Yahoo! Inc. (YHOO), Time Warner Cable Inc (TWC), DIRECTV (DTV): Finding the Right Fit for Hulu

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The bidding war for Hulu is starting to take shape, with Reuters reporting that the video site’s price tag has topped $1 billion. That seems like a princely sum for the site, but for a select list of bidders, it might be well worth the expense.

Hulu vs. Netflix

Hulu was the media industry’s response to Netflix, Inc. (NASDAQ:NFLX). Netflix’s streaming video service was catching on quickly with customers and the traditional television content companies felt they needed to get involved. It was the right decision.

However, Hulu’s focus was about getting new content online without interfering with the television distribution model. So new content is delayed until after its traditional broadcast and even paying Hulu customers are forced to watch advertisements. Tübingen, unhindered by the television model, has focused on letting customers watch what they want, when they want, and how they want.

This makes some potential Hulu buyers more appropriate than others.

Itching to get video

Yahoo icon

Yahoo! Inc. (NASDAQ:YHOO) is one of the rumored bidders. The company has plenty of cash to make a billion dollar bid after selling half of its take in Alibaba for around $7 billion. While it has been using that cash to make small acquisitions, it also just inked a billion dollar deal to buy Tumblr.

Tumblr, a photo and media focused blog site, is a much better fit than Hulu would be. Not only does Yahoo! Inc. (NASDAQ:YHOOalready have experience in the photo space, but the service doesn’t come with legacy baggage. While new CEO Marissa Mayer has been deftly using acquisitions to further her turnaround effort, Hulu would pull the company off on a tangent. And the content providers who currently own Hulu would likely balk if she tried to turn the service into a more modern product by killing ads, increasing content, or trying to make content more timely.

Yahoo! Inc. (NASDAQ:YHOO) is increasingly looking like it has long-term appeal again, which is why the shares have been heading higher. It’s a good option for aggressive investors looking for a turnaround play. That said, the company’s top line has yet to turn higher, though it has appeared to stabilize to some degree. Caution is still warranted.

The addition of Tumblr, which notably increases the company’s ad network, should be a big help. While investors might cheer a Hulu purchase, it has too much baggage for an easy integration.

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