What Are Hulu’s Owners Really Selling?
Yes, Hulu is for sale. The video site hired bankers from Morgan Stanley and Guggenheim Partners last week, people familiar with the company tell me. They’ve just started asking potential buyers if they’d like to sign an NDA and take a look-see.
And while it’s natural to think about who might be interested in buying Hulu, it’s the wrong question. The right one: What are Hulu’s owners selling?
More specifically, what kind of content licenses are Hulu’s three broadcast owners — News Corp.’s Fox*, Disney’s ABC, and Comcast’s NBC — willing to part with?
Because it’s the TV shows from those three companies that give Hulu almost all of its value. And while those shows have helped Hulu build a big Web business very quickly — Hulu has said it’s on track to generate $500 million in revenue this year — that’s not nearly as important to Hulu’s owners as their core TV business.
That fundamental tension is what led to Hulu CEO Jason Kilar’s Web outburst in February this year, and it’s what has underscored the networks’ recent renegotiations of their distribution deals with the site.
And all of that has been going on while the networks own big equity stakes. If they sell that, then those tensions only increase. Or, put another way: They’ve got even less incentive to make Hulu work.
Remember that we’ve been down this road before. Last year, Hulu and Morgan Stanley floated the notion of an IPO, which went nowhere because the company couldn’t secure long-term exclusive content licenses from its owners.
Since then its owners seem even less likely to make that kind of deal, because the list of potential customers for that stuff keeps getting bigger: Netflix, Apple, Amazon, the Dish Network, Yahoo, etc. Why lock all of them out?
That said, that same list of customers are all potential Hulu buyers, depending on the content they’d get and the price they’d have to pay. And Providence Equity Partners, which helped bankroll the joint venture with a $100 million investment back in 2007, would be happy to see a sale.
Ditto for Kilar and his top managers, who have equity stakes but haven’t had the liquidity that employees at Twitter, Facebook, Groupon and other big-name start-ups have enjoyed.
So once again we’ve got diverging interests at Hulu. But if push comes to shove, I’m betting on the guys who own the content. And I wouldn’t be surprised if they don’t end up selling a thing.
*News Corp. also owns this Web site.