With No IPO, Will Hulu Ever Shake Off Its Shareholders?

Jason Kilar, CEO of Hulu, at NTVL 2010

With the help of its stakeholders, Hulu has done the unlikely: It brought high-quality broadcast content to the web and made it available on an ad-supported basis, and also on connected devices through its Hulu Plus subscription offering. But while its partnerships with ABC, Fox and NBC have served it well over the last several years, giving Hulu the content it needed to create a viable business, its reliance on those deals also serves as a double-edged sword as it looks to the future.

According to the Wall Street Journal, Hulu has canned its IPO plans despite a revenue forecast of $260 million this year, in part due to a lack of long-term streaming rights to content from its parent companies — the same companies that should hold its best interests at hand. For Hulu, the IPO offered the possibility of independence from its broadcast partners, but now that a public offering is no longer in the works, it will remain saddled with continued uncertainty as it negotiates to keep their content on board.

On the one hand, Hulu has the Comcast-NBC Universal deal hanging over it; until the deal is completed and Comcast has taken a majority stake in the new entity, NBC’s interest in Hulu will remain up in the air. Some have even suggested that Comcast could acquire the online video firm, but we’re skeptical that it would do so, especially after all the regulatory scrutiny it has received around online video during the review of its current deal. Besides, Comcast has its own video site, Fancast, which licenses a good deal of content from Hulu.

Another partner, Disney, has shown that it has divided loyalties: Its broadcast network, ABC, released an app for the iPad long before Hulu Plus was available on the tablet, and it still makes its shows available in a free, ad-supported format while ABC content on Hulu is only available to users who pay for a Hulu Plus subscription. Perhaps more important, Disney just struck a deal with Netflix to make its shows available through that streaming service — a deal through which Netflix is reportedly paying upwards of $150-$200 million. Disney clearly wants to get paid for its content, and Hulu may have to pony up more than equity to keep ABC’s shows as part of its service.

Amid uncertainty with its parent companies and content partners, Hulu is facing increasing competition. Netflix is a formidable opponent already, with 17 million subscribers, and has shown that it’s not afraid to encroach on Hulu’s turf by striking deals to bring more TV content available through its streaming service. We could see a big push from YouTube soon, as Google is rounding out its content acquisition ranks with executives from Netflix and Paramount, and looks to be ready to make a major push in getting some premium streaming content.

The big question is what types of new services Hulu might begin offering to drive more revenue. The WSJ story mentions that it could roll out more differentiated subscription plans, perhaps by partnering with a cable network like HBO or Showtime to make their content available as part of a higher-cost subscription offering.

Hulu’s licensing deal with Comcast could offer another possibility: While many see Hulu as a service that enables cord cutting by offering access to broadcast content without a pay TV subscription, Hulu could pitch its services to cable companies as a new way to make money. Since Hulu already has the infrastructure in place for subscription-based video offerings, it could easily integrate with cable login systems to become part of their TV Everywhere services. In that way, Hulu wouldn’t be seen as cannibalistic to cable businesses, but as a value-added offering to their subscribers.

Without an IPO in the works, Hulu will need to find a way to raise capital to keep the content it has — and to bring new content into the fold. How it does so, whether it be through bringing in outside investors, or tapping its existing investors for more capital, is an open question. The bigger question, though, is whether or not it will ever be able to get out from under the thumb of its existing shareholders, who also just happen to be its biggest content partners.

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