The race to buy Hulu, the online video site, became a three-way fight between Amazon, Yahoo and Dish Network, after DirecTV, the satellite TV operator, was ruled out of the auction for submitting too low a bid, said people familiar with the situation.
The three leading bids for Hulu are in the $1.5bn-$2bn range, said a person close to Hulu.
With three of its shareholders direct competitors with each other, a sale is not necessarily certain. However, one person close to the situation expressed confidence in the completion of a sale, describing the auction as “robust and competitive”.
The US-based site, which in the past three years has become one of the biggest online video services, is being sold by its owners: News Corporation, Walt Disney, NBC Universal and Providence Equity Partners.
Hulu, which has thousands of hours of hit TV shows on its site, including Modern Family, The Office and Saturday Night Live, recently unveiled plans to launch its service in Japan. The sale of the company initially attracted a broad field of interested bidders, with Google, Apple and Microsoft among the companies to explore a potential acquisition.
But, after first round bids were submitted, the field narrowed significantly. Amazon has an established connection with the group: Jason Kilar, a former Amazon executive, is the chief executive of Hulu and remains close to Jeff Bezos, the Amazon founder who is his former boss.
“Buying Hulu would propel Amazon’s video strategy forward with exclusive content versus Netflix and others,” said Richard Greenfield, an analyst with BTIG Research, in a recent note. “It could also create a unique marketing advantage for the coming Amazon tablet.”
Yahoo is keen to bolster its network of advertising-supported sites with the professionally made content provided by Hulu. The deal is also attractive to Yahoo because Hulu is a dual revenue stream business, generating income from 1m paying subscribers as well as advertisers.
Dish Network is also keen to buy Hulu. The satellite TV provider recently acquired Blockbuster, the DVD rental chain, out of bankruptcy and wants to build a viable digital alternative to Netflix, the DVD and online streaming group that has upended TV viewing trends and the broader home entertainment market.
Hulu was created by its media company owners in response to YouTube, to provide them with a digital platform that could retain TV viewers who were migrating online.
The site’s growth has surpassed expectations, although the journey has not always been smooth. Mr Kilar recently angered his media company shareholders when he wrote a blog post that lambasted the traditional TV business model. He also tried to lead an initial public offering of Hulu but failed to generate sufficient investor interest.
However, an outright sale of the company quickly became the most favoured option, with several companies coveting the site and its growing subscriber base.
But not everyone is convinced a sale of the company would be best for its media company shareholders. Mr Greenfield has described the auction as “a mistake of epic proportions”.
“While Hulu can generate meaningful value for media companies owned by a third party … maintaining ownership in Hulu would allow [its shareholders] to build significant long-term equity value, have direct control of their digital future and propel Hulu’s growth in unique, proprietary ways,” he wrote in his recent note.
Hulu’s biggest competitor is Netflix, which suffered a setback this week when Starz Entertainment, the premium cable network that owns rights to films by Walt Disney and Sony Pictures, ended discussions on a contract renewal.
The termination of talks, which means Walt Disney, Sony and Pixar films will not be available on Netflix after February 28 next year, sent Netflix shares down more than 8 per cent in after-market trading on Thursday.
The shares failed to rally on Friday, although some analysts expressed confidence that Netflix had time to replace Starz’ content with programming and films from other suppliers.
“We believe TV studios are more willing than ever to license content to Netflix and there is a lot of content still available,” said Anthony DiClemente, an analyst with Barclays Capital.
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