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Analyst: Amazon, Google Most Likely Bidders for Hulu

22 Aug, 2011 By: Erik Gruenwedel

DirecTV is considered to “kick the tires” of the online repurposed TV content streaming service with initial bids due Aug. 24, according to an analyst

Deep-pocket Internet behemoths Amazon and Google are expected to submit first-round bids for Hulu, which are due Aug. 24, upping the competitive streaming landscape for Netflix, an analyst said.

Eric Wold, research director for Merriman Capital in San Francisco, said the final outcome for Hulu is up in the air with final bids reportedly expected to fetch from $500 million to $2 billion.

Hulu, which is co-owned by The Walt Disney Co., News Corp. and NBC Universal, recently turned a profit streaming largely repurposed TV programming on the computer and portable media devices via the Internet. Its success with users has been a double-edged sword to its owners who see Hulu’s incremental revenue not offsetting potential losses to more lucrative secondary distribution channels such as TV syndication, pay-TV and TV DVD, among others.

Amazon and Google each have stakes in entertainment distribution, with the former upping its streaming profile through the Amazon Prime membership loyalty program, and Google launching the Google TV platform. Amazon also owns British-based LoveFilm, Western Europe’s largest by-mail and streaming movie rental service.

“Given recent moves by Google and Amazon, as well as the importance of landing some key studio relationships and exclusive content, we would not be surprised if both Google and Amazon took the lead on initial bids — with a potential battle between the two of them,” Wold wrote in an Aug. 22 note.

The analyst said Google’s recent $12.5 billion offer for Motorola’s wireless operations wouldn’t dissuade the search behemoth from pursuing Hulu’s noted brand and subscription-based video-on-demand platform Hulu Plus.

“With just about all of Amazon's streaming content for its Prime subscribers also found on Netflix, we believe that acquiring Hulu would definitely bring its digital offering to a new level,” Wold wrote.

Satellite operator DirecTV, which surprised many when it submitted a last-minute (and successful) bid for Blockbuster, has made no secret its intention to eventually bow a streaming service in direct competition with Netflix. Wold wonders whether the company has the resources to battle Amazon and Google in the later rounds.

“We believe that entities with more established presences in the digital streaming space — Google and Amazon — are more likely to be comfortable bidding higher and working through the likely discussions around content availability and timing,” he wrote.

Not mentioned is 800-pound gorilla Apple, which briefly flirted being the most valuable publicly-held company in the world. It’s free cash reserve is big enough to pull the country’s largest state (California) single-handedly out of debt with billions left over. Hulu could be a much-needed shot in the arm for Apple TV, which heretofore represents one of CEO Steve Jobs’ most notable underachievers. Apple also operates iTunes, a transactional VOD-based platform that is in direct competition with Hulu.

Then there is Redbox, which continues to promise and not deliver a digital strategy. While parent Coinstar is not considered to be making a bid for Hulu, should the streaming service partner with either Amazon or Google, Wold said there would be further impetus for Walmart-owned Vudu to partner with Redbox, which he has advocated in the past.

Regardless, the machinations behind the Hulu bidding are sure to up the pressure on Netflix, which is in the midst of an ambitious and expensive Latin America expansion and beyond.

“Although we continue to believe that consumers will always use multiple services for their video needs, depending on convenience and availability (e.g., DVD kiosks, subscription digital, VOD, video stores), we increasingly believe that a YouTube or Amazon acquisition of Hulu would create an attractive offering for consumers (both current Netflix subscribers as well as potential ones),” Wold wrote. “This could also lead to the need for greater marketing spend by Netflix — pressuring margins and creating additional growth headwinds.”

Indeed, Netflix shares dropped precipitously to $205 per share Aug. 19 and have bounced up to $211 per share Aug. 22 in midday trading.


About the Author: Erik Gruenwedel

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