Hulu TV: Why I'm hoping Google buys the online TV site.

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June 23 2011 5:36 PM

Goolu

Why Google should buy Hulu.

(Continued from Page 1)

The move would be great for Hulu, too. Google alone has the resources and the expertise to turn Hulu into a formidable competitor to Netflix. As the largest Internet ad firm, Google would surely be able to milk revenue from Hulu's free shows. But it's Hulu's subscription service that would most benefit from Google's deep pockets. At the moment, Hulu Plus' catalog of shows is too thin, and its monthly price is too high, to stand as a viable alternative to Netflix. But would you give Hulu Plus another look if Google lowered the price to $5 a month and spent a few hundred million dollars a year to buy up access to some of TV's highest-profile shows? I bet you would. You might even ditch Netflix for it.

Google would have no problem pouring a lot of cash into Hulu in the near term in the hopes of long-term success. Remember, it spent $1.6 billion to buy YouTube and then let it lose hundreds of millions more per year in the hopes that it would one day make a killing. But that suggests the biggest hurdle to my dream deal: Why would Hulu's owners and licensees want to sell to Google? Here's a company that has shown no qualms about shaking up the media world. By selling Hulu to Google, wouldn't these companies be signing their own death warrants?

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Sure, they'd worry. But Google could offer a pretty good counter-argument to that fear: lots and lots of cash. Analysts expect Hulu to sell for at least $2 billion, but the search company can afford to pay a lot more than that—say $3 billion or $4 billion or more. But media companies wouldn't have to fear that they'd be selling off their future earnings in return for a quick cash influx. Every smart person in the TV business knows that the industry can't depend on cable fees and broadcast ads forever. As Kilar pointed out in a bomb-throwing blog post, viewers are increasingly shifting to media that offers fewer ads and more-flexible viewing choices than subscription TV can offer. As a result, advertising rates for broadcast and cable are declining. Meanwhile, even though Web versions of TV shows display fewer ads than their boob-tube counterparts, advertisers have been willing to pay higher rates for online commercials, because you can't skip ads on the Web. As Kilar pointed out, Hulu's per-viewer revenue has been growing, while the per-viewer numbers for cable and broadcast have been falling.

This rising tide of online viewership should be good news for content owners. In April, Netflix agreed to pay $100 million for the right to stream Mad Men. The deal was nonexclusive—meaning that Lions Gate, the show's producers, can license the show to another streaming company—like, say, a Google-backed Hulu.

TV companies shouldn't only look at the potential upside of a Google-Hulu deal. There's also the downside of not doing this deal—the possibility that Netflix becomes unstoppable. In the absence of competitors, Netflix will continue to sign up more and more users, and at some point it will have enough of a subscriber base that it won't need to pay $100 million for a TV series. It might offer $50 million, and the studios won't have any option but to say yes.

That's the choice that Hollywood's facing. Cable and ad revenue is going to decline. There's no way around that. Media companies' best hope, now, is to set up a vibrant online marketplace for their content. Hello, Goolu.

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