Hulu fans be warned: Its impending sale is not good news for you

Hulu For Sale

Everyone’s favorite video streaming site (or is that just us?), Hulu, has been up for sale since 2011. Friday, a seven-day “soft” extension to an existing deadline for bids was announced, with DirecTV, Time Warner Cable, and the Chernin Group all reportedly in the running. The service’s future – and whether or not it can maintain its original vision and purpose – are very much up in the air. 

The game of musical chairs over suitors originally included digital behemoths, as well. Google bid as much as $4 billion when Hulu first went on the block, but the terms were deemed too restrictive to the owners traditional revenue streams. Then Yahoo expressed interest for somewhere between $600 and $800 million, but the legacy online media company’s eventual $1.1 billion acquisition of Tumblr seemed to put an end to their bid. Currently, Hulu is valued at somewhere around $1 billion. 

Whether or not Yahoo might still be interested is unknown, but the remaining bidders are largely made up of traditional TV operators, meaning there’s a very real possibility that a cable provider might emerge the victor. The Chernin Group, run by former News Corp president and avowed Hulu admirer Peter Chernin (News Corp. is part-owner of Hulu), is presumably the only bidder without a direct connection to the big cable companies. If there are others, they’ve kept a very low profile.

Hulu has always suffered from a lack of consensus on what its business model should be.

Looking at the numbers, you’d think Hulu would be in an optimistic mood. There are now four million subscribers streaming content on the service, double what it was last year. Revenues ($695 million in 2012) have increased and the bevy of content available, especially for TV shows, ranks it among the top echelon of streaming services nationwide.

Currently, Hulu’s subscription rate sits at$7.99. Combine that with Netflix’s streaming-only service priced at the same rate, and the two amount to a lot of content for far less than a cable or satellite subscription.

All of this raises the question: Why is the site even up for sale? Jointly owned by NBC, Fox, and Disney – and originally headed up by Jason Kilar, an Amazon veteran with a technology background – Hulu has always suffered from a lack of consensus on what its business model should be. Disputes range from the appropriate pricing for its subscription service to which content the three media companies make available to Hulu subscribers and what content is reserved – or offered at a different price – by other services like Apple, Microsoft or … the cable and satellite TV providers. 

Hulu was originally devised to be an innovative way to get people what they wanted to watch and an alternative to paying for high-priced cable, but Kilar left Hulu in March, and a number of high-level executives have followed him out the door. 

“Hulu (the free portion) has been an extension of broadcast, free-to-air content, whereas Hulu Plus (the subscription portion) has been a premium over-the-top video service which can substitute for a Pay TV subscription,” says Michael Inouye, a senior analyst at ABI Research. “Meanwhile, Hulu’s owners (notably, Fox) have been pushing to maintain Pay TV via TV Everywhere authentication models.”

TV Everywhere services, like WatchESPN, HBO Go and MLB.TV, have arisen as something of a half step by content producers who want to meet customer demands for flexibility without converting to full a la carte pricing for their shows. 

So then, what happens if a cable company acquires and absorbs Hulu? Will it be diluted to a cog in a larger wheel or re-purposed in some way to focus more on channels of content instead of shows and movies on-demand?

Hulu screenshot

“An acquisition by a cable company would probably result in a ‘pay TV lite’ offering, expanding the service provider’s potential installed base,” says Inouye. “They may also use it as their own TV Everywhere portal to differentiate against competitors. This will move closer to the virtual OTT cable operator, similar to Redbox Instant by Verizon in its ability to address a national footprint.”

Regardless of who is involved, the process is going to be a little sticky. NBC is one of the founders, but it also has content partnerships with the same cable TV operators that are interested in buying Hulu. The same is true of Disney and News Corp., the other two principal owners. To diversify, Hulu has looked to create original programming exclusive to the site, much like rivals Netflix and Amazon have done. But its efforts haven’t had the same impact as, say, Netflix’s House of Cards.

Aside from the beancounting and complicated business relationships involved here, little has been said by Hulu or prospective buyers on how consumers might benefit. The site already looks good and runs well, but what happens if, say, Time Warner acquires it and closes up shop to everyone except its cable subscribers?

“It would depend greatly on the purchaser. If a service provider acquires Hulu there might be some branding issues (e.g. balancing the company’s TV Everywhere solution with Hulu) but securing content rights should prove less of a hurdle when compared to a company that currently doesn’t have the same relationships with the content holders,” Innouye says.

“Since most large pay TV operators already have a multiscreen experience, purchasing Hulu to dismantle it would be counterproductive.”

The reason why is because it’s not as easy to acquire access to a wide swath of content as it is to build the infrastructure to support it. Google and Apple have had trouble securing the rights to content, despite their size and overall impact. 

