Pioneering Internet television site Hulu has retained investment bankers to explore a potential sale.
The online distributor, which is jointly owned by media conglomerates News Corp., Walt Disney Co. and NBCUniversal parent Comcast Corp., has hired Guggenheim Partners and Morgan Stanley to facilitate a sale, according to people familiar with the matter who declined to be identified because the talks are confidential.
Prospective bidders were notified that the sales process would begin in about two weeks, said one of the people.
The news comes a day after reports surfaced that Hulu had received an unsolicited offer to buy the company, people with knowledge of the situation confirmed. Web portal Yahoo Inc. has expressed interest in potentially acquiring it, although the Sunnyvale company has not made a formal bid, according to two people close to the situation.
Hulu rocketed to popularity since its launch three years ago by offering free online access to television shows, often as soon as 24 hours after the programs first air. The site has an audience of about 28.5 million monthly viewers, according to independent measurement firm ComScore Video Metrix.
At the same time, Hulu’s success started causing problems for its media owners. The site, initially seen as a way to blunt piracy, became hugely popular, quickly antagonizing cable television and satellite TV operators that pay the programmers $30 billion a year for their TV shows. Those distributors wanted to know why they were being asked to pay for the programs when the networks turn around and make them available on Hulu free.
Meanwhile, the media executives who serve on Hulu’s board clashed with the site’s chief executive, Jason Kilar, over facets of the online service’s operation, including how many ads to include in the TV episodes and how much to charge for the Hulu Plus subscription service. Hulu Plus charges an $8-a-month fee for access to a broader selection of TV shows on Apple Inc.'s iPad and other devices.
The disagreements, as well as business conflicts with cable and satellite operators, set the stage for a possible sale, according to people with knowledge of the situation.
“Hulu’s interests have become diametrically opposed to the core business of its owners,” said Arash Amel, research director for digital media for IHS Screen Digest. “Once Hulu is not owned by its content providers, it can be more innovative.”
Selling their interest in Hulu would extricate the owners from the headaches of Hulu. It also provides an exit strategy for co-owner Providence Equity Partners, which initially bankrolled the venture with a $100-million investment. Moreover, a sale would reward the contributions of Kilar and the tech team he recruited to help him build the site.
Beyond Yahoo, it’s not clear who other prospective bidders for Hulu might be.
A key challenge for any potential buyer would be securing long-term commitments from Hulu’s owners for exclusive online rights to their shows and to continue making programs available soon after their initial television broadcast.
On Wednesday, News Corp. reached a handshake agreement with Hulu to keep its Fox shows on the streaming service for an undisclosed period, said a person close to the negotiations who declined to be named because the talks are private. Industry trade publication Variety first reported the tentative deal.
Changes in the familiar Hulu service could also make the company less attractive to a buyer. For example, Hulu’s owners are pushing for the free service to require users to prove they are cable or satellite TV subscribers before they could gain next-day access to current shows, said two people privy to the discussions. Otherwise, they would be forced to wait eight days to catch up on programs they’ve missed, they said.
“All that matters is how long the content is locked up, what the rules around it are and if they can change in the future,” said Rich Greenfield, a media analyst with BTIG. “Nobody is going to buy Hulu without answers to those questions.”
Hulu declined to comment, and representatives of Guggenheim and Morgan Stanley did not immediately respond to a request for comment.