Yahoo! Inc. (YHOO): Should It Be Desperate For Video?

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Yahoo! Inc. (YHOO)Now that Yahoo! Inc. (NASDAQ:YHOO)’s efforts to buy a controlling stake in Dailymotion have come to an end, the rumor is that the company is looking to buy Hulu. That could be a costly mistake.

Life After Being Googled

Yahoo! Inc. (NASDAQ:YHOO) has a tough fight as it works to take on Google Inc (NASDAQ:GOOG) and transform its business at the same time. While the company is still an important industry player, revenues peaked in 2008 and have been generally heading the wrong way the last few years. Looking to get more aggressive, the company brought in a Google Inc (NASDAQ:GOOG) alum to lead Yahoo! Inc. (NASDAQ:YHOO)

Part of Marissa Mayer’s goal is to make her new company more entrepreneurial. She is also working hard to push into the mobile world. Both are great ideas and sound a lot like the game plan at Google Inc (NASDAQ:GOOG). So it shouldn’t be surprising that Mayer is also hot to own a video service.

Buying Change

Mayer is blessed to have a huge cash balance at her disposal. That came from the sale of half of Yahoo! Inc. (NASDAQ:YHOO)’s stake in Alibaba for around $7 billion. The bulk of her acquisitions so far have been small and in support of mobile and an entrepreneurial culture. Essentially, she is bringing new ideas and the people behind those idea to Yahoo! Inc. (NASDAQ:YHOO) It’s a good way to slowly change the culture without throwing the company into disarray. However, with so much cash and the other half of the Alibaba stake still to sell, Mayer has the money to make bolder moves.

A Video Deal Falls Through

The first big rumor about video was the potential acquisition of France’s Dailymotion. The two companies already have a partnership, so a purchase isn’t outlandish. However, the government of France stepped in to scuttle the deal. That was probably a good thing for Yahoo, since it is in the process of revamping its culture and trying to take on a new distribution medium would likely require much bigger business changes.

An Also Ran

However, almost as soon as the Dailymotion talks ended, The New York Times reported that Yahoo! is in talks with Hulu. Hulu is owned by several of the large television networks, including The Walt Disney Company (NYSE:DIS), which owns ABC, News Corp, which owns FOX, and Comcast Corporation (NASDAQ:CMCSA), which owns NBC.

Hulu has been rumored to be on the selling block for a long time now and has been the subject of numerous rumors. Yahoo! has both the money and the name to pull off such a deal. And the U.S. government isn’t going to stand in its way. That said, Hulu has real problems that Yahoo! shouldn’t get into right now.


Hulu was created as a way for content owners to control the distribution of their media. It was largely a response to the success of Netflix, Inc. (NASDAQ:NFLX). The idea of Hulu is good, but the execution isn’t living up to the promise. The biggest hurdle has been the mindset of the owners, which still live and die by the old media model. That includes advertising, even for paying customers, and delayed posting of content so Hulu’s airing doesn’t interfere with regular broadcasts.

Netflix, Inc. (NASDAQ:NFLX) has been so successful because it has broken completely away from the old media mold. No ads and customers can watch what they want, when they want, and how they want. With content becoming increasingly important online, it’s understandable that content owners would want to get out of the distribution business.

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