Entertainment

Hulu Is Gussying Up for Suitors

One way or another, change is clearly coming for the online television website Hulu. Either it will be acquired by Yahoo, or it will put itself out on the market to be snapped up by another deep-pocketed company.

Yahoo apparently has made an unsolicited offer for the company, according to news reports citing anonymous sources. However, this is no hostile takeover brewing. Hulu’s corporate owners — News Corp., Walt Disney, and NBC Universal — appear eager to exit their investment.

Hulu reportedly has retained investment banks Guggenheim Partners and Morgan Stanley to primp itself for a sale, with the process said to be unfolding within a matter of weeks.

Hulu and Yahoo did not respond to the E-Commerce Times’ requests for comment by press time.

Why Hulu?

Hulu has traveled far in a short period of time. When it started out, it was unclear whether many consumers were interested in watching TV shows via the Internet. Today, online video in general — and Hulu in particular — is strong enough to pose a concern to television advertising.

Yahoo knows that TV is moving online. In a few years, most families may still be sitting around “watching TV” in the living room, but they will be consuming content on their personal tablets and other wireless devices, Josh Mackey, general manager for product at PeekYou, told the E-Commerce Times.

“As a result, traditional advertising dollars are already following TV content online as media buyers continue to understand and feel comfortable using this new medium to better target their audience,” he said.

The benefits of a Hulu acquisition for Yahoo are obvious for this very reason, said Mike Manzo, chief strategy officer at Openet.

Simply put, the acquisition would give Yahoo a leg up in TV, he told the E-Commerce Times, an area where it is clearly behind Google, Apple and Microsoft.

Other Players?

Of course, Hulu is a tempting acquisition target for any number of other players — competition is bound to emerge.

If Yahoo were to snag Hulu, it would be a missed opportunity for carriers, Manzo speculated. “Carriers are quickly losing opportunities to the content providers of the world. By not becoming a part of the consolidation, they are going to remain just the pipe that sends traffic, instead of a valuable element in the changing era of content consumption.”

There is also the question of whether Yahoo shareholders would be willing to swallow the costs of Hulu’s content, should it become necessary to forge new agreements with studios under a new owner.

Yahoo’s Downside

There is also just enough downside for a Yahoo acquisition that it may step aside. It lacks the deep pockets to finance expensive deals with studios, noted Steve Wunker, managing director of New Markets Advisors and author of Capturing New Markets.

In the end, that might not be such a big issue, he told the E-Commerce Times. “Hulu would be forced to move in new directions to find inexpensive content, as YouTube is doing, and that strategy could create more net growth in the entertainment industry.”

New Agreements With Studios

It is essential that a would-be owner of Hulu work out how studio deals and content strategies will be developed in advance, if only for the sake of its shareholders, said Philip A. Palazzo, Jr., founder and president of Palazzo Advisory | Acquisition.

“You do have to wonder, given that Hulu doesn’t really have ownership of any of its content, what this means long term for Yahoo’s shareholders,” he told the E-Commerce Times.

Hulu will likely have to redo its agreement with Disney, at the very least, if it is sold. In that case, will the math hold up for Yahoo’s shareholders?

Amid all the speculation about Yahoo’s shareholders, little attention has been paid to another group of stakeholders in a potential acquisition: Hulu’s customers.

A sale would be the best thing for them, suggested New Markets Advisers’ Wunker.

“It’s hard to triumph in a new, highly fluid space when you manage by committee,” he said. “The best interests of a company trying to win long-term, loyal customers are going to diverge from owners that want to push consumption of their own content.”

One company that doesn’t have these problems is Netflix, he said, which is cleaning up.

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