Why Hulu Isn't Selling (Yet)

The streaming TV and movie service wants to grow up to become Netflix. Selling would've made that a whole lot harder.

When news broke on Friday that talks to sell Hulu were called off and that the streaming television and movie site’s owners—20th Century Fox, the Walt Disney Company, and NBCUniversal—were instead going to invest $750 million more into it so as to compete more aggressively with streaming sites like Netflix, the overriding thought across Hollywood was: Plus ça change.

After all, virtually the same scenario played out in 2011, when Hulu’s owners first put the site on the block, after an unsolicited bid for the company was made by Yahoo. Then—as now—talks collapsed over licensing rights. Basically, Hulu’s owners aren’t willing to sign the kind of long-term licensing agreements that would make a buyer feel comfortable that shows like Glee and The Mindy Project won’t be yanked from the site anytime soon. And with bids this time far lower (the highest was about $1 billion, from DirecTV, according to a source) than they were the first time around when Hulu was valued at $2 billion, Disney et al. decided to re-huddle.

This time ‘round, too, negotiations were hampered by the fact that Hulu’s partners rarely, if ever, see eye to eye. (Historically, Fox has been the most aggressive in terms of implementing air-time windows of its shows, with Disney more willing to take digital risks.) As one source from one of the bidding companies put it: "Internally, they couldn’t get the rights and terms to work between the partners."

"The inanity of thinking it would be different the second time around is what’s most amazing," this person marveled.

But for all of the overwhelming déja vu, a few things have, actually, changed since 2011, which made Hulu’s owners a little more wary about bidding the company goodbye. First and foremost, Hulu Plus, Hulu’s $7.99-a-month subscription service, has proven to be a fast-growing hit. With over 4 million subscribers, it’s no Netflix (which has 30 million), but considering that it’s only existed since late 2010, at this point its growth rate beats Netflix's. Last year alone, Hulu Plus doubled its subscriber base. Hulu Plus also proves the strength of the Hulu brand: It was implemented after the free service, meaning that Hulu viewers were willing to suddenly start paying for Hulu content. Unsurprisingly, the strategy going forward is to double-down on Hulu Plus and worry less about the free service, which, who knows, may not be around in a few years.

But back to Netflix. If there’s any company that’s gushed about these days in Hollywood, it’s Netflix, which has figured out a digital media platform that actually makes money. Just last month, at a private panel at USC, Steven Spielberg singled out the company for praise. No one here (or anywhere else) missed the Netflix comeback story a few months ago, when its stock soared after the announcement of a big subscriber boost, or when all the entertainment and media worlds could talk about was House of Cards. The fact that Hulu is essentially a guppy version of Netflix is not lost on its owners, and explains their desire to infuse more cash into the platform in the hopes of growing it into a whale.

Many have raised the very legitimate question, though, of whether or not they can do this. While the deep-pocketed Netflix has made it clear that money’s not an issue (House of Cards famously cost $100 million), Hulu has always been incredibly thrifty, especially about its original programming—which is the key to differentiation and brand-building in this I-Wanna-Be-HBO space. When I interviewed Andy Forssell, now Hulu’s interim CEO, for a Fast Company feature on Hulu last year, he made this clear, describing Hulu’s creative approach as more of a scrappy indie than a studio scouring for blockbusters. Forssell also scoffed at the notion of old-school style marketing like plastering Sunset Blvd. with billboards or buying traditional TV spots.

An easier way to get this point across is simply to ask: Can you name an original Hulu show? There have been a lot. A lot more than Netflix has released so far, and yet you probably know all three of those. Netflix has also splurged on marketing campaigns. Not that money buys hits, but it sure helps.

There’s no question that Hulu has promise, and the partners aren’t wrong in thinking they can do better than cashing out now for $1 billion. But as always with Hulu, it will come down to getting along, and agreeing on a vision, which has never been something Disney and Fox have been able to do (NBCUniversal has been a silent partner since it was bought by Comcast). The news that Time Warner may also eventually buy into the company only heightens the issue of strategic unity going forward.

But perhaps things are changing. According to Rupert Murdoch, who spoke to reporters last week at the Allen & Co. mogul retreat in Sun Valley, the decision to not sell Hulu came about after all the partners finally got on "the same page."

Now they just need to stay on it.

[Image: Flickr user Sarah Reid]

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3 Comments

  • David Bradley

    It hink they're right. They shouldn't sell. Hulu has a real opportunity to become an HBO that doesn't require me to pay an arm and a leg to DirecTV. Imagine being able to watch the shows you like whenever you want without needing to rely on a cable TV service to deliver the content. I'd pay a mint for that and still watch the commercials. It is a dream of mine to never have to pay for another freaking bundled scam from DirecTV and to never have to speak to their customer service ppl ever again because they've added some $3 fee or one of the 5-6 "deals" I signed up for has run out. 

  • Shane Guymon

    They might be able to compete with Netflix if they would NOT force people to watch commercials even though they already paid money. Also why do they limit WHERE you can watch something? Some content can only be viewed on a desktop computer. Why? 

  • flyguy

    No wonder no one wants to buy it, STILL a US only service. get off the internet if you can stop region blocking...