Hulu’s Future Is up in the Air

Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

I often give Netflix (NASDAQ: NFLX) a hard time, pointing to its easy to mimic business model and rapidly growing list of competitors, but it seems one of its better known threats is at a crossroads. According to Bloomberg and the Wall Street Journal, rival Hulu’s future is being discussed by two of its three owners. The online site is owned by News Corp (NASDAQ: NWSA), Disney (NYSE: DIS), and Comcast (NASDAQ: CMCSA), but Comcast is not permitted to participate, as it forfeited its operational rights when acquiring NBC Universal.

Hulu has struggled for direction under the influence of multiple parent companies, so at some level this could be a boost for the company, but it would come at a cost. If either partner were to sell off its interest in the company, you can expect its content to either disappear from the site or become much more expensive. It may be a cost worth paying since it would at least help the company pursue a single direction rather than trying to appease two masters.

When Hulu CEO Jason Kilar gave an interview to Fast Company back in October pointing to the difficulties of running the company, ownership played no small part. Disney has been a major supporter of the ad-supported aspect of Hulu, while News Corp has pushed the subscription model. Add in the executive changes that occurred across the three companies and you have a volatile mix of egos, ideas, and wants. That may be part of the reason Kilar and CTO Richard Tom are leaving the company sometime in the first quarter of 2013.

There have been signs that the parent companies have been looking for ways out, or at least planning for a future in which they were no longer responsible for Hulu’s wellbeing. In December Disney signed a deal with Netflix giving it access to its movie library and new releases starting in 2016. Netflix will be paying Disney $350 million a year for the privilege. While Disney was previously locked up with Liberty Media, the fact that they opted to make a deal with Netflix rather than propping their own partnership is telling.

Without a doubt Netflix and Amazon (NASDAQ: AMZN) are watching carefully, because any material change in Hulu could turn into a big opportunity. While Hulu’s 3 million subscribers pale in comparison to Netflix’s 27 million domestic subs, the company satisfies a niche that Netflix doesn’t. Amazon’s numbers are harder to peg down since it doesn’t sell a standalone subscription service, but the company has been investing heavily in its streaming unit; it isn’t a stretch to expect it to care about Hulu. Thanks to Hulu’s parent companies it also holds content rights neither can get their hands on, unless something changes.

Hulu talks also offer another kind of opportunity. While there haven’t been specific reports this time around, the last time Hulu’s future was being discussed selling all or part of the company was clearly an option. With last year’s revenues a reported $700 million, the company could likely command at least as much if sold. While an acquisition from Netflix seems unlikely, Amazon has proven it is willing to buy companies that make sense, and Hulu seems to fit that bill. Of course, if Hulu is put on the auction block it is unlikely Netflix and Amazon will be the only parties interested, so that’s little more than speculation at this point.

Hulu’s future could have major implications for the future of streaming in the US. While Hulu doesn’t have a huge subscriber base, it has had a major impact on the domestic streaming market and cable itself. Don’t forget that the company was important enough that US regulators forced Comcast to give up operational rights to keep it from being undermined. It’s certainly worth keeping an eye on for all parties involved.


TigerAnalyst has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Netflix, and Walt Disney. The Motley Fool owns shares of Amazon.com, Netflix, and Walt Disney. 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!

blog comments powered by Disqus

Compare Brokers

Fool Disclosure