Should Verizon Buy Hulu?

Recently web-based TV and video streamer Hulu grabbed headlines by revealing its intention to find a buyer. The company is currently joint-owned by Disney (NYSE:DIS), NBC Universal (NASDAQ:CMCSA), and News Corp. (NASDAQ:NWSA). and has contracted Morgan Stanley (NYSE:MS) to help negotiate a sale. All Things D says that Hulu is now in the process of salesmanship, sending out invitations to a “shortlist” of buyers, which includes Microsoft (NASDAQ:MSFT), Yahoo (NASDAQ:YHOO) Google (NASDAQ:GOOG), Amazon (NASDAQ:AMZN), Verizon (NYSE:VZ), and AT&T (NYSE:T), who are summarily invited to Hulu’s LA office to watch its self-promotional sales-pitch.

Writer Ryan Lawler argues for a clear favorite in Hulu’s buyout prospects (just speculation for now), saying that Verizon would be his pick to take over the young digital media company. One reason to side with Lawler is that when Hulu’s owners sell the company they are likely to try to renegotiate TV rights deals with its new owners, which could be especially tricky for companies not in the media business (YHOO, MSFT, AMZN). Lawler thinks that Verizon, rather than being put off by some of the alterations to TV rights agreements, will embrace the changes because it already works as a cable provider and would be able to tie “next day access to cable shows to Hulu subscriptions” for its customers. In addition, Hulu’s current ownership may be more favorable to a sale to Verizon because it knows that VZ will not look to grow Hulu into a subtitute for cable television, something NBC, ABC, and FOX fear could eventually grow from a sale to a tech leader like Google. As a cable provider through its FIOS service, Verizon is likely to put Hulu to work in increasing cable TV subscriptions and in turn viewership of network programming, something that would make all parties happy.

What if its not a match made in heaven? Although Verizon (NYSE:VZ) has emerged as something of a pop-favorite for the buyout, these issues could eventually emerge. 1) Hulu could be relegated to a host of added-content, special events, and dated re-runs. This will depend on how expensive current owners make renegotiations of the TV rights deals, and how much Verizon is willing to fork out for things like next-day access (to popular shows). 2) Hulu could stop being free. Verizon could offer it as an add-on to its normal cable package for an extra monthly fee, or just price it in to a more expensive cable offering. This could be cool, and would probably guarantee almost instantaneous access to popular shows on Hulu, but no one wants to pay for a service that used to be free. 3) Hulu could be exclusively available on Verizon. The company could decide to limit access to Hulu’s content to its own cable and internet subscribers, or charge a fee to outside customers.

We’ll see where the deal ultimately goes if and when Hulu decides to sell out, but the possibilities of a web-based add-on to cable TV are pretty alluring, which is why we also think Verizon (NYSE:VZ) should make a grab for Hulu.

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