Hulu owners cancel auction, will keep control of video service

Posted 10/14/11

LOS ANGELES - Hulu LLC’s owners canceled a four-month auction of the online video service, saying the company’s strategic value outweighed a sale.

“We have terminated the sale process and look forward to working together to continue mapping out its path,” owners News Corp., Walt Disney Co. and Providence Equity Partners, said Thursday in a statement. “Hulu holds a unique and compelling strategic value to its owners.”

By keeping Hulu, the media companies retain control over how shows are distributed online and helps them steer viewers back to their television networks, Fox and ABC, said David Bank, an analyst with RBC Capital Markets in New York. With customer backlash to rival Netflix Inc.’s recent price increase, Hulu is better positioned to win subscribers, he said.

“The media companies are really wise for terminating the process,” Bank said in an interview. “They are making a very smart move to leave their content in their own hands and not leave their destiny to a third party.”

Elisa Schreiber, a spokeswoman for Hulu, said the company wouldn’t comment beyond the statement. NBC Universal remains an owner of Hulu and was required to give up oversight when it was acquired by Comcast Corp.

The video site has more than 1 million subscribers to its $7.99 a month Hulu Plus service, CEO Jason Kilar said in an Oct. 5 blog post. Los Angeles-based Hulu expanded to Japan on Sept. 1 and has added to the number of devices using Google Inc.’s Android software that can access its premium service.

Falling Prices

Hulu drew offers from Google Inc., Inc., Yahoo Inc. and Dish Network Corp., people familiar with the matter said last month. Dish, which has started a Blockbuster-branded online streaming service, bid $1.9 billion, one person said.

When Hulu was put up for sale in June, its price tag was estimated to be $2 billion or more, based on data compiled then by Bloomberg and SNL Kagan. The service never went forward with a planned IPO last year that envisioned a $2 billion valuation.

Netflix, Hulu’s larger rival in online streaming, has fallen more than 50 percent since the Hulu sale plan was reported in June. Netflix, based in Los Gatos, Calif., rose 3 percent to $117.01 yesterday in U.S. trading.

This week Netflix reversed a decision to separate its streaming and DVD-by-mail business, which was going to be renamed Qwikster. Analysts said Netflix, which on Sept. 15 cut its third-quarter subscriber projection by 1 million, changed its plans after it lost more customers than anticipated.

More Content

The developments show that Netflix is vulnerable and that Hulu may be able to win more subscribers and pay more for content, Laura Martin, an analyst at Needham & Co. in Pasadena, California, said in an interview.

“Netflix is in less of a position to pay Hulu’s owners for content,” Martin said. “It’s probably in their best interest to hold onto Hulu as a way to monetize their content.”

Hulu’s owners still need to find ways to make more programming available, Martin said.

While Kilar angered some of Hulu’s owners in February by suggesting online advertising was superior to traditional TV, he has done a good job building Hulu and should remain CEO, Bank said.

To keep him, the site’s owners will likely need to reconsider going public, Martin said.

“If the owners commit to an IPO in the next two years, markets permitting, I think they will be able to keep Jason Kilar,” Martin said. “If not, I think they could lose him. He wants to be the CEO of a public company.”

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