Game Changer: DirecTV's Bid for Hulu

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DirecTV (NASDAQ: DTV) has reportedly made a bid for Hulu and is in the advanced stages of striking a $1 billion plus deal. A bid for Hulu is DirecTV's attempt to reach a broader audience and become more competitive with Dish Network (NASDAQ: DISH). This move to add Internet-based broadcasting would help move DirecTV in the right direction as the popularity of online TV and movies are on the rise.

The current DirecTV business model

DirecTV has grown their business around the concept of creating an amazing in-home theater experience. Unlike their competitor, Dish Network, DirecTV has refused to enter the wireless business and has decided to stick with a video-only strategy. Some analysts have viewed this as a potential vulnerability for the company, because their competitors will have more variety and products in their packaging to offer consumers.

DirecTV has focused their efforts on creating exclusive programming for its members, such as the NFL Sunday ticket. These programs have enabled the company to get better terms from other networks, which has allowed them to offer a large selection of different programming options. The allure of DirecTV's exclusive offers has kept them in the game so far with the paid TV audience.

Problems down the road for paid TV providers

The future growth of the paid TV industry is in question because about 90% of U.S. households currently use a paid TV service. This is why DirecTV and the Dish Network are looking for other avenues to expand their customer base.

Both companies realized that consumers want to view video content over the Internet and on their mobile devices. This is why Dish Network has spent so much effort on teaming up with wireless carriers to help broadcast their programming to users of these devices. DirecTV has refused to enter the wireless market, but their recent bid for Hulu shows they are looking to the web for future growth.

Hulu for the win!

DirecTV realizes the importance of enabling users to watch programming via their mobile devices. This is why the acquisition of Hulu would be a big win for DirecTV. Hulu would allow DirecTV to access a whole new audience of web savvy users who consume their video content via their computers and mobile devices. A Hulu acquisition would expand DirecTV's market share and pave a clear direction for the future growth of the company.

At the end of 2012, Hulu reported that the company had acquired over 3 million Hulu Plus subscribers. Hulu Plus is a paid video streaming service, which has double its subscriber base over the past year. Capturing the amazing growth in Hulu’s video streaming service could be a big win for DirecTV and lock in their future growth potential.

Other Hulu bids

Earlier in the year, unnamed sources told Bloomberg that Yahoo! (NASDAQ: YHOO) reportedly bid between $600 and $800 million to acquire Hulu. Acquisition of the video streaming website, Hulu, would have enabled Yahoo! to compete with Google's massive video streaming network YouTube. The deal would have been a major win for Yahoo! following a major blow in which the French government reportedly threatened their attempt to own a majority stake in the video streaming site Dailymotion.

As an investor, keep an eye on other video streaming services as they position themselves to be attractive acquisition targets for Yahoo. With the failed Dailymotion deal behind them and a rumored Hulu bid, Yahoo! is definitely in the market for a streaming video service.

Blip would be a great acquisition target for Yahoo!, because the web service offers both premium and user based video content. With the recent addition of premium TV and movie content, Blip is able to compete directly with both Hulu and YouTube.

Time Warner Cable (NYSE: TWC) has also expressed interest in acquiring or owning a majority stake in Hulu. The company believes that the Hulu video site could help Time Warner move beyond regional limitations and expand its offerings to a broader audience. Partnership with Hulu would allow them to create a national footprint in the TV and video industry and help expand their ad revenues.

Time Warner Cable is also in talks with Apple to strike a deal in providing Apple TV’s streaming video service to Time Warner customers. The cable company already has apps developed for Apple computers, iPhones, and iPads. The technology is already in place to enable quick implementation of Apple TV into Time Warner Cable’s service plan. The latest talks between Time Warner Cable and Apple demonstrate the eagerness for paid TV companies to get into the video streaming business.

The bottom line

Hulu is an asset that could transcend the business model for any of the satellite or cable TV providers. Acquisition or partnership with Hulu would allow a paid TV provider to expand their market and offerings to a new and broader audience. As an investor, keep tabs on the DirecTV and Hulu deal.  An acquisition or partnership with Hulu would allow DirecTV to increase market share while ensuring future growth.

Ryan Sullivan has no position in any stocks mentioned. The Motley Fool recommends DirecTV. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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