Hulu’s Failed Sale: Owners Must Solve Their Identity Crisis

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Analysts say the failed sale is a sign of dysfunction — but one insider promises owners are no longer divided

After pulling Hulu off the market for a second time in three years, owners 21st Century Fox, the Walt Disney Company and Comcast must now settle a key issue – what is Hulu, exactly?

The popular streaming site's corporate parents have long disagreed over what Hulu should be. It began as the first site where people could legally watch several new shows almost immediately after they aired on TV.  Fans loved it — and flocked to the platform.

Also read: Disney CEO Bob Iger, Fox CEO Rupert Murdoch Explain Why They Didn't Sell Hulu

Yet over the past few years, Hulu has been paralyzed by competing impulses.

Some wanted to build out the subscription service Hulu Plus and focus on exclusive programming a la Netflix. While Hulu has dabbled in that arena with original shows like “Battleground,” it never firmly committed to it, and its efforts have been middling at best.

Also read: WaxWord — Why Disney, Fox Decided to Keep Hulu – And How Big Were Those Bids?

Others wanted to stay the course and stick to re-airing their existing shows. Many at Hulu were more focused on technology.

Tony Wible, an analyst with Janney Montgomery Scott, said the failed sale was “a sign of the dysfunction” within Hulu.

“There are conflicts of interest with stakeholders over where the business needs to go,” Wible said. “Their relationship with content is different than what Hulu's needs to be.”

Though the public did not register this confusion, it complicated the sale process and stunted the company's evolution. As a result, Hulu’s owners sought more money than the bidders felt it was worth.

It’s the second time Hulu’s owners have tried to sell the company only to pull back.

Also read: Will Netflix, YouTube, Hulu Content Create a 'Second Revolution' in Television?

“It's very rare, to put an asset up for sale twice in almost as many years and pull it off market,” Laura Martin, an analyst with Needham & Company, told TheWrap. “It's a problem when it comes to determining its ultimate value. It suggests they can't get the price they want and that it's not worth as much in the third party market as its owners think it is.”

21st Century Fox chairman and CEO Rupert Murdoch said at the Allen & Co. conference on Friday in Sun Valley that his company wanted to keep it along, but that Disney "wavered."

“I think it’s a hell of a good business  – or it can be,” Murdoch said.

One of the biggest questions for any prospective buyer was how many shows Fox, Disney and Comcast would commit to the site – and how expensive they would be. As TheWrap reported, all the owners wanted to reserve some shows from their broadcast networks ABC, NBC and Fox for their own websites. They also wanted to keep some shows off Hulu for as long as a month after they first aired on TV.

The prospect of fewer shows for a higher price lessened the value of Hulu, which its owners had previously put on the market for $2 billion. This time around they were looking for $1 billion – and most bidders weren’t willing to part with that much money without earlier access to broadcast programming.

Also read: Hulu Bidders Balk at 'Onerous' Disney, Fox Demands as Deadline Nears (Exclusive)

Several observers felt Hulu could have kept its value higher by aggressively moving to create original content. That would have insulated the company if it lost shows from the major networks.

“They should have been doing 20 originals a year instead of two,” one individual familiar with Hulu told TheWrap. “They had no original programming, no back stop.”

Hulu's ownership ultimately decided yet again that keeping the internet platform in-house was more important than selling it to a third party.

Like its media brethren, Disney, Comcast and Fox all have ambitions of creating "TV Everywhere," the more palatable description for an authentication system that allows cable, satellite and telco subscribers to access premium content online. Hulu could be central to making that a reality.

Also read: Hulu Sale Called Off by Fox, Disney, NBCU

"Why would we give Hulu to a competitor," one individual with knowledge of the company said. "The importance of TV Everywhere to this business cannot be discounted and we have in Hulu the best technology to make it achievable."

In announcing their decision not to sell Hulu, its owners also committed $750 million to the company. Another individual close to Hulu said the investment was a sign that the company would be able to scale its business (and thus compete with the likes of Netflix and Amazon).

Another individual said the money will be focused on creating and acquiring new content while the rest will be used on marketing, improving technology and attracting and retaining talent. Even though a sale seems unlikely, Hulu's owners have not ruled out the possibility that another company — possibly even one of the recent bidders — will buy a stake in Hulu in the future, the individual said.

Attracting talent will be crucial. Many feared that top executives at the company would leave regardless of what happened, following long-time CEO Jason Kilar out the door. Kilar departed in January, and former content chief Andy Forssell has been running the company since then. 

The individual told TheWrap that “There will be a permanent CEO soon enough" and also insisted Hulu’s owners now had a vision for the company and that any disagreements are in the past.

“All of the partners are aligned with what we need to do,” the individual said. “There is strategic clarity in Hulu's future. There's no more division over the road map we need to take.”

For the betterment of Hulu, its users and its owners, there better be.

For more on the non-sale, check out this video: