Why Yahoo Should Buy Hulu

41 thoughts on “Why Yahoo Should Buy Hulu”

  1. A YHOO M&A would not make any sense at this point, and would be such a throwback to the kind of buying sprees that got Yahoo to where they are now.

    Especially given they just finished a round of layoffs!

    Why buy another product and spend the time and effort to bring it into the Yahoo fold, spending both time and money that Yahoo simply does not have.

    This article makes a pretty weak case for a sound buying decision.

  2. @Mike Hill,

    Hulu has very few employees – less than 100. Moreover, it is the kind of strategic acquisition that makes sense when things are not the best. People always have a strategy during good times, aggression during slowtime is what makes it a bold move. I disagree with you about making a weak case for sound buying decision.

    Of course, we can chose to disagree!

  3. I thought this wasn’t mean to be bought. It was meant to be a platform for these media companies to legally distribute content. It would be like Google selling Gmail right?

  4. @Chris

    No one quite talked about what they were going to do but since they raised private equity money, there is a need for an exit. IPOs are totally out of question though I think a sale to Yahoo in which they get Yahoo stock in exchange would make a lot of sense.

  5. This was very well written. I too agree that this would make much sense for many of the companies discussed. The caveat is that Hulu would have to be LEFT ALONE to operate. The future of digital content versus traditional “paper” delivery are going in opposite directions. A nice piece of YHOO owned by News Corp would be the way to go. Also, with IPTV finally starting to take shape a company such as Hulu would be positioned nicely for future growth. Nice piece Om.

  6. Buy Hulu? That depends on whether or not Yahoo is happy to see growth in just the US. What many US-based users may not realise is that Hulu content is still not served to the vast majority of Internet users on the planet. They’ve had the same b/s faq for eons now saying that it is their intention to do so…but nothing seems to be happening.

  7. sounds like a good idea, if the only problem is getting traffic… but monetizing this (or youTube) for that matter looks like another issue..

    people watch this most “professionally produced content” on Tivo to bypass the ads…..

    maybe a better deal for blockbuster or someone like that…

    maybe the ceo of hulu is a good guy… but to pay a $1B to get one guy…. seems too much…

  8. I’m missing what Hulu has done operationally to win. Most of Hulu’s success is due to its amazing content, which was given to them by their parent networks. Hulu has a good design, maybe even a great design, but it’s not really any better than the designs at Sling.com or Fancast. Many of the features of Hulu lag.

    Yes, Kilar gave an inspiring speech there at the conference, but quality isn’t a strategy, and it’s a tough differentiator to maintain, even if instilled in the culture.

    Really, the success of Hulu comes down to three simple things: 1) owning NBC and Fox content (which has, granted, led to more deals for a deeper library of content, but still the majority of the top shows viewed there are NBC and Fox); 2) that this content is distributable/embeddable in a Hulu player (80%+ of their “unique users” are actually viewing on other sites – their proprietary traffic went down post-Fey/Palin); 3) that they don’t screw up the user experience with needless clicks and downloads the way the network sites inexplicably do.

    I’m not sure any of these three things do anything for Yahoo. And Jason may make a great #2 anyway, but let’s not give his team more credit than they deserve. George K provided most of the value by getting NBC and Fox to play ball to create this site, and that was the vast majority of what got them where they are today. The site is well designed, but it’s hard to screw up owning full episodes of Family Guy and The Office online.

    It’s also unclear that Hulu will remain a priority for NBC and Fox vs. the success of their own domains/brands. I think 2009 will see this issue play out a bit more, and their success vs. their parent sites and vs. cable providers will only highlight the creation of a “hulu monster” that the big boys may later regret creating.

  9. Everybody loves Hulu because of the content. That’s it. For most of these posters who have said they like Hulu, substitute the word “content” for “hulu” and the post will still make sense.

  10. Hulu via Boxee on AppleTV comes close to a cable killer (it already has for me, saving about $1,000/yr). If allowed, the studios would have owned the entire distribution chain (all the affiliates and/or theatres) if they could during the broadcast era. Why in Gods’ name would FOX and NBCU cede control of one of their future distribution channels for a comparative pittance?

  11. om, this is a crazy idea. if you watch videos on hulu you will see that most of them have one paid ad and the rest are public service ads. does yahoo need more eyeballs that it cannot monetize effectively?

