Netflix Is the Real Winner of the Hulu Sweepstakes

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

After years of false starts, it finally seems as if Hulu is about to get hitched. And the big winner may surprise you.

The number of remaining bidders for the streaming TV-show service has supposedly been whittled down to just three potential buyers. CNBC reported yesterday that a joint bid from Guggenheim Media Partners and private equity giant KKR was dismissed for being too low.

Guggenheim, the parent company of The Hollywood Reporter and Billboard, would probably have kept Hulu intact. There would be no reason for Guggenheim to disrupt the free ad-based model. This is the media mogul, after all, that publishes Adweek and manages the annual CLIO awards.

However, that group's exit leaves nothing but pay-TV providers holding up bidding cards.

DIRECTV (UNKNOWN: DTV.DL  ) , the likely victor, is the country's largest satellite television provider. U-verse parent AT&T (NYSE: T  ) and Time Warner Cable (UNKNOWN: TWC.DL  ) are also in the running as part of larger joint bids.

Hulu is unlike Netflix (NASDAQ: NFLX  ) , which proudly wears its "rerun TV" badge, since it often doesn't have streaming rights until a show's run is over or the subsequent seasons begin. What would DIRECTV, U-verse, and Time Warner Cable gain from owning a popular streaming service that broadcasts shows online within a day or week after the episodes air? They could keep Hulu as a free ad-supported site to attract new subscribers, but the bigger catch has to be making Hulu -- or, at the very least, the Hulu Plus premium service -- a platform exclusively for its premium subscribers.

"A pay-TV provider could choose to shut down the free, ad-supported side of the business and refashion Hulu as a TV Everywhere walled garden, as a way to defend their existing businesses from online competition," suggests industry watcher Variety. "See ya, Hulu-as-we-knew-it."

The big winner under this scenario, naturally, would be Netflix. Anything that makes Hulu more restrictive makes a Netflix subscription that much more compelling.

DIRECTV, AT&T, and Time Warner Cable generate too much money providing cable channels to consumers to encourage cord-cutting by keeping a free, ad-based Hulu around. It just wouldn't make sound business sense.

Things have changed considerably since the bidding war heated up two years ago. DIRECTV, AT&T, and Time Warner Cable weren't front-runners. DIRECTV was reportedly booted early in the process for bidding too low. It was the Guggenheim of 2011. The leader board at the time was mostly dot-com giants wanting in on the streaming-video market. Things are different now. DIRECTV, AT&T, and Time Warner Cable are hungrier, and no matter which pay-TV provider is the one that ultimately turns Hulu into a walled garden, it's going to be a big boost for Netflix.

Must-watch TV research
The television landscape is changing quickly, with new entrants like Netflix and others disrupting traditional networks. The Motley Fool's new free report "Who Will Own the Future of Television?" details the risks and opportunities in TV. Click here to read the full report!

Read/Post Comments (1) | Recommend This Article (2)

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 July 10, 2013, at 9:12 PM, AceInMySleeve wrote:

    I am gonna laugh to the bank if DirectTV walls off Hulu. I would be very surprised if that happens.

    I think it was Sarandos who said the worst thing for Netflix would be if Hulu turned independent so that it could return to a startup mode. Any kind of incorporation into some larger organization almost certainly results in more treading water.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2531282, ~/Articles/ArticleHandler.aspx, 9/1/2016 12:09:34 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 2 hours ago Sponsored by:
DOW 18,400.88 -53.42 -0.29%
S&P 500 2,170.95 -5.17 -0.24%
NASD 5,213.22 -9.77 -0.19%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

12/31/1969 7:00 PM
DTV.DL $0.00 Down +0.00 +0.00%
DirecTV CAPS Rating: ***
NFLX $97.45 Down +0.00 +0.00%
Netflix CAPS Rating: ***
T $40.88 Down -0.01 -0.02%
AT and T CAPS Rating: ****
TWC.DL $0.00 Down +0.00 +0.00%
Time Warner Cable CAPS Rating: **