Market Overview

What Could Amazon, Yahoo! or DirecTV do With Hulu?


Charge more for content, that's for sure.

If the Wall Street Journal's sources are correct, Google (NASDAQ: GOOG), Amazon (NASDAQ: AMZN), Yahoo! (NASDAQ: YHOO) and DirecTV (NASDQ: DTV) are about to engage in a bidding war to win control of Hulu.

Hulu, which more than doubled its revenue last year (and is expected to do the same this year), is a very hot property. The streaming video website got its start as a Fox/NBC joint venture. When Hulu welcomed ABC as an additional owner, the site's future appeared to be set in stone: while cable and over-the-airwaves TV would continue as normal, the future of online television would be in Hulu.

That may still be the case. But if so, it won't happen with any of the TV networks at the helm. Rather, Hulu will flourish or flounder under the leadership of someone new.

What does this mean for the streaming video site? Where will this take the future of television? And what could the prospective buyers do with Hulu?

More For Less, Initially

In the short term, Amazon would be the best company to acquire Hulu. The company has already amassed a collection of 100,000 videos to stream on its site. When combined with Hulu's massive library of free content, both old and new, Amazon would easily trounce its competitors (in terms of variety, at least).

To get consumers on board with the service, Amazon would likely offer Hulu Plus at a discounted rate – or simply merge it into Amazon Prime without increasing the $79 annual fee. Doing so would greatly boost Amazon's unlimited streaming content without having the need for new streaming rights agreements. It would also bring Amazon's content into more homes, as current Hulu Plus subscribers could be given instant access to Amazon's library.

Furthermore, Amazon could then start to offer Hulu Plus subscribers the chance to pay for rentals of shows or movies that are not offered in the unlimited package. This wouldn't go over well with all customers. Many would wonder why they are expected to pay more for content that should have been included with their monthly fee. But that's a dilemma Amazon is already facing with its current business model. If the company can persuade consumers to pay a low monthly fee or a reasonable annual fee for a set number of videos, and then pay a few dollars per rental for others, it may very well become a Netflix (NASDAQ: NFLX) killer.

With its first tablet on the way, Amazon is guaranteed to include Hulu support from day one. What would be really interesting is if the company gave Amazon tablet users the chance to stream standard Hulu shows without the Plus subscription. That might seem out of the question, but it would provide Amazon with a much-needed boost in the battle against the forthcoming iPad 3.

If Amazon made such an offer, Apple (NASDAQ: AAPL) would be too cocky (and still too successful) to respond with a similar deal. But even if it wanted to, Apple couldn't compete on the same level. The best it could do is offer a handful of free downloads. But without a streaming model in place, Apple's deal would not be anywhere near as impressive as Amazon's.

This, of course, is merely speculation. If we are to consider the negatives of an Amazon/Hulu acquisition, let's start with content monopoly: do we really want Amazon, which already owns the rights to 100,000 video streams, to control Hulu as well? Next, pricing: Hulu Plus may be $7.99 per month now, but don't expect the rate to stay that low now that Netflix has opened the price hike floodgates. Finally, it's important to realize that Amazon – like so many other corporations – is interested in Hulu because of the latest trends in streaming video. Today, streaming video is hot. Tomorrow, who knows? If Amazon's tablet fails, will the company be happy with a Hulu acquisition? Or will it let the company die a painful death as so many companies have when the acquired property proves to be less profitable than anticipated?

The Satellite Battle Heats Up

Earlier this year, Dish Network (NASDAQ: DISH) decided to acquire one of the most troubled corporations in America: Blockbuster Video. While Dish has yet to reveal its true intentions with Blockbuster, the acquisition has clearly gotten the attention of its leading competitor. DirecTV is now looking to beef up its content offering with a well-known streaming entity.

If successful in this bid, DirecTV could blend Hulu into its satellite service, creating cross-promotional features that allow Hulu Plus subscribers to experience a little bit of DirecTV while allowing DirecTV users to experience all of Hulu Plus' content without having to pay an additional monthly fee.

But that's the simple stuff. DirecTV could also potentially use Hulu as a way of bringing online streams and on-demand satellite content closer together. It wouldn't be a seamless merging of content (online rights are still treated differently from cable rights). But it could blur the line between the two, which might be good for consumers, assuming that content providers don't use that as an excuse to raise their rates.

On the downside, DirecTV isn't all that different from Comcast (NASDAQ: CMCSA), a company that was barred from acquiring Hulu when it took control of NBCUniversal. The reason? Monopoly laws, of course. This was a relief to those of us who feared the worst in the event of a Comcast acquisition. But when Google (NASDAQ: GOOG) expressed its interest in acquiring the company, my fear returned.

DirecTV is smaller than Comcast, but there's no reason to think that it won't treat Hulu the same: as a company whose content should be exclusive to DirecTV subscribers. It won't happen overnight, but it is wholly possible that DirecTV would use Hulu as a ploy to get more satellite subscribers. It's also possible that the company wants Hulu solely for its streaming rights, and not because it actually values the property and the brand.

Yahoo! Whoop-de-do

Should Yahoo! roll over and die?

Sorry, that came out wrong. Let me rephrase: Should Yahoo! dig a grave, jump inside, pay someone to fill in the dirt, and rest in peace?

Probably not. But if it keeps making bad decisions, that's exactly what's going to happen.

Despite the negativity surrounding Yahoo!, I am not under the belief that the company is in the toilet. Rather, I think its future is fairly bright. But do I want the company to acquire Hulu? In a word: NO!

Yahoo!'s video streams are often presented as short bursts of content. It is, in essence, the YouTube of Associated Press-style news. This format works for the kind of content that Yahoo! currently provides, but it would not be good for a company with this business model to acquire Hulu.

Hulu is essentially a scaled-down version of on-demand cable TV for the Internet. It isn't perfect (the ads annoy a lot of people). But while Hulu loads a few ads for every 30 minutes of content, brief clips (2 – 3 minutes in length) are often free of commercials. The same cannot be said for Yahoo!, which forces its viewers to watch an advertisement whether the video is 30 seconds, five minutes, or longer.

Yahoo!'s streaming setup is set to auto by default. Thus, if you're watching a video and you don't stop it before the end, the next video will load automatically. This is a minor annoyance, but it's another issue that Yahoo! could very well bring to Hulu. No thanks.

Also, since Yahoo! is so dedicated to providing the news, how might this content impact Hulu's current offering? Let's take a look at network television: you can't watch NBC or ABC without seeing promos for the 11 o'clock news. Is this what we have to look forward to if Yahoo! buys Hulu: a news-drenched entertainment site?

Again, no thanks.

The Death of TV

What will happen if Google wins the bidding war? I've already shared my thoughts on the matter, so I won't reiterate all of them here. But in short, YouTube is the new reality TV. It cannot and should not ever be allowed to compete alongside quality (scripted) programming, which is exactly what will happen if Google takes control of Hulu. This would lead to the death of scripted programming while opening the door for more crap like this.

Follow me @LouisBedigian


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