  12. les madras, yes hulu doesn’t have a very heavy commercial load. But everyone I’ve shown Hulu to winds up using it to varying degrees. From an advertiser’s standpoint, Hulu audiences by nature are younger and more likely to be drawn in to network TV on their own terms (on demand). AND, you can’t skip commercials, unlike broadcast DVRs. Hulu have done a great job mimicking Netflix’s subscription queues and encouraging discovering new programming. Give it time, I think you’ll see a minute of national advertising in each break once Hulu catches on wide.

  13. @Doug THere are a lot guys with access to similar content — except they are no Hulu.

    when was the last time you went to Fancast? Yes they have amazing content too – except on Hulu people are actually watching it and enjoying it and loving the service. Big difference.

    As they say – you can buy the best ingredients, but only a great chef would create a perfect meal. That is how i view Hulu.

  14. I think what Yahoo does next to stay afloat would be interesting to watch. Especially, with even Google cutting some services and layoffs in this recessionary period. I wish good luck to Yahoo and her team. I guess we should see some thing by mid year 🙂

  15. yahoo is better off building it’s own flash vod site which is not hard to do. Hollywood would license to anybody with $$$. Hulu has no proprietary tech so buying hulu would be a content play.

    Paying $1billion to hulu for just content is expensive. It is cheaper to deal with the content provider directly.

  16. @Doug

    It has to be about a lot more than content. NBC and Fox have the same content on their sites. NBC.com beats (slightly) hulu and hulu trounces Fox.com.

    When you figure in the amount of on-air promotion that NBC and Fox do for their own Web sites (compared with zero for hulu), hulu’s performance is even more impressive.

    hulu is also smartly taking advantage of YouTube to distribute its content:
    http://blog.agrawals.org/2008/12/29/a-tale-of-two-media-companies/

  17. @Rocky Agrawal: What makes you say NBC.com beats Hulu? By content, site design, etc. I say Hulu is the clear winner.

    @les madras: Everything I’ve seen on Hulu has had all paid ads, but the major thing I’ve seen that they do wrong is showing the same ad each time. So if I’m watching a 1 hour episode of Chuck and there are 6 commercials (can’t remember the exact number) then I get the same 30 second commercial 6 times. Why not show 6 different commercials. The ad either worked or didn’t work the 1st time so the additional 5 times are a waste of the advertiser’s money. So far that’s pretty much the only mistake I would say that Hulu has made.

  18. @Om/@Rocky, thanks for the follow ons. Those are good points. However, I still think you’re being blinded by the bright lights. The breakthrough of Hulu is that I can watch all that great content in one place, right at the hosted source, in a UI that doesn’t make me jump through hoops like the networks’ own sites. And to the extent that Fancast or Sling or TV.com fail to match Hulu for features, those “hoops” are still the problem in most cases. So hats off to Hulu for not making their users work as much – I will grant them that. But is that such a huge breakthrough, or is everyone else just screwing up inexplicably?

    At any rate, Fancast doesn’t have that many fewer users than Hulu.com proper. Hulu really beats it via syndication, since it is the host site of the content, and Fancast is not. Moreover, the advertising on Fancast, and even YouTube, of the Hulu brand on each video played there tells users to just go direct to Hulu rather than watch it via Fancast. It’s like Yahoo advertising Google back in the day. Users aren’t dumb. And moreover, users are lazy! If they can get everything in one place, they’ll default to the source. In other words, once you get to a baseline satisfactory UI, this is about CONTENT. And over time it will become even more so.

    @Om, I believe you like the convenience of Hulu in terms of the availability of this content, in one centralized location, at the hosted source, and not watching on a syndicated downstream player. Features are just icing on the cake. Unless you just like green and charcoal that much? I’ll put it to you another way. What is it about Hulu’s experience, versus Fancast’s, that you like so much better? I don’t think you can articulate a truly meaningful list of features.

    @Rocky, you missed my point #3 above. Hulu has a far, far better experience than NBC or Fox, for the same content. Hulu wins hands down. There is no excuse for it. NBC should fire someone. You have to go through too many hoops on that site. It defies common sense, especially when they have Hulu in the family showing them the way. It’s merely an experience problem, not a technology problem.

    Again, I’m not saying Hulu is doing anything wrong. They are doing a lot right with their experience. They have a great player too. But not so much that it trumps the fundamental importance of being the *hosted aggregated destination* for Fox and NBC content. That is what George Kliavkoff kickstarted, and he deserves that credit. Jason K may be the greatest operator ever but George is the one with the vision that drives 90%+ of Hulu’s traffic. And he hired Jason to boot.

