Hulu's Parents Call Off Sale, Announce $750 Million Cash Infusion
After putting Hulu up for sale for the second time in two years, parent companies Disney, 21st Century Fox and NBCUniversal (CNBC's parent company) have announced that the streaming-video company is no longer for sale.
In a statement, the media giants said they would retain their ownership positions and would infuse Hulu with $750 million in cash to "propel future growth."
Though Comcast was not allowed to be part of the decision-making because of the regulatory conditions of its acquisition of NBCUniversal, it is investing an equal share of the $750 million so that the stakes remain the same.
The parent companies would not elaborate beyond the statment. None of the bidders—DirecTV , the Chernin Group with AT&T, Guggenheim Digital Media and Time Warner Cable, which wanted to buy a minority stake—would comment.
Hulu will use the $750 million to cover growing programming costs, including developing deeper libraries and more original content, an area of particular interest to Hulu interim CEO Andy Forssell. Both will help the company compete against Netflix.
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Sources tell me that as Disney and Fox went through the bids this week, they overcame their differences with a renewed understanding of the value of Hulu Plus, the $8-a-month subscription service, which has more than 4 million subscribers after more than doubling last year.
Hulu's parents had said it wasn't just a sale process but a "review of the business" to look at the best growth prospect. But Disney and Fox traditionally had different priorities: The former favored a free, ad-supported Hulu option; the latter preferred the subscription model.
But in reviewing bids from subscription services DirecTV, AT&T and Time Warner Cable, the owners saw that their primary interest was in that subscription model. It appears profitable in its own right, as well as a potentially key way to let pay-TV subscribers log in to access more streaming content—delivering more online content to boost the value of the subscription and prevent cord-cutting.
One sticking point for all the bidders was that Disney and Fox didn't want to give content rights for Hulu Plus for more than two years.
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Hulu generated $690 million in revenue last year, but if Hulu Plus can continue to grow at the rate it has been growing, this could be a multibillion-dollar business.
The money, as well as the independent standing, is expected to help Hulu retain and attract top-tier talent. This week, Viacom's Philippe Dauman said the ongoing instability was simply bad for Hulu and its employees. This should resolve that.
Even better, independence could make Hulu more appealing to work for. Sources tell me ownership by a traditional media company would discourage smart engineers and innovative digital marketing execs from signing on.
A complicating factor: Hulu's remaining bidders are content distributors that have deals with its parents. If, say, DirecTV were to own Hulu, that might give the satellite TV company even more negotiating leverage with the media giants. If anyone's going to profit from digital distribution of their content, Disney and Fox understandably want it to be them.
—By CNBC's Julia Boorstin. Follow her on Twitter: @JBoorstin