At this point it is just a rumor: That Google is one of the potential buyers of Hulu. But analyst Anthony DiClemente of Barclays Capital thinks it would be a “strategic plus” for Google.
The analyst noted a report Friday (7/1) by Dow Jones Newswire that Google, Yahoo! and Microsoft are in early discussions on trying to acquire Hulu. “While there are many questions surrounding the proposed deal, we believe the combination of YouTube’s user generated content and Hulu’s professional content could deliver strong synergies for GOOG and better position it to capture a greater share of the online video and branded advertising market. Additionally, we believe a Hulu acquisition could help improve Google’s relationships with content owners and further its Google TV offering,” DiClemente told clients.
This is not a slam dunk, though. The analyst says Google would face high regulatory hurdles to add Hulu to its existing ownership of YouTube. “The FTC is investigating Google on antitrust concerns and we would imagine this potential acquisition would immediately go under Federal review. While Hulu and YouTube focus on different user experiences and the online video market remains highly fragmented, combined Hulu and Google’s domestic video share as measured by videos viewed would be 42%-as of May, Google’s is at 38%; Hulu at 3.5%-and Hulu currently has a 29% share of total video ads (comScore). Online video is the fastest growing ad format online; we expect it to grow 45% to $2 billion this year,” DiClemente said.
“Aside from regulatory risk, content licensing agreements would be our other primary concern. Disney and NewsCorp recently renewed their licensing contracts with Hulu (as did NBC Universal, by default as a condition of Comcast’s acquisition) and we believe these contracts would be transferrable in the event of a sale, eliminating this risk. We note that Hulu expects to spend $300M+ for content this year on $500M in revenue. But, we do not believe this combination would be a major threat to Netflix as YouTube/Hulu would be mostly ad supported vs. Netflix’s subscription model, which enables Netflix’s diverse content offering,” DiClemente concluded.
RBR-TVBR observation: Let’s face it, for Google to pay $2 billion for Hulu is like one of us going out for a fancy dinner. A bidding war by arch-rivals Google and Microsoft could push the price up and provide a handsome payoff to Disney, News Corp. , NBCUniversal and Providence Equity.