The Hulu Carousel Continues

/ Jul 2, 2013

HuluArnett

In what should come as a surprise to absolutely nobody, the Hulu sales process has hit a potential hitch due to the demands being made by the video service’s current owners, Disney and News Corp.*

According to a report from TheWrap yesterday, final bids for Hulu, which are due Friday, might come in well below the $1 billion Hulu owners are seeking. This is because of a list of “onerous” demands which would essentially gut the Hulu service.

The owners want to be able to take content off of Hulu and license it exclusively elsewhere as well as limit Hulu’s first-run rights by instituting a 30-day delay for new episodes of some TV shows. Hulu owners also want to license programming to Hulu for only two years (instead of the minimum three that most bidders are requesting). This would allow them to raise prices for programming when it’s time to renegotiate.**

And if that’s not enough, Hulu’s current owners also want to sell 90% of inventory tied to their programming on Hulu, and want at least four ads per break on their shows on Hulu Plus.

And they want at least $1 billion with all of these terms included.

This has shades of the first Hulu bidding war in 2011, when Google, Dish Network, Amazon, and Yahoo! vied to buy the service before owners ultimately decided to pull it off the block. Dish Network had offered $1.9 billion, which was said to be the highest official bid. That doesn’t include Google’s offer of roughly $4 billion, which came with requests for longer licensing agreements for more programming — terms that were beyond the parameters set by Hulu owners.

It’s the same old story, down to the potential of Hulu owners once again killing the bidding war — especially if bids come in lower than asking price. This means a site that has been in limbo, even before founding CEO Jason Kilar decided to leave the company, might remain so for the foreseeable future.

The prospect of Hulu owners keeping the service also calls into question what sort of investments the video service would make in original programming. Hulu’s Newfront slate was largely underwhelming, which some people within the industry credited to the company not knowing what its future was. Two months later, and everyone is still asking those same questions.

An argument can be made that a Hulu sale, even with the aforementioned laundry list of provisions, could be a benefit to Hulu’s plans for original programming. The thought is: If the new owner(s) doesn’t have access to the same amount of TV content, then they need to provide original fare that will keep users coming back. It’s the Netflix strategy, and could quickly become one for Hulu, provided it has the resources in place to make a significant bet in original online programming.

Of course this depends on which bidder Hulu goes to. For example, DirecTV isn’t a stranger to original programming, which it offers alongside other exclusive stuff on its DirecTV Audience Network channel, VOD platform, and mobile apps. Earlier this year, DirecTV premiered its first original series, the Thandie Newton-starring “Rogue,” on the Audience Network. Last month, it renewed “Rogue” for a second season. DirecTV has notably rescued and aired new seasons of cult shows like “Friday Night Lights” and “Damages” (something which Netflix isn’t unfamiliar with). And the satellite provider has also partnered with Fox Digital Studio on multiple seasons of sports comedy series “Suit Up,” repackaging it into a TV-length show for the Audience Network after an initial run on the web.

Yahoo!, which has its own slate of original content, could also be a good buyer. Though that’s looking unlikely. Other potential buyers include The Chernin Group (maybe with AT&T), Guggenheim Digital, KKR & Co, Time Warner Cable (which is only looking to invest), and Silver Lake Management in partnership with William Morris Endeavor. Some are more likely to push Hulu further into original programming than others.

Final bids are due Friday, and they might come in well below the $1 billion asking price (or not). And as we learn which bidder (if any) wins, it will also signal what role Hulu plans to play in online programming.

*Comcast also has a stake in Hulu, but no operational oversight due to FCC regulatory terms it agreed to when it bought NBCUniversal from GE.

**It’s important to note that regardless of how accurate these demands are, it could also be a negotiating ploy as both sides haggle over the price.

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