Hulu sale process dead

Sale of the Internet video giant tabled by its owners

What prompted the owners of Hulu to take the digital video hub off the auction block Thursday isn’t clear, but it may not have been as simple as underwhelming offers.

The sale has been tabled by Hulu’s owners — News Corp., NBCUniversal, Disney and Providence Equity Partners — after months of soliciting bids from prospective buyers. In a short statement, the partners said the decision was made because the service has “unique and compelling strategic value to each of its owners.”

But it is no secret that the partners had a lofty $2 billion price expectation for Hulu. Google, Amazon and Dish Network were finalists awaiting word on their latest round of bids. Taking nibbles in earlier rounds were big players like DirecTV and Yahoo, which may have jump-started the sales process by making an unsolicited inquiry.

Hulu’s owners may have ultimately been unhappy with the value of those bids. However, Google was reportedly ready to spend as much as $4 billion to land Hulu with extensions on content rights beyond existing parameters.

Nevertheless, its owners also may have had second thoughts about unloading Hulu. The venture had been making significant innovations that could have renewed faith in its future, such as the implementation of a TV Everywhere model that gave Dish subscribers next-day access to Fox programming that was once open to all Hulu.com visitors.

While barely a month into the new scheme, which instituted an eight-day wait for nonsubs, Hulu’s owners may have seen enough promise in the plan to instill confidence the site could survive a broader implementation for more networks and distributors without dramatically reducing traffic.

Over the months that Hulu has been having its tires kicked, the competitive landscape around it has undergone significant changes. Its most formidable rival, Netflix, has been humbled by pricing and structural decisions that are expected to reduce its 25 million-strong subscriber count when the company reports third-quarter earnings next week. That alone may have emboldened Hulu’s owners to have another go at taking the service to the next level.

Hulu has also been putting increasing emphasis on its subscription component, Hulu Plus. The service recently reached 1 million subs, each paying $8. The company also went public with its first international foray, Japan, where it launched a subscription-only service.

The most valuable parts of Hulu are the licensing deals the streaming service has with its principals that deliver series programming from broadcasters Fox, NBC and ABC as soon as 24 hours after the shows’ original airdate. The latest episodes of hits like “Family Guy” and “The Office” are the biggest draws on Hulu.

While joint ventures are notoriously painful for media companies, ceding programming rights to a company without a direct stake in the content itself could have set up the congloms to re-experience some of the difficult negotiations endemic to dealing with the likes of Apple or Google.

As RBC Capital Markets analyst David Bank wrote in a research note issued early Thursday, “Is it really worth it take $100 million-$200 million of after-tax profit (assuming a $2 billion sale price) for each partner at the expense of losing control over your own destiny?”

CEO Jason Kilar is still with the company, according to sources. His future with Hulu has been in doubt given his contract with the company has reportedly already expired. The former Amazon exec has also had his share of friction with owners, though he’s said to have patched things up and has faith of the company’s board of directors.