At least seven bidders are said to be interested in acquiring Hulu LLC, and their divergent motivations in pursuing the deal could end up radically altering the strategy of the online-television service.
Two private-equity firms, a media mogul, the second- and fourth-largest U.S. pay TV operators, Internet company Yahoo! Inc., and the owner of the Hollywood Reporter and Dick Clark Productions all submitted first-round offers to purchase Hulu, according to people familiar with the matter.
The company is owned by Walt Disney Co., News Corp. and Comcast Corp.
DirecTV is one of at least three bidders offering $1 billion or more for Hulu, people with knowledge of the process said last week. Depending on who buys it, Hulu could serve as a bet on the future of mobile video or a home for original content, said Rich Greenfield, an analyst at BTIG.
“Hulu is of interest to many,” said Greenfield. “The question is: How can Hulu be used for far more than what it’s being used for today?”
For now, Los Angeles-based Hulu serves as a way for people to watch network TV shows and other programs over the Internet — a popular option among people who have dropped their cable or satellite subscriptions.
The idea was to let Disney’s ABC, Comcast’s NBC and News Corp.’s Fox benefit from online advertising, helping the broadcasters adjust to the Internet era. Hulu offers both a free version of the service and a $7.99-a-month option with greater access to shows. The number of paying customers topped 4 million last quarter.
Two of the three owners — Disney and News Corp. — have clashed over how to run Hulu, prompting them to put the business up for sale. Comcast, the third owner, is barred from an operational or board role under an agreement with regulators related to its NBC Universal acquisition in January 2011. The government was concerned Comcast’s position as a cable provider and programming owner would create conflicts of interest.
Since the bidding process for Hulu began this year, it has drawn a range of suitors. Private-equity firms KKR & Co. and Silver Lake Management LLC made separate offers. Silver Lake is working with William Morris Endeavor Entertainment, the talent agency led by Ari Emanuel and Patrick Whitesell.
Silver Lake aims to use Hulu as a platform to expand William Morris’ content production, a new business for the agency.
A private-equity firm might have to invest at a loss in new original programming for two to four years to turn Hulu into a profitable company, said Jaison Blair, an analyst at Telsey Advisory Group in New York.
Hulu’s free, ad-supported business is already profitable, a person familiar with the matter said. Hulu Plus, its $7.99-a- month product, loses money, the person said. Even though it generates monthly subscriber fees, the paid service requires higher licensing payments to cover the more extensive content. Hulu Plus could be profitable in 18 months depending how it grows, the person said.
“A private-equity investor needs to look at this as an early-stage growth business with potentially a large market share opportunity,” Blair said. “Anyone that’s looking at it has seen the way that Netflix and Amazon Prime have grown and have gravitated toward original content.”
Netflix Inc., which has more than 29 million U.S. subscribers, has purchased rights to air new episodes of shows such as Arrested Development and House of Cards. Netflix shares have more than tripled over the past year, bolstered by its push into original programming. Amazon.com Inc.’s Prime service, meanwhile, is adding new shows as part of its Amazon Originals program.
DirecTV, the second-largest U.S. pay TV provider, would use Hulu Plus as a promotional add-on and retention tool for its subscribers. The company, which has more than 20 million subscribers, could offer Hulu Plus for a discount or for free to customers who threaten to leave, one person said.
Time Warner Cable — the fourth-largest U.S. pay-TV operator, with about 12 million video customers — would probably use Hulu Plus to promote its high-speed broadband product. The New York-based company with Akron operations could bundle a subscription to Hulu Plus to new Internet subscribers, she said.