Hulu was intended to compete with Netflix, Inc. (NASDAQ:NFLX). However, from the start Hulu had to serve two masters, its customers and its owners. Since the service’s owners also owned television and cable stations, Hulu focused on getting new content online without interfering with the television distribution model. That’s not nearly as appealing to customers as Netflix, Inc. (NASDAQ:NFLX)’s anytime, anywhere, anyway model.
Complications
This is actually why Yahoo! Inc. (NASDAQ:YHOO) investors should be happy that a Hulu bid is off the table. Yahoo! Inc. (NASDAQ:YHOO) is steeped in the Internet’s open access approach, while Hulu is trying to keep a closed loop intact. It’s highly unlikely that the company’s media owners and content providers would have been willing to let Yahoo! Inc. (NASDAQ:YHOO) make the changes that Yahoo! Inc. (NASDAQ:YHOO) CEO Marissa Mayer would need to turn Hulu into a competitive threat.
Under Mayer, Yahoo! Inc. (NASDAQ:YHOO) has started to stabilize its business and change gradually toward a more entrepreneurial model. That’s been good to see and has involved multiple small acquisitions. Adding Hulu would be a huge distraction. With a price to earnings ratio of around 8 and revenues stuck in the $4.9 billion area, this is a solid turnaround play for more aggressive investors.
The Telecom Giant
AT&T Inc. (NYSE:T) was another rumored bidder that’s better off without Hulu. The company has been facing increasingly stiff competition in the cellular service arena. Although the telecom giant provides the pipes over which content is delivered, it really isn’t a media distributor. The bid suggests a grab for acquisition-driven growth, not the addition of a truly complementary asset. The $1.2 billion Leap Wireless purchase, on the other hand, is a better fit.
That said, AT&T Inc. (NYSE:T)’s top-line has grown only modestly over the last four years, moving from $123 billion to $127 billion. Earnings have fallen over the span. And, more recently, sales have stagnated as smaller players pair up to compete more aggressively.
Rumors over foreign telecom purchases have frequently included AT&T Inc. (NYSE:T)’s name. A big telecom deal or more small acquisitions like Leap have a better chance of jump-starting the top and bottom lines again than adding Hulu would have. AT&T Inc. (NYSE:T), yielding around 5%, is a decent option without Hulu for income-oriented investors.
Where Hulu Complements
Time Warner Cable Inc (NYSE:TWC) and DirecTV (NASDAQ:DTV) are better fits for Hulu. Both live within the same media world as Hulu and have notable relationships with the service’s current owners. So there wouldn’t be any need to change how Hulu is run. And a deal would give both companies a branded Internet distribution platform.
