Hulu sale is canceled; owners double down on the video site
The Hulu divorce has been called off.
After months of fielding offers from would-be buyers for the popular online video site, owners 21st Century Fox Inc., Walt Disney Co. and NBCUniversal decided Friday to cancel the sale.
Instead, they said, they will invest $750 million in Hulu so it can better compete against Netflix Inc., Amazon.com Inc. and other Internet streaming services.
This is the second time in less than two years that Hulu’s owners put it on the block only to take it off again. Although Hulu’s parents have not always been on the same strategic page regarding the platform, none was willing to part with it.
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“It’s better to have a potentially disruptive tool like Hulu in your own hands than it is to give it to someone else, who might chose to work it against you,” Forrester Research analyst James McQuivey said. “Given its evolutionary potential, it’s one that’s worth continuing to invest in.”
Launched in 2008 to provide an Internet home for TV shows and provide a legitimate alternative to pirate sites, Hulu quickly became a popular destination among consumers. However, its media owners — which variously own the competing Fox, ABC and NBC networks — found it difficult to be partners.
Furthermore, Hulu’s success created tensions with cable and satellite TV distributors, which viewed the service as a threat to their lucrative subscription businesses. Pay-TV providers are a key source of revenue for Hulu’s owners.
Internally, the departure this year of Hulu Chief Executive Jason Kilar, who transformed the company into a serious digital video contender, raised fresh questions about its future.
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Against this backdrop, Hulu’s owners put the site up for sale, attracting bidders that included traditional pay-TV distributors DirecTV and Time Warner Cable Inc., which envisioned using Hulu to provide video via the Internet to portable devices such as tablets and smartphones.
The Chernin Group — led by former News Corp. Chief Operating Officer Peter Chernin, who had championed Hulu’s creation while at the media conglomerate — envisioned operating the site as a stand-alone service. Guggenheim Digital Media, a group headed by former Yahoo Inc. interim Chief Executive Ross Levinsohn, also submitted a bid.
Offers were in the neighborhood of $1 billion, according to several people with knowledge of the situation who requested anonymity because the negotiations were confidential.
Hulu’s owners may still consider adding a partner, two people close to the company said. Time Warner Cable is a leading candidate: It had sought only to invest in Hulu, not acquire it outright.
The high interest in Hulu reignited its owners’ initial passions for the site and inspired them to try to make their tense relationship work.
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“I compare it to a stormy romance,” McQuivey said of Hulu’s owners. “Now they come back with the diamond ring, saying, ‘No, I really did love you all along.’”
The $750-million infusion from Disney, Fox and NBCUniversal would enable Hulu to invest in more original content, acquire more programming and bulk up marketing and technology.
NBCUniversal, owned by Comcast, is a silent partner in the site. That was one of the conditions the government put on Comcast in return for granting approval of its 2011 deal to take control of NBCUniversal. In 2018, the consent decree expires and Comcast can take an active role in Hulu.
The media conglomerates touted the benefits of retaining ownership of Hulu.
“Hulu has emerged as one of the most consumer friendly, technologically innovative viewing platforms in the digital era,” Disney Chairman and Chief Executive Robert A. Iger said in a statement. “As its evolution continues, Disney and its partners are committing resources to enable Hulu to achieve its maximum potential.”
Chase Carey, president of 21st Century Fox, said that although there were “meaningful conversations with a number of potential partners and buyers, each with impressive plans and offers to match ... we decided to continue to empower the Hulu team ... to continue the incredible momentum they’ve built over the last few years.”
The decision won praise from some Wall Street media analysts who had worried that a powerful distributor such as DirecTV would get its hands on another pipeline to consumers and use that leverage to squeeze programmers.
“This is an incredibly smart move by Disney and Fox,” said Richard Greenfield, a media analyst at BTIG. “We think the worst thing they could have done is selling to a distributor, making a distributor stronger or increasing a distributor’s leverage.”
Hulu achieved record revenue of $690 million last year, and its paid subscription service Hulu Plus, which debuted in 2010, has more than 4 million subscribers.
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