Hulu currently utilizes a freemium business model which enables the company to monetize users by showing video ads, and users who want enhanced services pay a monthly subscription fee of $7.99 for Hulu Plus. Hulu is competing with the other big names in the space, including Netflix, Inc. (NASDAQ:NFLX) and Amazon.com, Inc. (NASDAQ:AMZN), to gain more user traffic and paid subscribers as well. Hulu earned more than $695 million in total revenues in 2012 and now has more than 4 million paid subscribers on Hulu Plus.
The rising video platform’s owners, News Corp (NASDAQ:NWSA)’s Fox and Disney’s ABC business units, are in discussions with regards to the company’s future, and they couldn’t previously reach mutual ground over Hulu’s business model. Hulu had received bids from a former top executive of News Corp (NASDAQ:NWSA), Peter Chernin, but the bid was considered to be too low, according to The Wall Street Journal.
Hulu bought back shares from a previous owner for approximately $2 billion, and Apple can pay a sizable premium up to 30% to that precedent transaction and gain a lot of upside. Apple’s streaming device, Apple Inc. (NASDAQ:AAPL) TV, provides entertainment choices for consumers that enable streaming videos from Hulu and from others like Netflix, Inc. (NASDAQ:NFLX) and YouTube. And with numerous investors widely expecting an iTV from the iPhone maker, the company can gain a lot of strategic upside from owning a rapidly growing Internet property like Hulu.
The bottom line
Many market participants have stated that Apple should acquire rapidly growing scalable businesses like Netflix, Inc. (NASDAQ:NFLX), Hulu and Pandora, and rightly so. While Netflix has increased its market value dramatically, and will be a difficult acquisition for Apple, Hulu clearly represents the next best thing. With Apple’s total cash position set to rise, the company can easily acquire these two companies and generate new users for its other businesses while growing and diversifying its revenue base.
Apple Inc. (NASDAQ:AAPL) can gain a strong presence by having a footing in over-the-top media consumption and mobile entertainment. Apple can earn a lot more from video advertisements and radio advertisements by acquiring these two companies, and its gigantic cash position won’t even take a material hit either.
The article 2 Potential Buyout Targets for Apple originally appeared on Fool.com and is written by Ishfaque Faruk.
Ishfaque Faruk has no position in any stocks mentioned. The Motley Fool recommends Apple and Pandora Media (NYSE:P). The Motley Fool owns shares of Apple. Ishfaque is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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