The shenanigans this week with Hulu put us in mind of an old broadcasters adage. Q. How many broadcast executives does it take to screw in a lightbulb.
A. Only One. Because if there was more than one, they couldn’t agree on whether or not they need light.
So the Hulu sale appears to be off. Is this perhaps because all of the content owners wanted to ‘sell a pup’ and all the buyers turned out not to be so dumb? How long will it take until the Hulu owners realize that without long term access to content, Hulu is worthless. See Q and A above ‘ only if a single executive is involved.
So why would they want a fourth set of executives involved, if not perhaps from quite the same industry, in the form of letting in Time Warner Cable, one of the popular suggestions going forwards?
But for the time being the initial decision is to withdraw the offer to sell Hulu and put in a further $750 million into the business to keep it afloat. That $750 million is of a magnitude that it would soon be replaced into the respective shareholder’s coffers in the way of content fees.
We have been here before. Back in 2011 the company was put up for sale with its existing content rights and Dish Network led the bidding with a $1.9 billion bid before Google offered $3.9 billion, as long as new content deals were put in place.
It was pretty obvious to everyone that this would have been a disaster for the broadcasters. It’s fairly clear that the owners either want the money and to be shot of all content obligations for Hulu or they want control. In that case they would have swapped control for the disruptive influence of Google, which would quickly become a rival, or it could have sold it directly to a rival. The same pressures are coming out now with companies like Dish and DirecTV known to have been in the bidding once again, who remain competitive to some extent with Hulu’s current controlling parents.
To the extent that its broadcast TV owners, represented by NBC, Fox and Disney’s ABC, with only CBS missing from the US national broadcasters, compete with cable and satellite TV, Hulu cannot be sold to any of them with really excellent long term contractual access to broadcast content. But without it, no-one will commit to the $2 billion plus price tag that it has.
If a further $750 million is added, then the price tag, once again will go up by that amount, and next time, with all of its content deals still either short term or in need of re-negotiating, it could come on the market at $3 billion. It won’t sell then either. A small amount like $750 million is not enough for the company to build its own original content base, but perhaps make a dent in it and allow it to attract even more impressive subscribers numbers.
The press release focused on how Hulu now has content from over 400 content partners, and gets 30 million monthly unique visitors on its advertising site. But the real content that drives it belongs to its parents and that’s what they want to get out of. When Hulu first launched we said at the time that it could not work, highlighting the fact that eventually these broadcasters would want all the best content for themselves and their own web properties and saying that decision making would be almost impossible. While Hulu has done a lot better than we ever anticipated, it is still suffering from the same problems it had on the day of its birth. And while companies like Aereo bedevil these broadcasters and make it more likely that they need to offer the same content that drives Hulu, directly themselves, it makes long term content deals tough to commit to.
‘Hulu has emerged as one of the most consumer friendly, technologically innovative viewing platforms in the digital era. As its evolution continues, Disney and its partners are committing resources to enable Hulu to achieve its maximum potential,’ said Robert Iger, Chairman and CEO, Disney.
Another idea that has been mooted in the past week is that the cable operators should get together and buy Hulu, but then it just removes a good outlet for broadcaster content and offers that into the hands of companies who are in cahoots with cable networks. Sure cable also have deals with US broadcasters, but companies like Viacom may end up benefitting more than any of them.
Hulu Plus claims to have four million subscribers, which doubled during 2012, when revenues hit $690 million. The feeling is that if it continues like this it could give Netflix a run for its money, except it has to operate entirely in the US and one or two other small markets.
A few months ago a mere $500 million was offered by ex-News Corp president and CEO Peter Chernin, backed by Providence Capital, after News Corp and Walt Disney had been thrashing out its future after deciding that they can no longer continue as partners. Of course it was never going to be enough.
The trick, as Liberty Media and Liberty Global chairman John Malone has obviously understood, is either to keep all the broadcast content for a lot longer, on the same or similar terms, or for the owners to sell Hulu to someone who is not a genuine head-on rival to the broadcasters, preferably with weaker content links.
Malone has publicly suggested that the US cable community buys out Hulu collectively. It would then have great leverage for content negotiations which might take it beyond reliance on the broadcasters, and might replace some of the broadcast networks content with paid content from cable networks. Of course some of these are owned by the same companies such as Fox and Viacom, but it is content with different contractual obligations. The cable companies might be able to get global rights to that content, which is another great sticking point for Hulu ‘ it cannot get the international rights to its parents’ broadcast content because that is already contracted overseas to other local broadcasters, who each have their own catch up OTT services, so won’t allow Hulu to launch.
Perhaps the idea was to get overseas rights for mister Malone himself, through Liberty Media and then also deliver it as an OTT extra for Liberty Global. Whatever his plans , cable has to get over the fact that it has spent 4 years anticipating the OTT revolution and building its own TV Everywhere strategies which directly contradict any investment in Hulu, so we can’t see it.
Whenever this property comes back onto the market, its owners will continue to believe that the money is not right, and the longer they hold onto Hulu, the shorter and weaker its content relationships with the parents will become. Which means the less well it will do in a market, where better content is becoming available for free for cable customers on TV Everywhere services. Hulu will try to build original content, but it will not have enough cash.
In the end Hulu will stop growing, begin to shrink and then they will have to throw in the towel, or bite the bullet and let some of their best content become a dowry for their orphan child.