Hulu's owners have clearly shown they don't know what to do with the web TV service.
First they planned to take the company public. Then they explored a sale, only to pull out. Then they put Hulu on the market a second time, and again yanked the "For Sale" sign, electing instead to invest a fresh $750 million. Hulu's owners — Disney, Fox, and NBC — left it to Disney CEO Bob Iger to put a positive spin on all the flip-flopping.
Hulu's future has never been foggier"Throughout the process we continued to give consideration to strategic value of Hulu and to investment value longer term," Iger said during an on-camera interview last week with Bloomberg News. "The interest of News Corp and Disney galvanized during the process about that and we concluded that even though we had some compelling offers on the table the future of Hulu is bright and we should hang on to it."
During the interview, Iger was asked if Hulu's owners had really made up their minds this time, or if Hulu will eventually go back on the block. That had to be a little embarrassing, but how could Iger blame the reporter? Hulu's future has never been foggier.
Hulu was once the king of internet TV viewing, but in the past three years the company has drifted behind Netflix and Amazon. During that period, Hulu's owners bickered over such things as how to advertise with the service, or whether it was threatening the companies' traditional revenue streams. Hulu's CEO Jason Kilar resigned, but not before complaining in a candid 2011 blog post that Hulu's owners had hobbled the company. He suggested that they had licensed content to Hulu's competitors in a way that gave other companies an advantage, and didn't understand that Hulu was better off focusing on ad-based revenue rather than subscription.
When Netflix users paid $8 a month to access the ad-free service, Hulu users paid the same amount and were still forced to watch ads. As for this sale's false start, Michael Pachter, an analyst with Wedbush Securities, said he believes it was obvious that Hulu's owners didn't get the kind of offers they wanted.
"I can understand why they got excited and wanted to sell," Pachter said. "They saw Netflix out there with a $15 billion valuation and thought they could get something close to that."
Plenty of people think Hulu siphons off viewers from traditional TV broadcasts But according to reports, the top bids hovered around the $1 billion mark. Pachter believes that Hulu just isn't a valuable property unless a buyer receives guaranteed, long-term licensing deals. That may not be easy for Hulu's owners to offer. It's been widely reported that within the companies that own Hulu, plenty think the service siphons off viewers from the traditional broadcast business and that TV ads online are less valuable. In addition, the cable companies that pay to re-transmit the networks' shows don't like services that they believe encourage cable subscribers to cut the cord.
The fact that there were so many bidders, including Yahoo, DirectTV, and Time Warner Cable, shows that there was something of value. But Pachter says he thinks many of the bidders were hoping to acquire access to the networks' shows on the cheap. Lots of companies would like to duplicate Netflix's success and are looking for the same kind of agreement that helped catapult the company's streaming service to 30 million subscribers. In 2008, Netflix penned a three-year licensing deal with Starz, the premium cable channel, that gave the web-rental service access to movies from Disney and Sony Pictures for $30 million a year, according to reports. Starz eventually asked for closer to $300 million, a sum which Netflix declined to pay.
Not only did Netflix get access to films from two of the top six Hollywood movie studios, but it got them dirt cheap. Those kind of bargains, however, are gone for good, says Pachter. "Everybody is overly optimistic that the content guys will give away their shows," he said. "Netflix ruined it for everybody. Netflix [had its way with] Starz," and now none of the content creators want to end up like that.
Whatever killed the sale this time, it's hard to imagine that the $750 million investment will help much. In fact, it will likely mean Hulu would be more expensive next time it goes up for sale. In the meantime, the company is competing against Netflix and Amazon with one hand tied behind its back, hobbled by owners who distrust one another and can’t help but protect their legacy business models.