, Disney also ensures that other bidders (mainly Comcast) don’t automatically receive those domestic subscribers along with a platform that has a tremendously impressive built-in advertising tech stack. Those 47 million subscribers are fewer than Netflix’s 74 million U.S.-Canada subscribers, but greater than Disney+’s 46 million domestic subscribers. If Comcast were to acquire 47 million subscribers and combine them with Peacock’s 18 million, it would be the single biggest streamer in the U.S. behind Netflix.

It won’t be a seamless transition, of course. Catalog demand has remained high for Hulu, but much of that portfolio is likely to disappear as NBCU, Fox, Paramount, and Warner Bros. Discovery pull back some of their top shows and movies for their own services, or license them out to higher bidders, such as Amazon and Netflix. Hulu will be reliant on 20th Century Fox and Disney General Entertainment programming. This is still valuable—the remaining catalog includes everything from Avatar to Abbott Elementary, an ABC series from Warner Bros. TV that streams on Hulu and HBO Max—but it’s not exactly Hulu circa 2017.

That’s great, but it’s a lot of caveats for such a valuable asset. If Disney can secure the $27.5 billion price point (or thereabouts) and not take on uncomfortably high debt that redirects attention to short term needs, it’s not as daunting a transaction as Discovery’s acquisition of WarnerMedia, which brought more than $50 billion in debt to a pure content company at a messy, transitional time.

Hulu would also likely be managed more inexpensively by Iger as part of Disney’s own cost-cutting journey as all aspects of the streaming business are re-evaluated. And it’s still a necessary piece of the puzzle in amassing and maintaining strength in the U.S. Peltz may be annoyed that Disney needed to pay $71 billion to sink both feet into streaming, but he’s also not wrong that the company needs to buy Hulu to continue to compete.

No one has figured out how to perfectly balance a content slate across a streaming platform in a way that leads to continuous customer growth and slows churn. FX’s John Landgraf recently pointed out that 80 percent of all TV viewing in the U.S. is more passive than active (think HGTV or procedurals compared to FX and HBO originals). The passive entertainment is what retains customers, which also explains why older shows and procedurals are so popular on FAST platforms, while the active entertainment drives subs. Since there are fewer subscribers to drive in the domestic market, Disney’s focus should be trained more on passive entertainment and catalog than purely originals.

This doesn’t necessarily need to all be on one platform if the value of the perceived bundle and its various components sits above the value line—or in a positive light when compared to other platforms. From a customer perspective, both Hulu with ads and the Disney+ ad-supported bundle sit above the value line when looking at the total offering of each platform against the total cost, according to Parrot Analytics. Netflix and HBO Max (ad-supported) are in a similar position. Peacock and Paramount+ are below the value line. This is in part because the level of content offered in an ad-supported tier is often different from those on an ad-free tier. Netflix and Hulu’s ad-supported tier are missing a much smaller amount of content (Netflix is hovering around 5 percent) than Peacock, which sees about 20 percent of titles missing from its ad-supported tier compared to its ad-free tier. While Hulu also skews much more female (second only in the demographic to Peacock), Disney+ skews much more male, representing two different demographics served by the bundle.

Although saturation for many of the U.S.-based and U.S.-focused streaming services is tapping out, Hulu acts as glue. Folding Hulu into Disney+ would save costs on consolidated labor and only having to operate one platform, but the cost in acquiring customers would rise and advertising potentially decrease. The lifetime value of a customer increases with a reduction in churn and high sentiment. The cost of acquiring a customer is also much higher than keeping a customer. So if the Disney Bundle works to entice customers to three streaming platforms for the cost of one, and reduces churn, all while giving customers the satisfaction of getting a deal, then keeping Hulu separate while navigating through the next few difficult years of streaming economics is worth pursuing.

This is especially true if the subscriber overlap isn’t very high. Nearly 50 percent of Hulu members were not using or subscribing to Disney+, according to Ampere Analysis. The vast majority of these subscribers were older adults who didn’t have children at home, the research found. The bundle especially appealed to those with kids because of the general entertainment offering on Hulu, but the research seems to suggests that there are customers who may not sign up for Disney+ if Hulu was integrated at a higher price point, especially when HBO Max, Netflix, and Paramount+ with Showtime exist.

What makes more sense for Disney and Hulu is better interoperability between the platforms. Hulu originals should appear on Disney+, but when they’re opened, the viewer is brought to Hulu, where the show is streamed seamlessly. When the episode is done, they’re brought back to the Hulu homepage. What’s difficult is getting people to open different apps. Interweaving Disney+ and Hulu originals on the other platform, and helping to improve discovery, engaging customers, and demonstrating the power of the bundle—all of which must use seamless integration and technology to not make it feel like a chore—keeps the value of the bundle alive without having to continuously sell individual components of each.

Indeed, this is why Hulu is so tantalizing. There’s no obviously right or obviously wrong answer. There is potential in all roads: buy or sell; keep standalone or merge. But from where I sit, the value of Hulu could be immense to Disney and might even justify the Fox overpay. Perhaps even Peltz would agree that the ends justify the means.