News Corp., Disney Said Discussing Control of Hulu Site

News Corp. (NWSA) and Walt Disney Co. (DIS) are in talks that may lead to one of the partners in the Hulu.com video website buying out the other, two people with knowledge of the situation said.

In that scenario, an agreement would hand control of Hulu to either News Corp. or Disney, said the people, who sought anonymity because the talks are private. The companies, which each own about a one-third stake, are also discussing selling Hulu or changing the business model, they said. Comcast Corp. (CMCSA)’s NBC would remain a minority investor.

Disney prefers an advertising-focused business model, while News Corp. would like Hulu to rely on subscriptions, they said. Hulu offers both a limited free service and an expanded $8 a month offering called Hulu Plus. Both the free and subscription offerings include commercials.

The talks are in their early stages and a deal isn’t guaranteed, the people said. The Wall Street Journal reported the talks yesterday.

Comcast is barred from an operational or board role due to an agreement with federal regulators related to approval of its NBC Universal acquisition in January 2011. The company, based in Philadelphia, added 0.6 percent to $40.03 yesterday in New York. Disney, based in Burbank, California, gained 1.4 percent to $55.33 and New York-based News Corp. rose 1.2 percent to $29.14.

CEO Departs

The discussions follow a decision by Hulu’s co-founder and chief executive officer, Jason Kilar, to step down by the end of March. Kilar received about $40 million from the sale of Hulu stock back to the company in October, people told Bloomberg at the time. Hulu repurchased a 10 percent stake held by Providence Equity Partners Inc. for $200 million.

Formed by NBC and Fox, Hulu allowed viewers to watch shows online with fewer commercials. Disney became an investor in April 2009. Hulu Plus, started in 2010, provides access to a bigger library of shows and the ability to watch programs on mobile devices, Web-connected TV sets and video-game consoles.

Hulu said in December that 2012 revenue climbed 65 percent to about $695 million as subscribers more than doubled to 3 million. The company lags behind Netflix Inc. (NFLX)’s more than 30 million worldwide subscribers, and faces emerging competition from Amazon.com Inc. (AMZN) and the new Redbox Instant service offered by Verizon Communications Inc. (VZ) and Coinstar Inc. (CSTR)

The U.S. advertising market for online video grew 47 percent to $2.93 billion in 2012, according to New York-based eMarketer. This year marketers are expected to spend $4.14 billion, the researcher said.

Online viewing in the U.S. continues to grow. More than 30 percent of the U.S. watched TV online in 2012, up from 27 percent a year ago and 22 percent in 2010, eMarketer said.

To contact the reporters on this story: Andy Fixmer in Los Angeles at afixmer@bloomberg.net; Christopher Palmeri in Los Angeles at cpalmeri1@bloomberg.net

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

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