Should Netflix Worry About Hulu Going Public?

Investing in digital video has so far been a rather simple strategy: either you buy Netflix (Nasdaq: NFLX  ) and Amazon.com (Nasdaq: AMZN  ) because you like their media strategies, or you don't. Apple (Nasdaq: AAPL  ) could be considered a third option, but that basket is stuffed full of hardware operations that have little to do with the online video market.

That small, elite cadre is getting some company. According to Reuters informants, streaming TV specialist Hulu is planning to go public in 2011, instantly widening your investment options. Making money from online video is hard work -- even leading clip service YouTube is assumed to lose money (incorrectly, in my opinion). The industry needs to find its collective sea legs, and shoving Hulu into the publicly traded waters to see whether it'll sink or swim could go a long way toward accomplishing exactly that.

Current Hulu backers including News Corp (NYSE: NWS  ) , private equity firm Providence Equity Partners, and General Electric's (NYSE: GE  ) media arm NBC Universal are probably getting tired of pumping their capital and content into Hulu, and they're undoubtedly ready to hand financing duties over to investors. While we won't get to see what Hulu's balance sheet or cash flows look like until the company files registration statements with the SEC in a couple of months, it's a fair bet that we're looking at roughly breakeven operations and bare-bones cash balances.

Like so many technological revolutions before it, online video will prove to be a killing ground for the weak and the unprepared, but a massive investment opportunity for the winners and survivors. Netflix went through this cycle already with its old DVD-by-mail service, and it looks quite prepared to win big again. A public Hulu in search of sustainable profits would provide serious competition, thus driving innovation of both business models and the underlying technology to new heights.

Would a transparent and well-funded Hulu kill Netflix, or simply unlock the potential of the two combatants' shared market? Discuss in the comments below.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. Apple, Amazon.com, and Netflix are Motley Fool Stock Advisor recommendations. The Fool owns shares of Apple. The Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.


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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 11, 2010, at 2:00 PM, BioBat wrote:

    The key to Netflix streaming growth as been the ability to let consumers watch on their TVs not their computers. HULU doesn't seem to get that. They've been actively blocking HULU access to people who want to watch it on their TVs (via PS3, Xbox, or Wii) or mobile devices. If they keep doing that, it won't matter whether they're public or private because they'll be out of business before you know it.

  • Report this Comment On October 11, 2010, at 3:00 PM, maximus9 wrote:

    I have not yet seen anyone who is a valid threat to the dominance of Netflix in the digital streaming space.

  • Report this Comment On October 11, 2010, at 4:13 PM, stan8331 wrote:

    I've yet to see anything from Hulu to indicate it can threaten Netflix in a serious way. If Hulu (or Amazon or Apple or whoever), expects to take significant market share from Netflix it will have to provide a BETTER DEAL. Netflix brings a lot to the table - thus far, the relative value proposition for all of the competitors seems considerably lacking.

  • Report this Comment On October 11, 2010, at 4:39 PM, lsickler wrote:

    With Netflix you get a lot of value that you just dont get with Hulu. First off you get ALL content that has ever been distributed on DVD with Netflix. With Hulu you get the last 4 episodes of or so of shows on a couple of networks. You can subscribe to Hulu+ for 9.95 a month and you get more extended content (older episodes) but still nothing near as deep as Netflix although to be sure Netflix can be very delayed as your dependant on the DVD window.

    Anyway I think the HuluPlus thing is going to be a bust (why on god's green earth would I pay $9.95 a month to watch something I can get from on-demand or record on my DVR) so I think the real question is can you deliver the content to peoples TV's and can you make enough advertising revenue to be profitable. If you can run the business and make a profit from the advertising revenue then I can see Hulu sticking around especially if you give away the HuluPlus client on all those nifty mobile devices like iphone's, droids, ipads, etc.

    If you have to have subscription revenue to make it work then don't even bother to IPO becuase people are not going to subscribe to something we are currently getting free on a bigger and better screen.

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