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Hulu and the price of failure

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No great surprise that Hulu’s network owners have decided not to sell after all. Disney-ABC Television Group president Anne Sweeney telegraphed the possibility at the All Things Digital conference back in May. But what the process produced is something pretty close to a fiasco for the networks.

And as I noted here last month, the whole idea of a sale was highly problematic for the current owners from the start. The most aggressive bidders were bound to be pay-TV service providers with a strong strategic interest in bundling Hulu (and especially Hulu Plus) with their existing subscription service. It would be particularly valuable to pay-TV operators without their own broadband platform, such as DirecTV, which not surprisingly was rumored to be the leading bidder before the owners put the kibosh on the whole thing.

Selling to a pay-TV service provider would have created all sorts of headaches for ABC, Fox and NBC in their dealings with every other service provider, however, all of whom would have demanded comparable access to whatever streaming rights the buyer would have acquired in the deal (as Janko explains here it would have been particularly problematic for NBC-parent Comcast). Not making those rights available to others on comparable terms could also have raised eyebrows with antitrust authorities, given the scrutiny anything involving Comcast and NBC Universal is bound to draw).

The non-strategic bidders, however, were basically interested only in whatever assignable streaming rights would come with Hulu, and they were all low-balling their offers. Taking any of those offers would have risked effectively putting a permanently low ceiling on the price for non-exclusive streaming rights at a time when prices are already under pressure from Netflix’s new strategy of being more choosy about what it licenses.

Instead of a sale, Hulu’s owners now find themselves putting up a $750 million fig leaf to make it look like they have some sort of strategic plan for Hulu and to try to hide the implications of the non-sale for the value of their streaming rights.

Really well played.