Yahoo, Google, Amazon, Dish Bidding on Hulu -- But They Have Concerns

Fri Aug 26, 2011 4:09am EDT

Yahoo, Google, Amazon and Dish have bid or are about to bid on the video streaming site, Hulu, according to an individual with knowledge of the auction.

 

Other companies including DirectTV are also expected to submit non-binding bids by the deadline of this weekend, which will allow them greater access to Hulu’s financials.

 

A handful of mainly new media companies have expressed formal interest in buying the site, which has been put up for sale by co-owners Comcast, News Corp., Walt Disney Co. and Providence Equity.

Also read: CEO Jason Kilar Is Contract-Less as Hulu Seeks Buyer

 

But even those companies circling the streaming service have significant questions about its value. 

One bidder said that documents released thus far show that Hulu is not profitable, despite its rising revenues of $500 million in 2011.

The company has stated publicly that it is profitable, however. The discrepancy may be the size of the profit margin, and projections by Hulu that those will rise exponentially in the next few years.

Moreover,  the content deals in place with media providers such as Fox, NBC and the like expire in one year in some instances and do not extend longer than five years in any case.

 

That makes it hard for Hulu to justify its asking price of $2 billion. 

 

“The challenge with all this over-the-top stuff is – what is the sustainable business model?” an executive at one of the bidders told TheWrap. “Are you confident that you can generate a profit?”

 

Hulu may be a household name, with over 1 million subscribers to its premium service and a sleek interface, but the technology isn’t revolutionary enough to justify its lofty price, media executives say -- at least not without longterm content deals. 

 

“The company’s not worth that much, because it’s easy to duplicate. But the content is very valuable,” a media executive told TheWrap. 

 

That’s where things get tricky. Hulu’s owners want to unload the site in large part because they believe they will be able to better leverage streaming rights to their movies and shows to an outside buyer. 

 

That’s become more appealing because the price for digital content has risen dramatically since Hulu launched in 2007.

The new price point has more or less been set by Netflix, which shelled out a reported $1 billion over five years for rights to programming from the cable channel Epix. 

  

With online video growing rapidly,  it stands to reason that the price for streaming rights will continue to rise. That's why Hulu's owners need to be careful that they don't lock themselves into overly long content deals with any buyer in an effort to make the site more attractive.  

Give away too much and they run the risk of dulling any benefits they would reap from off-loading Hulu.  

Right now the consensus seems to be that deep-pocketed Google and Amazon are the most likely to win Hulu's hand, but it’s not clear that all of the partners are in agreement about the need to divest themselves from Hulu. 

 

Disney chief Bob Iger has bluntly said that the joint venture is “committed to selling” Hulu, but other partners of the ownership group have been more circumspect. 

 

In an earnings call earlier this month, News Corp. COO Chase Carey was less definitive, noting, “I think for us, it’s still a decision to see ... what it looks like at the end. Does it make sense to pursue that path or does it make sense for us to stay in an ownership position and continue to have it driven by content owners.”

Related Articles:  Hulu Bidding Moved to End of the Week Who Will Buy Hulu? Most Likely an Internet Giant with Cash