Hulu

Disney and News Corp. are exploring the possibility of selling Hulu, Reuters reported Monday. It’s yet another turn in a very twisty road the streaming service has been on since its inception–but far from the only way this could play out, according to insiders.

Hulu’s future can be boiled down to five distinct paths, and it’s this latest one that might be the likeliest and best option.

1. Hulu gets sold

Given the complexities and cross-purposes the parent companies (including Comcast, which has a non-controlling interest through NBC Universal) find themselves at with Hulu, the cleanest possible solution is to dump it off their respective plates.

Hulu would make a powerful weapon to add to any of the tech titans looking to use content to invade living rooms. Great technology, good brand, good staff even sans CEO Jason Kilar, whose departure in March has since been papered over with the installation of interim chief Andy Forssell.

It’s just a question of price. The value of Hulu is almost entirely tied up in its content deals; if a buyer can’t hold onto next-day access to primetime programming, this will go well below the $2 billion asking price it fetched its last round on the auction block in 2011. Not MySpace fire-sale levels, but lower.

Surely many of the big players that kicked the tires the first time around will come sniffing again. That means pay-TV distributors (i.e. DirecTV, Dish Network) that want a strong digital platform or portals looking for renewed purpose (Yahoo).

But what’s interesting is that in less than two years’ time the competitive grounds in the tech sector have shifted so dramatically that one buyer’s needs just a short time ago aren’t the same as they are today. Take Google, for example, which reportedly was very interested in Hulu the first time around but may not be so keen the second time now that it has its own YouTube funded channels in play. However, a hard look at Hulu from Google might be a sign that the company’s faith in its original-programming strategy isn’t rock solid. Certainly a YouTube-Hulu combination would be immensely powerful.

Netflix and Amazon have to take a hard look at Hulu. They’d be able to absorb a third player in the subscription VOD space by folding in Hulu Plus, giving one a potential edge on the other. They’d get a nice mix of exclusive SVOD licensing deals (i.e. NBC’s “Community”) and original programming (“Battleground” et al) but nothing truly transformative.

Netflix is still the clear leader but Amazon has come on strong in recent months. To add a free ad-supported component with top-shelf next-day content would be a huge win for Amazon, setting up a truly even Mastercard-Visa dynamic in this category. But if Hulu goes to Netflix, which would probably have to get creative on the financing side to match Amazon’s deep pockets to make such an acquisition, this would be the kind of coup that could make for a more McDonalds-Burger King kind of race.

Way too early to pick favorites though until the content-licensing piece of this gets clarity.

2. Status quo

What are the chances that a Hulu board member representing News Corp. like affiliate sales president Mike Hopkins looks deeply into the eyes of a Disney’s Hulu rep like EVP Kevin Mayer and says, “Hey, let’s make this thing work?”

Next to zero.

It’s not that there’s bad blood between these companies over Hulu; it’s more like a marriage that has run its course and both want to work out a divorce that doesn’t involve a nasty custody battle. The current hybrid business model Hulu maintains, mixing advertising sales and subscription dollars, generated $700 million in 2012. Nice, but nothing the participating congloms are going to get excited about. Hulu simply has had too tortured a history and too cloudy a future to continue on in current form–simple as that. It’s just about figuring out the best exit strategy, which is a sale.

3. Make room for another owner

At first blush, this option seems insane; isn’t one of Hulu’s biggest problems that there’s too many chefs in the kitchen?

But sources suggest this is very much on the table, and this would be a content owner–not a private equity player like Providence Equity Partners, which made a tidy sum flipping its stake in Hulu last year.

But there is one very juicy option where adding a cook to the kitchen could actually help the broth: CBS Corp. The Eye’s refusal to license its broadcast content has always spoiled the Hulu party, robbing the streaming service of a complete set of Big Four programmers. Yes, CBS doesn’t exactly deliver on the young-male skew that has made “Family Guy” Hulu’s top attraction, but it’s far and away the healthiest broadcaster in the bunch. The addition of its primetime lineup wouldn’t be a gamechanger, but a nice shot in the arm to renew interest in the platform.

That said, it doesn’t necessarily have to be a broadcast network that comes in to take a stake in Hulu. A studio like Warner Bros. brings plenty of programming in its own right as primetime TV’s No. 1 supplier. WBTV also doesn’t have to worry about Hulu trampling on ad sales the way broadcasters have to guard their own branded dot-coms, where many of the same series that are available on Hulu exist there, too.

Regardless of who it is, the Hulu board is only going to bring in an entity they know will be paddling in the same direction they are. Still, the probability of this happening is only slightly less slim than the status quo option. All involved in Hulu have grown weary of complexity, they don’t want more of it even if it’s for the right reasons.

4. News Corp. buys out Disney

This is becoming increasingly unlikely, according to sources, with News Corp. probably favoring the sale option. The companies are split on the correct strategic direction on a number of fronts relating to Hulu, principally News Corp.’s interest in Hulu leaning into the subscription side of its business, while Disney favors the ad-supported model.

While News Corp. was interested in establishing Hulu Plus to the level where it could compete with Netflix, sources say negotiations to make that happen broke down when Disney insisted on News Corp. entering into a new content licensing agreement to pay for its content–essentially making the buyer pay twice. News Corp. wanted the current licensing agreements to stay in place, and when Disney balked that deal went away.

5. Disney buys out News Corp.

Perhaps the more intriguing of the two vice-versa possibilities, and not just because Disney wasn’t one of the original stakeholders in News Corp. Disney is probably the more disciplined and innovative of the two conglomerates, so it’s interest in keeping Hulu afloat by itself has to make you wonder whether there’s something to the venture that outsiders aren’t quite seeing. While Hulu has mined ad dollars per unique visitor at a rate that even surpassed traffic leader YouTube, it’s hard to see how much more upside there is that would have given Disney faith in continuing that model (and balancing its needs with that of, say, ABC.com).

Five paths, no clear road ahead. This is going to be a fun one to watch.

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