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3 More Reasons Why Google Should Buy Hulu

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The bidding war for Hulu is reportedly intensifying, even if the television-streaming website isn't officially up for sale.

The Los Angeles Times reported on Friday that Google (Nasdaq: GOOG  ) is in preliminary talks to acquire Hulu.

I'm not surprised.

I was offering up three reasons why the leading online search engine should be all over Hulu if it was, in fact, smoking out a suitor. It made a lot of sense then, when the same newspaper kicked off the speculation by reporting that Yahoo! (Nasdaq: YHOO  ) had made an unsolicited buyout offer. It makes even more sense now.

In a nutshell, these were my three initial reasons for nudging Big G toward bended knee:

  • It doesn't want to make Yahoo! stronger.
  • Google still needs to make nice with Tinseltown.
  • Hulu is the key to slowing down Apple's (Nasdaq: AAPL  ) global domination.

All three arguments remain relevant, but there are a few more reasons for Google to make sure that it comes out on top in what is quickly escalating into a Hulu sweepstakes.

1. Regulators aren't likely to pose any material resistance.
Google's a big 'un, and that has made it an easy target for antitrust watchdogs. There were plenty of hoops to jump through in acquiring DoubleClick and ITA Software. Hulu should be an easier deal to push through.

It's true that Google owns YouTube, the undisputed champ among ad-supported video-streaming websites. Hulu runs a distant second. However, anyone who has spent more than a casual afternoon checking out the two sites knows that they aren't alike at all.

YouTube is a video-sharing site, streamed largely on computing devices. Hulu is a site for vetted network content, perfect for homes with Web-tethered home theater systems.

Hulu's biggest rival is Netflix (Nasdaq: NFLX  ) , just as Netflix's biggest competitor is Hulu.

Several weeks ago, traffic tracker Sandvine reported that Netflix is now the single largest source of peak downstream Internet traffic in the country, accounting for 29.7% of the data-slurping activity.

Studios that are privately frightened by Netflix's growing power will be quick to support a stronger, Google-backed Hulu.

2. Couch potatoes translate into social gold.
Google rolled out Google+ last week to surprisingly rave reviews. Those who have made it to the other side of the velvet rope are impressed with the social networking site's stylish design and slick interface.

None of this will matter, of course, if Google+ doesn't scale quickly. A social site is only as good as its connections, and anyone that needs a refresher needs to only go back to last week as MySpace was sold for a reported $35 million while Facebook lunges toward a 12-figure price tag.

Microsoft's (Nasdaq: MSFT  ) Zune hit the market with sweet specs, intuitive design, and a nifty sharing feature. It was still no match for Apple's iPod. It's hard to topple the top dog, and social networking has proven to be a lonely place for anyone that isn't firmly in the lead.

Hulu would help make Google+ cool, stripping Big G of some of its vanilla bean veneer. YouTube has certainly made Google a force to reckon with in digital video, but Hulu is Hollywood-certified -- something that it sorely needed when it rolled out Google TV to an uninspiring market response last year.

Being a leading digital distributor doesn't guarantee social stickiness. Just ask Apple how Ping is doing these days. However, Google is a company that can use a popular Tinseltown tie-in.  

3. Google offers Hulu the best hope for effective monetization.
We don't know the inner workings of Hulu's financials, but it's safe to say that they're not very good. After all, if Hulu's income statement were a thing of beauty, the network consortium would be hopping on the IPO bandwagon during these frenzied bubblicious times. Comcast (Nasdaq: CMCSK  ) would be able to cash out, leaving Disney (NYSE: DIS  ) and Fox to benefit from the market premium on Hulu's stock.

Part of Hulu's problem is that its advertiser Rolodex only consists of hundreds of brand advertisers. Google would be able to blow that up several times over, targeting ads from a greater pool of sponsors that would be willing to pay more for better leads.

In sum, studios want a stronger Hulu, and Google knows how to build up those muscles.

Is Google the ideal landing spot for Hulu? Can you think of a better fit? Share your thoughts in the comment box below.

The Motley Fool owns shares of Apple, Yahoo!, Microsoft, and Google. Motley Fool newsletter services have recommended buying shares of Google, Netflix, Walt Disney, Yahoo!, Apple, and Microsoft. They have also recommended buying puts in Netflix, creating a bull call spread position in Apple, and creating a diagonal call position in Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Longtime Fool contributor Rick Munarriz has been a Netflix shareholder -- and subscriber -- since 2002. He's been a Disney shareholder for even longer. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

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  • Report this Comment On July 06, 2011, at 5:35 PM, susan400 wrote:

    Kidding right?

    GOOG is GOOG,,

    a fool telling them what to do >

    what for self empowered feelings?

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