Courtesy of The Los Angeles Times
Yahoo Inc., fresh off its $1.1-billion deal this week to acquire personal blogging site Tumblr, got in line Friday to pick up video streaming site Hulu.
The late bid by the cash-rich Internet portal giant came on the same day that the Santa Monica company received bids from private equity firms KKR & Co. and Silver Lake Management, said people familiar with the matter.
For its bid, Silver Lake teamed up with powerful Hollywood talent agency William Morris Endeavor, said the people, who did not want to be named because the bidding process was confidential.
With its deep pockets, Yahoo seems ready to spend more after announcing its deal to buy Tumblr. The bid from the Sunnyvale, Calif., company, which has $5.4 billion in cash on hand, came two days after the bid deadline.
Pivotal Research Group analyst Brian Wieser was surprised that Yahoo was pursuing another big acquisition so soon after announcing the Tumblr deal.
Investors, he said, seemed to react to the planned purchase of Tumblr with the thought that “at least that’s the last big deal for a while.”
However, nabbing Hulu could help Yahoo as it tries to regain its “cool” credentials with younger consumers.
Hulu could serve as a competitor to YouTube, owned by Google Inc., and provide another platform for Yahoo to sell advertising. Wieser said it appeared Yahoo wanted to hitch itself to a popular consumer product in one of the fastest-growing areas of advertising — online video.
Like other technology giants, Yahoo is hunting for more high-quality online video that will appeal to advertisers in an effort to get them to shift more of their budgets online.
Yahoo recently had to abandon its $200-million bid for a majority stake in French video sharing site Dailymotion after the French government objected to an American firm taking control of one of France’s few Internet successes.
Hulu, co-owned by entertainment giants News Corp., Walt Disney Co. and Comcast Corp.‘s NBCUniversal, declined to comment. So did Yahoo, Silver Lake and KKR. William Morris Endeavor did not respond to requests for comment.
Altogether, seven bidders are vying for one of the nation’s largest video websites. Earlier this week, Time Warner Cable Inc., DirecTV, the Chernin Group and Guggenheim Digital Media entered bids, according to the people familiar with the matter.
Hulu’s owners are seeking at least $1 billion from a sale, but the amounts of the bids were not disclosed.
Last month, Chernin submitted a bid of more than $500 million for Hulu, but the boutique Santa Monica entertainment firm has since revised its offer.
Peter Chernin, principal of the company, has long seen great potential and value in Hulu. He was one of the key architects of the site when he was president of News Corp. The site launched in 2007 with News Corp. and NBCUniversal as partners; Disney joined in 2009.
A key issue for any buyer will be locking in long-term rights to the ABC, Fox and NBC programming.
The value of Hulu is largely based on the assumption of continued access to the network hits. If the current owners are unwilling to license their content beyond a few years, that could lower the price.
“The bulk of Hulu’s value must lie in the rights its network TV owners provide it with,” Wieser wrote in a research note Friday. Even without that programming, he said, the site has built a successful brand and a consumer-friendly service that new owners could exploit.
Last year Hulu generated $695 million in revenue; it doesn’t report profit publicly. In the first quarter of this year, it surpassed 4 million subscribers for its paid service, Hulu Plus.
Perhaps more important, the company would provide its buyer with a toehold in the fast-growing market of advertising on smartphones and tablets. The company predicts that customers will view 15% of its content this year on mobile devices.
Hulu’s bidders have different agendas.
The private equity firms may see a Netflix-like opportunity in Hulu, particularly if they are willing to spend heavily to create original content.
And William Morris Endeavor, in which Silver Lake has a minority interest, has been looking in recent years to increase its digital presence.
For their part, pay-TV distributors DirecTV and Time Warner Cable see Hulu as a potential distribution system of the future and another way to protect its existing business models, industry experts said.
If either company were to acquire Hulu, they might dismantle the video firm’s free site and steer users to Hulu Plus. Subscription revenue provides the financial foundation for the TV industry.
It was not clear whether all three of Hulu’s owners intend to sell their stakes. Disney and the Rupert Murdoch-controlled News Corp. have been at odds over a strategy for Hulu. Those differences are driving the sale.