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Summary:

The possible combination of Apple and Hulu has got the world buzzing with excitement, as such a deal could combine one of the top consumer electronics manufacturers with everyone’s favorite broadcast TV destination online. But the deal seems unlikely, given the lack of a strategic fit.

hulu plus TV

The latest news from the Hulu rumor mill on Thursday had Apple interested in taking a look at the books and possibly considering an acquisition of the web video startup. Just like all the other companies linked to the Hulu sale, it’s important to note that “preliminary discussions” here are just that — a chance for execs to get to know one another, take a look at the financials and figure out whether an actual acquisition could make sense or not. (Kudos to Kara Swisher and Peter Kafka at AllThingsD for hammering home this distinction.)

But in this case, there are some compelling reasons why a deal would make sense for Hulu, for consumers and for Apple alike. Here are just a few:

  • Apple has the money to invest. Apple is sitting on a hoard of cash right now that it’s not really putting to work. It’s not known for making big acquisitions, but from a financial perspective, it’s the best qualified potential acquisition partner to emerge. And it’s important to remember that the $2 billion or so that one would spend to buy out corporate shareholders Disney, Fox and NBC Universal and investor Providence Equity Partners is just a starting point — the real money gets spent later, when the buyer needs to re-up and renegotiate licensing deals for more streaming content.
  • Apple would finally have that subscription video service it’s always wanted. Apple has reportedly been working for years to build a subscription video service that could rival pay TV. Buying up Hulu would finally give it that service to offer to its customers, without Apple having to do the hard work of building a consortium of willing partners to do so.
  • Hulu is all about ads. Apple wants to sell ads. The vast majority of Hulu’s revenue comes from advertising. In the first quarter, Hulu had nearly 300 video advertisers on its site and delivering ads to various mobile and connected devices. Meanwhile, Apple’s own iAds product has largely fallen flat. A side benefit of a Hulu acquisition would be bringing its ad technology and ad sales teams into the fold to help Apple with its own products.
  • Greed is good. Competition is better. As much as the broadcasters want to get Hulu off their hands and allow it to be an independent entity, it needs to have a strong and committed partner to sponsor some healthy competition in the subscription VOD space. Right now there’s Netflix and that’s about it. Rather than selling to Yahoo and watching Hulu die on the vine, selling to a deep-pocketed alternative would be good for content owners, as it could help bid up the price of their shows and movies.
  • Think of the consumers. Consumers love Apple. Consumers love Hulu. Would the combination be like mixing chocolate and peanut butter? There’s a case to be made that mixing two brands users have a strong affinity for could have an incremental halo effect on each. At the very least, consumers would benefit from having more viable online video services to choose from.

Many folks have gotten excited about the possibility of an Apple acquisition of Hulu for precisely these reasons. But there are some reasons why an Apple acquisition might not make sense:

  • Apple loves its brands. Hulu isn’t one of them. This might seem like a small thing, but Apple sells “Macs” and “iDevices.” It might have a problem with an independent subsidiary that operates under its own brand name and isn’t tightly integrated with the rest of its products.
  • Hulu isn’t vertical enough. Apple has sort of a top-down view of how all its products fit together to grow revenues for the overall company. It’s created a virtuous cycle where more selling more devices means it can sell more music, videos and apps. The same is true in the reverse: having a robust software ecosystem means its hardware is more attractive to consumers. It’s not clear how an independent media entity like Hulu would fit into that system.
  • Actually, it’s worse than all that. Hulu wants to be everywhere. Apple wants to control its own ecosystem, and mostly cares about making Apple products and services to work with other Apple products and services. Would it want Hulu to operate on competing products, like for instance Android phones or tablets? As a media entity Hulu would want as much distribution as possible, but that doesn’t necessarily jive with how Apple tends to do business.

For Apple, it’s probably worth taking a look at Hulu’s books, if only to find out what the competition will be getting when and if an acquisition happens. But at the end of the day it seems unlikely Apple would shell out the cash (and keep shelling out the cash) to purchase a subscription VOD service when it could make a similar investment and build out its own service, which conveniently only works on Mac and iOS devices.

  1. Apple is not going to spend a lot of money buying what essentially a moat for their core business. What percentage of Apple’s killer quarter came from anything other than selling hardware?

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  2. Except have you looked at Hulu’s content? It’s a bunch old TV shows that no one cares to watch and no one should really pay for at the prices Hulu is asking for.

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  3. Dudes, 1st sentence “web video startup”, a FYI, any company with a HR department CAN-NOT be considered a startup. You might as well say Facebook or Google are startups. (BARF!)

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  4. Michael Long Friday, July 22, 2011

    The problem is content. Hulu is only as good as the content the studios are willing to provide, and nothing says the studios would continue to provide an Apple-owned Hulu with the same shows on the same schedule.

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  5. Video has sustained four different business models successfully- ad funded, subscription, rental and sale. If such a purchase allowed Apple to develop a service that allowed consumers to pick and choose between them- like we always have done with broadcast TV and VHS/DVD- then they could have something compelling.

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  6. Hulu is 10x more suited for Google than for Apple. Google will make it available everywhere. They will integrate their own ads into it to make it international, something I’ve been wanting for a long time. Because of their ads they can actually keep Hulu’s current business model, and maybe even improve on it.

    It would be a perfect addition to Google TV. Actually it may single-handedly make Google TV popular, just like Netflix turned Apple TV into a product Apple can be proud of selling now, as opposed to before when it was just a “hobby”.

    Hulu can be integrated with Google+, and especially Hangout for watching a show together and commenting on it through chat during the show, or by talking after the show, and so on.

    It’s a nobrainer for Google.

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  7. Interesting post, Ryan. I read your article because my colleague, Lee Simmons, referenced you and your article in his related story. See here: http://www.bizmology.com/2011/07/22/report-apple-circles-hulu/

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  8. I don’t believe this article answers the premise of the title; “Apple buying Hulu would be great.”
    How would it be great?
    Additionally, I don’t believe the user of Hulu are going to benefit from Apple procuring the company. The business model Apple operate under is to charge users. Hulu’s is to charge advertisers.

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  9. I hope yahoo wins the bid. I like Apple, but not sure if this will be good for the consumer at all.

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  10. Hulu is a failure, a company started by a few tv/movie studios to be the “Apple iTunes Store” killer. It didn’t kill Apple, only made it stronger. So now the studios have lost interest and want to be rid of their ugly fatherless child. I doubt that Apple would have any interest in this particular soon-to-be orphan.

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    1. LosFelizRider Monday, July 25, 2011

      While harsh-sounding, this reader comment is the most accurate analysis of Hulu and its place in the Internet-media industry that I’ve read to date.

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