Why Yahoo Should Buy Hulu

With a new chief executive in the house, it’s time for the beleaguered Internet company Yahoo (s yhoo) to make a bold move. Like buying fast-growing online video service, Hulu. No, it wouldn’t be cheap, but it would be money well spent, as it would add zing to the company in more ways than one.

When Yahoo announced its decision yesterday to name Carol Bartz as its new CEO, it also quietly disclosed that President Sue Decker, who had been a likely contender for the chief executive position, was going to leave the company. Her exit leaves a big hole at the No. 2 spot at Yahoo.

Bartz is clearly a great executive, and a solid, proven manager who will bring some much-needed stability to the company. She needs a president who is both young and energetic, but has the maturity to work with a large number of people. This person would have engineering chops, clear vision, and — most importantly — expertise building great products that provide a compelling Internet user experience for a diverse group of consumers.

Since magically merging Bill Gates and Steve Jobs into one isn’t an option, she’ll have to settle for a mere mortal. My candidate to be her consigliere: Jason Kilar, CEO of Hulu. What are the odds that he’d be interested? Not high –- after all Hulu is the hottest ticket in Hollywood, has a valuation of about a billion dollars and the attention of everyone from Rupert Murdoch to the Google (s goog) founders. At first blush, a marriage between the hot Hulu with a dowdy and decrepit Yahoo doesn’t appear to make any sense. But that’s the short-term view.

Hulu-tastic

With his service growing by leaps and bounds, and advertisers lining up to get on board, Kilar’s only problem is that he doesn’t have enough traffic –- like, say, YouTube. That will change over a period of time; and as we all know, time is an elastic concept. Perhaps this is where Yahoo can help. Or rather, where the two can help each other. Clearly search and search advertising isn’t quite working out for Yahoo; what Yahoo knows best is media and content. Which is why buying Hulu would be a strategically relevant acquisition for the company — it would play to Yahoo’s media strengths.

Yahoo’s online video efforts thus far are laughable. So much so that I’m hesitant to even mention them and YouTube in the same sentence. (Darn! I just did. But you get my point.) Nevertheless, it still has a lot of traffic and it can very easily help Hulu, which has great content, get scale -– both in terms of infrastructure and number of users. By acquiring Hulu, it would instantly become a credible competitor to Google’s YouTube. Yahoo also has a lot of experience working with branded content and brand advertisers, which can only further help Hulu. For Yahoo, Hulu brings inventory for higher-priced advertising, a marked improvement from what it makes from selling banner advertising.

Win-Win For Everyone?

You’re probably thinking, why would Fox (s nws) and GE (s ge) sell their pet project to Yahoo? Well, why not? After all, they took a $100 million investment from Providence Equity Partners, which means they have an interest in making some sort of a return on this company. By selling to Yahoo for stock -– say,$2 billion worth — Rupert Murdoch would get a nice big chunk of Yahoo shares, which could come in handy if he wants to offload MySpace to Yahoo sometime in the future. NBC would get a significant Internet presence with Yahoo, which could only help its other digital efforts. And the Providence guys –- well, they’d get to make some money.

At current prices, Yahoo looks to be a bargain. And if Bartz does her magic and things work out according to plan, Yahoo’s stock should go up –- which means Rupert, GE and Providence would all make a lot of money from betting on the company.

In other words, a win-win deal for everyone!

Jason’s Story

But if I was running Yahoo, I would do the deal just for Kilar. When Yahoo was looking for a CEO, I made a short list of executives whom I thought would be ideal. He was high on that list; the only reason he wasn’t my top pick was his lack of experience running a big company. As Bartz’s 38-year-old consigliere, he could be the prince-in-waiting. He worked at Amazon.com (s amzn) for 10 years, so we know the man has patience.

I’ve spoke to quite a few people who know Kilar well, and most of them described him as that rare content guy with technical chops. A good team builder, he is said to inspire. Others waxed eloquent about his sense of design and his passion for media. Remember, he ran the DVD store for Amazon. His defining quality is hyper-competitiveness — something that would be important to fire up the troops.

During his keynote speech at our NewTeeVee Live conference back in November, Kilar said: “Our goal is to deliver a service that users, advertisers, and content owners unabashedly love. Our strategy is to deliver ‘brain-spray’ awesome quality.” Imagine what that kind of philosophy would do for the 200 million-plus people who use Yahoo!

A very close friend of Kilar’s described him as the man who wants to do the impossible. Of course, taking the helm at Hulu and building it into a viable competitor to YouTube, against all odds and attacks by good-for-nothing pontificators like yours truly (who were totally wrong about the service) qualifies as impossible in my books. Hulu’s revenue will apparently match that of YouTube in 2009. No wonder some have jokingly compared Hulu to President-elect Obama.

In many ways, buying Hulu would give Yahoo the same stimulus Flickr provided the company back in 2005. In other words, some of the tangibles cannot be quantified, but it would be a wise move all the same.