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Hulu Sale Attracts Plenty Of Bidders, But For What, Exactly?

This article is more than 10 years old.

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Most of what you need to know about the soon-to-conclude negotiations to sell Hulu can be summarized in two numbers: $2 billion and $1 billion.

The first is how much Hulu's owners -- Disney, News Corp . and Comcast -- thought they could sell the video site for back in 2011. The second is how much they're reportedly expecting this time around.

In the interval, Hulu's traffic and revenues have only grown, the latter figure to about $700 million. The number of subscribers paying $7.99 a month for its premium service, Hulu Plus, has roughly tripled, to more than 4 million. While it's still not profitable, the same can be said of many fast-growing digital companies that fetch multiples far in excess of 1.5 times revenue.

Unfortunately for its media conglomerate owners, what's also grown is awareness of what a bag of ferrets Hulu is. While a portion of its value lies in its technology, people and brand name, most of it is bound up in its licensing deals with content owners, in particular the three current co-owners.

And those three companies have made it clear that they'd like to unload Hulu while handing over as little in the way of meaningful content rights as they can get away with. In essence, they're trying to sell you the cow while maintaining the rights to any milk it produces for seven days upon each milking. And they'd also like to be able to sell the milk to Farmer Netflix and Farmer Amazon. And in two or three years, even your limited milk rights expire, leaving you in the position of having to cut an even worse deal.

Crucially, the sellers are trying to limit availability of their newest and most popular shows even to Hulu Plus subscribers. That goes a long way toward diminishing Hulu's main selling point against its competitors. True, at $7.99, Hulu Plus is a lot cheaper than a cable subscription. But then so is a package of Netflix and Aereo, which only costs about twice as much and includes a larger catalog of content, same-day network TV shows and live sports.

Who would pay top dollar for such a compromised offering? The best bet is DirecTV, which could offer Hulu both as a standalone service and bundled in with a satellite TV subscription. Hulu Plus would essentially be a starter product with which to forge relationships with cord-cutters and cord-nevers. In that scenario, the relative poorness of Hulu Plus's offerings would almost become an asset, giving DirecTV a way to upsell customers on a more expensive satellite package.

Other bidders reportedly include two teams, one consisting of AT&T and the Chernin Group and the other of Guggenheim Partners and KKR. Time Warner Cable has also submitted a bid, but only for part ownership.