    2009 will be interesting. Do the networks allow Hulu to become another YouTube in terms of gaining hand in distribution of their content, or do they wake up to the monster they’re allowing to be built and start to instead promote their own destination sites? (And do a better job of developing those sites, now that they have the template for what that experience needs to look like, at minimum, to hold an audience?) There is no practical reason why at this point they need to let Hulu take the prize.

  19. om,

    Thank god for yahoo shareholders that you are not running yahoo!

    Pretty sites are not what drives value, see google, amaZon, craigslist, etc.

    The hype that press has bestowed on hulu and great
    Content is the key to their success.

    By the way, hulu can not be a good standalone business

    Simple formula :

    Margin=revenue-partnersplit-costofoperations
    Since partnersplit is 90% and cost of streaming is high margin=shit

    This is NBC and fox trying to stop the YouTube drain.

  20. @questioning,

    Om’s idea is a good one. Hulu is blowing up. It would be a great asset to own. I’m just clarifying why. That was the only thing wrong with what he wrote. The premise is sound though.

  21. When you treat customers with this much respect, it’s easy to understand why Hulu has been so successful.

    “Availability Notes:
    Customer trust is hard won, easily lost.

    On January 9, we removed nearly 3 seasons of full episodes of ”It’s Always Sunny in Philadelphia.” We did this at the request of the content owner. Despite Hulu’s opinion and position on such content removals (which we share liberally with all of our content partners), these things do happen and will continue to happen on the Hulu service with regards to some television series. As power users of Hulu have seen, we’ve added a large amount of content to the library each month, and every once in a while we are required to remove some content as well.

    This note, however, is not about the fact that episodes of ”It’s Always Sunny in Philadelphia” were taken down. Rather, this note is to communicate to our users that we screwed up royally with regards to _how_ we handled this specific content removal and to apologize for our lack of strong execution. We gave effectively no notice to our users that these ”Sunny” episodes would be coming off the service. We handled this in precisely the opposite way that we should have. We believe that our users deserve the decency of a reasonable warning before content is taken down from the Hulu service. Please accept our apologies.

    Given the very reasonable user feedback that we have received on this topic (we read every twitter, email and post), we have just re-posted all of the episodes that we had previously removed. I’d like to point out to our users that the content owner in this case – FX Networks – was very quick to say yes to our request to give users reasonable advance notice here, despite the fact that it was the Hulu team that dropped the ball. We have re-posted all of the episodes in the interest of giving people advance notice before the episodes will be taken down two weeks from today. The episodes will be taken down on January 25, 2009. Unfortunately we do not have the permission to keep the specific episodes up on Hulu beyond that. We hope that the additional two weeks of availability will help to address some of the frustration that was felt over the past few days.

    The team at Hulu is doing our best to make lemonade out of lemons on this one, but it’s not easy given how poorly we executed here. Please know that we will do our best to learn from this mistake such that the Hulu user experience benefits in other ways down the road.

    Sincerely,

    Jason Kilar, CEO, Hulu”

  22. I missed this article when GigaOM first posted it, so it’s been interesting to read it and the comments now, nine months and one Walt Disney Company investment later. The article’s premise is intriguing and certainly sets off debate but it really doesn’t make any sense, for either Yahoo or Hulu.

    The big problem is Hulu’s problem. As some astute commenters have noted, Hulu’s secret sauce is its branded content, most of which comes from its owners: News Corp, NBCUniversal, and Walt Disney. Hulu’s UI and end-user experience are very good (say, 3 out of 4 stars, if I rated it) but, as a commented noted, nothing proprietary or patentable. IMO, Hulu v1 was just a Chinese-coded copy of ABC.com’s video player, which was the first branded full-episode product among the TV networks back in 2006.

    So any acquirer of Hulu is really just buying the content – but there’s no way those three content kings would ever sell their content to Yahoo (or any other dotcom for that matter). I think it gets worse for Hulu, actually, because, as GigaOM pointed out, an IPO is impossible, so all that’s left is an acquisition. But the media owners (the P.E. firm investor is another story) won’t sell. They’ll end up suing each other in a three-way lawsuit. Most media-giant joint ventures end in lawsuits. Hulu will be the same story.

    I do agree that Hulu CEO Jason Kilar is a rock star. My colleagues tell me his Amazon days gave him F-U money, so he’s doing Hulu for the thrill and the challenge (good for him). But an exit for Hulu isn’t possible and he probably knows that.

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