With its plans only getting started, Time Warner Cable Inc (NYSE:TWC) could get a huge marketing boost from offering its service through Hulu. With more than 3 million paid subscribers, and millions more watching content for free, the platform is ubiquitous, with more people watching TV through internet-connected devices.
The most to lose
Unlike Time Warner Cable and other cable providers, DIRECTV (NASDAQ:DTV) doesn’t offer internet service. As more consumers elect to only subscribe to high-speed internet and watch content online, DirectTV is missing out on the growing portion of the market.
Owning Hulu would give the company a foot in the water of a growing industry, and directly make up for lost revenue from slowing video subscriber growth. Last year, Hulu grew its revenue 65% to $695 million. Comparatively, DIRECTV (NASDAQ:DTV)’s revenue growth slowed from 13% in 2011 to 9.2% last year adding just $2.5 million to the top line.
The other bidders
Yahoo!, too, has thrown its hat in the ring, offering $600 million to $800 million for the website and certain content rights. After spending $1.1 billion of cash on Tumblr, it’s not out of the question for Yahoo to eventually offer more than $1 billion for Hulu as well.
With just over $3 billion in cash and short-term investments at the end of last quarter, and having spent $1.1 billion on Tumblr, the company would likely need to finance another billion-dollar-plus acquisition with debt. With just $121 million in debt on the balance sheet, the company can certainly afford to do so. By comparison, both Time Warner Cable and DirectTV have significant amounts of debt, but as companies with regularly recurring revenue streams, they are able to easily manage it.
Other bids have come from private equity groups KKR, Guggenheim Digital, and Silverlake Partners. The Chernin Group reportedly put in a bid in the $500 million range. Interestingly, the company’s founder and CEO Peter Chernin – a longtime media executive – was previously critical of Hulu. Having worked at Fox during the Hulu’s early years, he should have excellent knowledge about the company, and how much it’s worth.
Who wants it more
While Time Warner Cable or DirectTV may not have the best balance sheets or financials to acquire a new business, it’s precisely that reason that they are most desperate to acquire Hulu. That’s why I expect one or the other to significantly outbid Yahoo! and the private equity firms as the bidding wars heat up.
DIRECTV (NASDAQ:DTV), in particular, could use Hulu the most as it currently doesn’t have any internet-related business. Time Warner Cable is somewhat insulated by its diversification with its excellent internet subscription growth. While DirectTV is seeing its Latin American business boom, its growth in the U.S. appears nearly saturated. Hulu is part of the problem, and snatching it up could be part of the solution.
The article Who Wants Hulu More? originally appeared on Fool.com and is written by Adam Levy.
Adam 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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