A sale would mean the end of Hulu as we know it

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Josh Wein

Reports continue to surface that new parties are evaluating Hulu as a potential acquisition target. Yahoo is the latest corporate name to come up in Hulu's reported sale discussions. According to the Wall Street Journal's AllThingsD, Yahoo senior management met with Hulu this week but has not yet bid on the site.

If Hulu owners News Corp. (Nasdaq: NWSA), Disney (NYSE: DIS) and Comcast (Nasdaq: CMCSA) eventually find a buyer for the site, expect Hulu to radically change.

Those owners happen to be among Hulu's highest-profile programming suppliers. Shows from Disney's ABC, News Corp.'s Fox and Comcast's NBC networks dominate the list of popular videos on Hulu and Hulu Plus. Without an equity stake in the enterprise, the networks would have to maximize the license fees they get from Hulu--fees that would probably exceed what Hulu pays today.

If Hulu is forced to pay a market rate for hit network programming--and why wouldn't it be?--it may have to hike the monthly subscription fee it charges its 4 million subscribers. If those subscribers are unwilling to accept an increase, they can easily cancel the service and find network programming elsewhere online. Additionally, higher fees to the networks would leave Hulu with less cash to spend on other sources of programming.

Furthermore, the networks could find other ways to reach online viewers beyond Hulu. There's little stopping them from setting up a new competitor to Hulu should they sell the property. If they pull their programming from Hulu, its value could evaporate.

For an example of the value network programming has historically brought to a media distributor, look at broadcast TV, where independent, unaffiliated stations change hands for a fraction of the price of their major-network-affiliated counterparts. The case of Young Broadcasting's KRON-TV in San Francisco brings this into further relief. Young outbid NBC for the station in 1999, which at the time was affiliated with the NBC network, and paid more than $800 million. Within a few years, NBC had purchased a nearby station and ended its affiliation with KRON-TV. By the end of the decade, Young was in bankruptcy court, where KRON-TV was reportedly appraised at less than $50 million.

Maybe those evaluating Hulu will have other plans for the site. There is certainly value in Hulu's brand and its agreements with device manufacturers that make it ubiquitously available on Internet-connected screens, and broadcast network shows aren't the only programming Hulu carries. Or perhaps the new owners can negotiate a long-term low-cost license for the programming as a condition of the sale.

But Hulu's potential buyers should be aware that they may end up operating a very different company than the one that exists today. If Hulu is to continue as is, its owners may be stuck with it.

TV Everywhere offers another way consumers can access popular network TV shows online. This week, Roku CEO Anthony Wood discussed how his company is working with cable operators to reach audiences in a Q&A with FierceCable editor Mariko Hewer. Read the feature here. --Josh

 

Correction, May 21, 2013Providence Equity Partners sold its 10 percent stake in Hulu in October, 2012.

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