Hulu’s sale fails – value in the rights not the audience

By October 14, 2011Content, TV

Leading US TV streaming site Hulu has been trying to sell itself for much of this year, but is no longer for sale.  The company announced yesterday that the sale process was terminated and now the owners, which crucially include content owners News Corp, Disney and Comcast, will keep the site independent.

According to Techcrunch the company had a number of offers, but none matched the $2bn price tag they were looking for.  Google apparently offered $4bn, but wanted longer deals than the two years on offer with the current shareholders to the rights for NBC (Comcast), Fox (News Corp) and ABC Television (Disney).

The fact that the streaming rights are such a driver of value is of significance to web based media businesses everywhere.  The fact that Google was willing to deal at 2x the asking price with long term rights, but wouldn’t even match it with two year rights shows that they place more value on the rights than on Hulu’s considerable audience and powerful brand.

Hulu’s business model is essentially an arbitrage between what they pay for the rights and the money they can make from advertising as people watch the streams.  The idea behind most sites with this model is that once they get to scale the content owners (be it movie studios or music labels) will have no choice but to deal with them if they want to reach a large audience.  Theory has it that the power in negotiations should then be with site rather than the content owner, and the price of rights will come down and big profits will follow.

The potential acquirers of Hulu clearly didn’t buy into that theory and thought that after two years they would get legged over when they came to renegotiate the rights.  The fact that Hulu’s owners didn’t take the Google deal suggests that they are thinking the same way.

Other companies in this space should take note.

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  •  I always thought it weird that Hulu was selling itself after such a short period in operation.

    You’re spot on about the value being in the content at this stage of the company’s growth. Fox should have known that given that News Corp has experience of building a new platform from scratch which never truly achieved an air of permanance until it was about 10 years old.
    I thought it was sending the wrong signals in that if they knew the business would be a home-run why would they not be willing to tough out the next few years in order to reap their rewards?

    When you solicit bids prospects will probably analyse why you want to sell. When you don’t want to sell they’ll also wonder why you don’t want to sell. Most times they’ll figure it out.

  • I think you are right that most people now see Hulu for what it is. I guess that either they were hoping to solicit an irrational bid or they convinced themselves the audience was worth more than it really is. Both are possible.