July 22 (Bloomberg) -- Apple Inc., with $76.2 billion in cash and securities on its books, is considering making a bid for the Hulu online video service, two people with knowledge of the auction said.
Apple, the world’s second-most-valuable company, is in early talks that may lead to an offer for Hulu, said the people, who weren’t authorized to speak publicly.
Hulu would give Apple a new subscription service and represent a possible challenge to Netflix Inc. Hulu’s media-company owners, Walt Disney Co., News Corp. and Comcast Corp.’s NBC Universal, are offering suitors a five-year extension of program rights, including two years of exclusive access, people familiar with the matter said earlier this week.
“Part of the ecosystem of Apple’s future is to include more video,” said Scott Sutherland, Wedbush Securities Inc. analyst in San Francisco who recommends buying the stock. “It’s something they are focused on.”
Meredith Kendall, a spokeswoman for Los Angeles-based Hulu, declined to comment, as did Tom Neumayr, a spokesman for Cupertino, California-based Apple.
Hulu’s price tag could exceed $2 billion, according to data compiled by Bloomberg and SNL Kagan.
Apple typically doesn’t make large acquisitions, Sutherland said in an interview. Its biggest purchase of a company was the $400 million spent for NeXT Software Inc., the 1996 deal that returned Steve Jobs to the company, according to Bloomberg data.
Apple agreed on June 30 to pay $2.6 billion as part of a group buying patents belonging to Nortel Networks Corp. Apple is also considering a bid for InterDigital Inc., a company valued at $3.37 billion, for its patents, a person with knowledge of the situation said.
Instead of a subscription, Apple’s iTunes media store offers TV shows and movies for rental or purchase. Current-season shows can be rented for 99 cents and high-definition films rent for $4.99. Hulu, which inserts ads into programs, offers limited free episodes and more expansive access with Hulu Plus for $7.99 a month.
“Hulu would add a new element to their arsenal from a streaming and subscription standpoint,” said Brian Marshall, an analyst at Gleacher & Co. in San Francisco who also recommends investors buy Apple shares.
Apple rose $6.01, or 1.6 percent, to $393.30 at 4 p.m. New York time Nasdaq Stock Market trading. The shares have climbed 22 percent this year.
Hulu Plus is available on Apple’s iPhone, iPad and iPod Touch. It’s also accessible through Microsoft Corp.’s XBox video-game console, Sony Corp.’s PlayStation 3 and on phones using Google Inc.’s Android operating system, including the HTC Thunderbolt.
Committed to Sale
Disney Chief Executive Officer Robert Iger told reporters July 6 at the Allen & Co. conference in Sun Valley, Idaho, that Hulu’s owners are committed to selling the company. Jobs is Burbank, California-based Disney’s biggest shareholder and a member of its board of directors.
Morgan Stanley and Guggenheim Partners, bankers for Hulu, have elicited interest from Google, Yahoo Inc., AT&T Inc. and other companies, people said earlier. Microsoft dropped out of the bidding, a person with knowledge of the matter said this week.
Yahoo would pay up to $2 billion for Hulu with four or five years of exclusive access to current TV shows and older movies, the Business Insider website reported this week, citing a person it didn’t identify.
The extended program rights, similar to terms Hulu’s owners considered as part of an earlier share sale, and other financial data are included in materials provided to suitors who sign a non-disclosure agreement, two people said. Amazon.com Inc., based in Seattle, is unlikely to bid without guarantees of access to shows, one person said.
Hulu was put up for sale last month by its owners, which also include Providence Equity Partners, after receiving interest from a potential suitor, people with knowledge of the situation said at the time.
The website, which didn’t go forward with an initial public offering that may have given it $2 billion in market value, said it will exceed 1 million subscribers by the end of August. Hulu may approach $500 million in revenue in 2011, CEO Jason Kilar said April 4 on Hulu’s website, citing trends at the time.