Streaming, on-demand television delivered through a variety of standard and mobile devices is the future of the media content business. The shape that business will ultimately take, however, remains nebulous.
While Netflix (NASDAQ: NFLX) has proven that a low-cost subscription payment model that allows unlimited access to television content can be incredibly profitable, that model has proven most profitable for Netflix themselves, not the content providers.
It’s no surprise then that the content providers with the most to lose from the Netflix business model’s continued growth — major television networks including News Corp.’s (NYSE: NWS) Fox, Disney’s (NYSE: DIS) ABC, and General Electric’s (NYSE: GE) NBC — are putting their future into the ever-changing streaming video outlet that is Hulu.
The joint venture streaming video service, which is 90% co-owned in part by those networks, began as an advertising-supported website that just this year branched out into the subscription-based premium service business dominated by Netflix. In October, it seemed like Hulu was on track to go public, offering an IPO to raise new funds and continue growing Hulu Plus, the service’s $9.99 a month premium subscription version that became available in November.
According to a Wall Street Journal report published on Tuesday, though, a Hulu IPO isn’t coming anytime soon — and Hulu Plus may undergo a significant transformation before a public option materializes. Prior to the launch of Hulu Plus in November, sources close to the matter told Reuters that Hulu was planning to raise between $200 and $300 million in an IPO, valuing the company at close to $2 billion in the process. The fundraising was intended to fuel Hulu’s expansion beyond content provided by its existing partners, particularly television content beyond that owned by Hulu’s controlling partners at GE, Disney, and News Corp.
Now, however, sources are saying Hulu is turning away from its IPO plans and is looking to raise new capital from existing investors, particularly the three networks. The reason for this reversal is that Hulu’s long-term rights to Disney, GE, and News Corp. television content was under threat if the company went forward with the IPO.
The situation in which Hulu finds itself illuminates the current minefield of Internet television and streaming video businesses. Hulu is anxious to grow, but its content providers are clearly unsure of just how to proceed in the field. Should ABC, Fox, and NBC directly control their online content or do they need partners like Netflix and Hulu to deliver it? Is ad-supported content going to survive alongside a subscription service?
Hulu Plus, which is both subscription and ad supported, clearly isn’t the solution as those same sources that say Hulu has cancelled their IPO plans claim the company is planning to unveil even more pay-video options in an effort to find a solution to the streaming video conundrum.
For the time being, investors hungry for shares in Hulu, hoping the company can yield the same dividends Netflix has over the past two years, will have to be patient. The streaming video business, and the investment opportunities within it, likely won’t emerge until later in 2011.
As of this writing, Anthony John Agnello did not own a position in any of the stocks named here.
