Thursday, July 21, 2011

Should Yahoo Buy Hulu?

A simple question in a quickly changing digital landscape. Is Hulu a good asset to purchase and if so, should Yahoo buy it. "Bloomberg published a report yesterday that suggested Hulu's owners are only willing to offer Hulu's new owner five years of access, but only two years of exclusivity. 'If [Hulu's content creating owners] came out and said, we've renewed [Hulu's exclusive rights] for four years at the same terms we have today – it's really easy to model [a valuation between] $1 billion and $2 billion – maybe more,' says this source. Without four or five years of exclusive streaming rights to TV shows and movies, Hulu is 'not worth anything.'"

While I agree with the Bloomberg statement, I'm not entirely convinced that even a five year rights deal is enough to make this a good investment opportunity. The current landscape has cable operators pushing these same content owners and others for rights to their linear and on demand programming outside the cable box, on smartphones and tablets, outside the home. Apple, Amazon, Netflix and others are negotiating licensed deals as well. Hulu gets no special treatment once the current content owners sell off. And in 5 years time, content owners could begin to sell their programming directly to consumers.

Finally, I don't believe there is enough program exclusivity to differentiate distribution, the only exceptions being sports and live programming. Want an example, look at DirecTV offering Damages exclusively this year, Friday Night Lights last year. While the programming is great, I doubt it is enough to cause a consumer to switch their distribution provider.

In 5 years, cable operators will get online distribution rights from the networks. Their marketing pitch will be "TV Everywhere" and consumers will be drawn to one distributor giving them access to viewing, wherever and whenever they want. For those seeking other movies and TV shows not available from these programmers, they will access via rental or purchase from Netflix, Redbox, Apple, Amazon, and others. Hulu's play only works because of its programmer partners; without them, Hulu may not have the long term value to compete in this crowded marketplace.