Why Hulu’s Owners Couldn’t Find A Buyer

Hulu, which has been shopping itself around this year, is no longer for sale. Hulu’s owners—Disney, News Corp, Comcast, and Providence Equity Partners—put the online TV site up for bid and got some serious offers from Google, Dish Networks, and Amazon. Even Yahoo supposedly took a look. But in the end, Hulu’s owners didn’t get the bids they wanted.

Hulu’s owners wanted above $2 billion, but only guaranteed streaming rights for a couple of years. Google reportedly offered around $4 billion, but wanted the streaming rights for much longer. The value of Hulu is in the content deals it has with its owners to stream NBC, Fox, and ABC television series over the Internet. If those rights were to disappear in two years, Hulu’s value would drop significantly. Hence, the lowball offers. Amazon would have been the best fit for Hulu, but there was no way Jeff Bezos was going to overpay for it.

So nobody is going to get it. Today, Hulu issued the following statement:

Since Hulu holds a unique and compelling strategic value to each of its owners, we have terminated the sale process and look forward to working together to continue mapping out its path to even greater success. Our focus now rests solely on ensuring that our efforts as owners contribute in a meaningful way to the exciting future that lies ahead for Hulu.

Let me parse the corporate-speak for you. We couldn’t get what we wanted so we are taking our Hulu off the table and going back home. “Since Hulu holds a unique and compelling strategic value to each of its owners”? That’s why the sale process was terminated. Didn’t Hulu hold a strategic value to its owners before also?

Here’s the thing about Hulu that you need to understand. Its value to the media companies that own it is not in the $2 billion to $4 billion it can fetch at auction today. Its real value is as a source of ongoing and growing licensing fees for their TV shows as more and more people watch online.

As TC contributor Ashkan Karbasfrooshan noted last summer:

Hulu raised $100 million at a $1 billion valuation. Even if Hulu’s value has risen since that deal, the increased value on the TMCs’ [Traditional Media Companies] balance sheets means little. However, if Hulu (in the hands of someone else, be it as an independent post-IPO company, or in the hands of MSFT/YHOO/GOOG) pays the TMCs hundreds of millions of dollars per year in licensing fees, then that kind of annuity on their income statement will be far more valuable.

The media companies which own Hulu only wanted to extend their licensing agreements a couple years to any potential buyer because they fully planned on jacking up the price when it came time to renegotiate. And all the bidders knew that. Now that the media companies will continue to own Hulu, they kind of have a fiduciary responsibility not to ream it too much on those streaming fees. Although I am sure they will try anyway. What an exciting future that will be for Hulu.