Cable Technology Feature Article
Hulu Goes Back Up on the Block, Looking for a Potential Buyer
By Tara Seals, TMCnet Contributor
Hulu's board is taking the online video service to potential buyers and a sale is certainly welcomed, unnamed sources inside the company told Reuters (News - Alert); however, no bids have yet been made. The company’s Big Media owners, News Corp. and Disney, have also discussed buying each other out, Reuter reported.
Hulu has tried to do this before, mulling an IPO in 2010 and then putting itself up for auction in 2011. That effort drew bids from a range of interesting companies – Google, Amazon, DirecTV and DISH Network are in the hunt for the company – with Microsoft (News - Alert) and Yahoo bowing out after expressing initial interest.
But that effort was derailed by lowball bids (as low as $500 million—it needed $2+ billion) and a basic business model flaw for Hulu—its exclusive content arrangements with News Corp (News - Alert). and Disney will likely not be coming with it for very long when it moves to a new parent. In 2011, Disney and News Corp. offered bidders five years of access to shows, including two years of exclusivity, which would cover most hot primetime offerings.
In the era of TV Everywhere though, content rights are everything to an OTT player. It’s a knife that cuts both ways: Hulu needs to have a value proposition that appeals to the cord-cutter (i.e., current season broadcast content), but also one that offers something different from the cable and satellite subscriptions. To that end, last year, it also invested $500 million in new content deals and original series production.
The content issue is leaving some to wonder what the margins would look like for the company as it leaves the Big Media nest, considering that it charges $8 per month per Hulu Plus subscriber.
"Nobody will buy them unless they can fix content costs in a long-term agreement," Michael Pachter, an analyst with Wedbush Securities, told Reuters. "The value is based on the profit potential and without certainty about costs no rational bidder will step up."
The company’s financials, at least, look good prima facie: In 2012, the company grew revenue 65 percent in 2012 to almost $700 million thanks to expanding advertising, and Hulu Plus subscribers doubled at the close of year, reaching over three million. Hulu Plus — its subscription service arm that officially launched in November 2010 — saw several enhancements last year, including support on Apple TV, Nintendo Wii and Wii U, Windows 8 tablets and a slew of new Android tablets and phones. The service can now be accessed from more than 320 million Internet-connected devices in the US (not including laptop and desktop computers).
The service now has more than 430 content partners, providing over 60,000 TV episodes, 2,300 TV series and 50,000 hours of video on Hulu and Hulu Plus. In 2012, it also launched Hulu Kids on Hulu Plus through an expanded content partnership with Viacom (News - Alert) — so Hulu Plus has become the only online video subscription service with current season content from Nickelodeon.
Edited by Allison Boccamazzo