Hulu Owners Will Retain Control of Video Service

Hulu LLC’s owners canceled their auction of the online video service after inviting bids four months ago, saying the company’s strategic value outweighed the benefits of a sale.

“We have terminated the sale process and look forward to working together to continue mapping out its path,” owners News Corp. (NWSA), Walt Disney Co. (DIS) and Providence Equity Partners said yesterday in a statement. “Hulu holds a unique and compelling strategic value to its owners.”

By keeping Hulu, the media companies retain control over how shows are distributed online and can use the service to steer viewers to their networks, Fox, NBC and ABC, said David Bank, an analyst with RBC Capital Markets in New York. With rival Netflix Inc. (NFLX) trying to contain a subscriber backlash over a price increase, Hulu is positioned to win users, he said.

“The media companies are really wise for terminating the process,” Bank said in an interview. “They are making a very smart move to leave their content in their own hands and not leave their destiny to a third party.”

Elisa Schreiber, a spokeswoman for Hulu, said the company wouldn’t comment beyond the statement. NBC Universal, also a co- owner of Hulu, was required to give up oversight when it was acquired by Comcast Corp. (CMCSA)

Hulu offers free and paid services. The $7.99-a-month Hulu Plus has more than 1 million subscribers, Chief Executive Officer Jason Kilar said in an Oct. 5 blog post. Los Angeles- based Hulu expanded to Japan on Sept. 1 and has added to the number of devices using Google Inc. (GOOG)’s Android software that can access its premium service.

Falling Prices

Hulu drew offers from Google Inc., Amazon.com Inc. (AMZN), Yahoo Inc. and Dish Network Corp. (DISH), people familiar with the matter said last month. Dish, which has started a Blockbuster-branded online streaming service, bid $1.9 billion, one person said.

Marc Lumpkin, a spokesman for Englewood, Colorado-based Dish, declined to comment.

When Hulu was put up for sale in June, its price tag was estimated to be $2 billion or more, based on data compiled then by Bloomberg and SNL Kagan. The service never went forward with a planned IPO last year that also envisioned a $2 billion value.

Netflix, Hulu’s larger rival in online streaming, has fallen more than 50 percent since the Hulu sale plan was reported in June. Netflix, based in Los Gatos, California, rose 0.4 percent to $117.50 at 11:10 a.m. New York time.

This week Netflix reversed a decision to separate its streaming and DVD-by-mail business, which was to be renamed Qwikster. Analysts said Netflix, which cut its third-quarter subscriber projection by 1 million on Sept. 15, changed its plans to stem customer losses.

More Content

The developments show that Netflix is vulnerable and that Hulu may be able to win subscribers and pay more for content, Laura Martin, a Needham & Co. analyst in Pasadena, California, said in an interview.

“Netflix is in less of a position to pay Hulu’s owners for content,” Martin said. “It’s probably in their best interest to hold onto Hulu as a way to monetize their content.”

Hulu’s owners still need to obtain more programming, Martin said.

CEO Kilar angered some of the service’s owners in February by suggesting that online advertising was superior to traditional TV marketing. Bank said Kilar has done a good job building Hulu and should remain CEO.

To keep him, the owners will likely need to reconsider going public, Martin said.

“If the owners commit to an IPO in the next two years, markets permitting, I think they will be able to keep Jason Kilar,” Martin said. “If not, I think they could lose him. He wants to be the CEO of a public company.”

To contact the reporter on this story: Andy Fixmer in Los Angeles at afixmer@bloomberg.net

To contact the editor responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net

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