Net will increase the volume of ads in its Hulu telecasts

Hulu is setting itself up to be sold, reaching an agreement with News Corp. to keep TV programming from Fox Broadcasting Co. on the streaming service.

While a formal pact has yet to be signed, a “handshake deal” is in place, according to sources, that will return Fox hits including “Glee,” “The Simpsons” and the biggest draw on Hulu, “Family Guy.” Agreement also calls for a significant increase in the volume of advertising carried in Fox shows that run on Hulu.

A spokesman for Fox, whose parent company, News Corp., owns a stake in Hulu, declined comment, as did Hulu.

Word of the Fox deal comes to light as published reports emerged suggesting that Hulu is weighing a potential acquisition offer. Yahoo has reportedly expressed interest in the Internet vid though a spokesman for the company declined comment.

The Los Angeles Times reported Wednesday that Hulu had enlisted investment banks Guggenheim Partners and Morgan Stanley to lure prospective buyers.

Hulu’s other owners, Walt Disney Co. and NBCUniversal, are expected to strike new licensing agreements because the value of Hulu on the open market would be diluted unless their programming is secured for the long term as well. Previous plans for Hulu to file an IPO collapsed in part because of concerns over the absence of those agreements.

While all the terms of the Fox deal could not be obtained, a key element will involve Fox increasing its ad load.

That’s a mixed blessing for Hulu, which will hold onto many of the programs that have made the service a top draw online but not be able to limit the number of commercials. In the past Hulu CEO Jason Kilar has cited the lighter ad load for online plays of full-length TV segs as an important factor in allowing Hulu to maintain a superior Internet vid offering. More ads could also force Hulu to lower the CPM rates it charges advertisers.

Last month, Kilar issued a statement expressing optimism that Hulu was “engaged in productive discussions” toward cinching extensions for series from all its programmers.

Increasing the ad load could help Hulu’s owners wring more revenue out of the service, which forgoes the conventional license fee in exchange for 70% of the revenues. Hulu, which is expecting revs of $500 million this year, carries less than half of the eight minutes of advertising that is the average per half-hour of TV.

It’s unclear exactly when Fox’s increased ad load will be deployed on Hulu or whether that increase will means advertising on Hulu will match the level on TV. Some networks are pushing to make online ad loads uniform with linear TV telecasts in order to make it easier for Nielsen to measure viewership across both platforms.

At its upfront presentation in May, Fox put increased emphasis on making cross-platform sales. If Fox can orchestrate identical flights of ads on TV and online, it may be able to join Nielsen’s new Extended Screen measurement system, though such an arrangement is said to be a logistical nightmare to engineer.

There are also big question marks hovering over other aspects of the Fox-Hulu pact, including the length of the deal. It’s possible Hulu may not be able to hold onto as much content as it did previously or see longer delays from on-air to online than the next-day windowing currently in place. Hulu’s subscription component, Hulu Plus, could stand to gain where the free side loses.

Further complicating Hulu’s worth: While its principals may have agreed to put the service on the block, they each could conceivably arrive at different deal terms for licensing their content. That would be a headache not just for a potential buyer but for Hulu users, who would have to sort through inconsistencies from show to show.

Private equity giant Providence Equity Partners also has a stake in Hulu.

A sale could give Hulu a new lease on life after much speculation calling into question the continued existence of the service unless it was able to extend its content licenses from owners like Fox. Hulu was conceived in 2007 as a counteroffensive against increasing piracy and DVR usage whose ad-skipping was damaging broadcast’s sole revenue stream.

While neither of those threats has gone, Hulu has become a threat in its own right to other areas where the broadcasters make their programs available, whether competing streaming services like Netflix, VOD and their own websites. The biggest issue of all may be programmers putting on Hulu content that should be exclusive to distribs paying retransmission-consent fees.

News Corp. chief operating officer Chase Carey, who sits on Hulu’s board, is said to have soured on the service considering he’s leading the charge on driving new revenues. Meanwhile, the original champions of Hulu, former NBC Universal CEO Jeff Zucker and former News Corp. prexy Peter Chernin, Carey’s predecessor, are no longer execs at Hulu’s parent companies.

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