In the case of a buyer taking over Hulu, some existing contracts would likely pass over without a problem, while other content rights extensions are specified within the bids and would have to be agreed upon by the owners in accepting the sale. Inouye believes this complexity partly explains why there have been a number of different valuations for Hulu.

And that might make consumers wonder what value, if any, will be left to them after the site has been auctioned off to the highest bidder. Inouye is more nuanced, suggesting that drastic changes to Hulu’s business model by making it closed or restrictive would actually devalue the brand to the point where the initial investment makes less sense.

Dish’s acquisition of Blockbuster might be an example to look at, particularly since it didn’t close the existing streaming service to customers without Dish accounts, nor did it deviate a great deal from what it already was. There’s reason to believe Hulu, under a new regime, might follow the same path.

“Since most large pay TV operators already have a multiscreen experience, purchasing Hulu to dismantle it would be counterproductive, so the goal instead would likely be to leverage the brand and extend its market reach,” he says.

Whatever happens a week from now, Hulu’s future looks murky at a time when content consumption is clearly moving in its direction. Hulu fans are a dedicated bunch, and altering the site’s purpose and delivery may be the worst move a new buyer can make to win their hearts and minds, not to mention their dollars. 

Home Theater

Puro’s kids headphones don’t just sound great, they help prevent hearing damage

Puro Sound Labs' PuroQuiet headphones are a pair of noise-canceling over-ears that are designed for young listeners, allowing them to jam out to their favorite tunes, but limiting volume to avoid long-term hearing damage.
Movies & TV

Netflix vs. Hulu: Which streaming service is right for you?

Netflix and Hulu are two of the biggest names in streaming entertainment. Our guide will help you decide which streaming service has the content you want and the best value for your limited budget.
Home Theater

Netflix vs. Hulu vs. Amazon Prime: Battle of the on-demand streaming giants

Trying to figure out which subscription streaming service to use while sticking to a frugal entertainment budget? Check out our updated comparison of the big three: Netflix, Amazon Instant Video, and Hulu.
Movies & TV

Can't get enough lightsaber action? Here's how to get your Star Wars fix online

Few of us want to deal with DVDs or Blu-ray discs anymore. Unfortunately, the Star Wars movies are few and far between when it comes to streaming. If you want to watch Star Wars online, check out our guide on where to find the films.
Home Theater

MPAA: DVD, Blu-ray sales nearly halved in 5 years as viewers shift to streaming

The annual THEME Report by the MPAA confirmed that viewers are switching from physical media to streaming services. While DVD and Blu-ray sales are falling, subscriptions to services such as Netflix and Amazon Prime are growing.
Home Theater

From the Roku Ultra to the Fire TV Cube, these are the best streaming devices

There are more options for media streamers than ever, so it’s difficult to pick the best option. But that’s why we're here. Our curated list of the best streaming devices will get you online in no time.
Home Theater

Amazon’s free Spotify competitor is here. Just ask Alexa

Just ask Alexa to play your favorite song. Amazon has launched a free, ad-based music streaming service to compete with Spotify's free tier on its popular Echo devices, aiming to bolster subscriptions to Amazon Music Unlimited.
Home Theater

The best TVs you can buy right now, from budget to big screen

Looking for a new television? In an oversaturated market, buying power is at an all-time high, but you'll need to cut through the rough to find a diamond. We're here to help with our picks for the best TVs of 2019.
Home Theater

Throw away those EarPods -- we dug up the best headphones in every style

Trolling the internet for hours to find headphones is no way to live. Instead, leverage our expertise and experience to find the best headphones for you. Here are our favorites, with all the features you want.
Home Theater

Still listening on tinny, muffled TV speakers? Try one of our favorite soundbars

You no longer have to sacrifice sound for size when selecting home audio equipment. Check out our picks for the best soundbars, whether you're looking for budget options, pure power, smarts, or tons of features.
Deals

Walmart deal drops the price of the 55-inch TCL 4K Roku smart TV to just $338

Was last weekend's Game of Thrones streaming experience lacking? Look no further than this 55-inch TCL TV, which features built-in Roku functionality, and can be had at Walmart for just $338.
Music

YouTube Red is now YouTube Premium. What's changed, and should you subscribe?

Thanks to Google, YouTube Red is now YouTube Premium. We explain what exactly a YouTube Premium subscription gets you, how much it costs, and break down if it's a good choice for you.
Product Review

Now that every speaker has Alexa, don't you want the best? Get the Sonos One

To compete in smart speaker space, Sonos could have just made a better-sounding Alexa speaker, but the company has a reputation to uphold, and went much further. Our Sonos One Review reveals how Sonos does Alexa better than Amazon.
Product Review

It sounds like a Sonos, but the Beam pulls one trick none of its siblings can

Sonos makes really good surround sound speakers for home theaters, but they’re expensive. A cheaper model with great sound would be a win. The Sonos Beam is that speaker, but were too many corners cut to make a more affordable product?