Hulu in Talks to Sell Stake to Time Warner--Update
November 12 2015 - 4:42PM
Dow Jones News
By Shalini Ramachandran And Amol Sharma
Hulu is seeking to sell a stake to Time Warner Inc. as part of a
deal that would value the streaming-video service at more than $5
billion and advance its efforts to compete with Netflix Inc. and
Amazon.com Inc., according to people familiar with the matter.
The companies have been in talks about Time Warner becoming an
equal stakeholder in Hulu alongside Walt Disney Co., 21st Century
Fox Inc. and Comcast Corp. Such a deal would likely involve the
current owners, who own one-third each, drawing down their stakes
to 25%. One of the people familiar with the discussions said the
talks aren't advanced.
For Hulu, such a deal would help the company take on Netflix and
broaden its content offerings. Under the terms that have been
discussed, Time Warner would invest cash in Hulu and commit to
license content to the streaming service beyond what it already has
sold, the people said. Hulu's interest in bringing Time Warner on
board is about "long-term strategy," one of the people said.
Time Warner owns the Warner Bros. studio, which produces TV
programming for all major broadcast and cable networks, and its
Turner Broadcasting unit includes channels such as TNT, TBS,
Cartoon Network and truTV. Time Warner also owns HBO.
The current owners committed to injecting $750 million into Hulu
after taking it off the sales block in 2013. Over the past 18
months, Hulu has become an aggressive buyer of library and original
programming, increasing its content outlays from $600 million in
2014 to $1.5 billion this year, according to estimates from Nomura
Securities.
In Disney's latest quarterly earnings conference call, Disney
Chief Operating Officer Thomas Staggs said Hulu will keep stepping
up its investment in content, which will "continue to increase
their losses in the near term." Disney reported that a Hulu-driven
equity loss hurt operating income at its broadcasting unit in the
quarter ended Oct. 3. Still, Disney and Fox have touted the
long-term value of building up Hulu.
In the conversations with Time Warner, the companies are valuing
Hulu at $5 billion to $6 billion, the people familiar with the
matter said.
21st Century Fox and Wall Street Journal-owner News Corp were
part of the same company until 2013.
Hulu has billed itself as a friend to the TV industry as
networks and studios fret over the effects of licensing their
content in recent years to Netflix. Some TV executives fear Netflix
is luring audiences away from traditional pay TV, enabling more
cord-cutting and contributing to lower ratings. That has helped the
much-smaller Hulu land several exclusive library deals with major
media companies, including a pact with Time Warner's Turner
Broadcasting in April.
J.P. Morgan said in a September research note that the market is
underappreciating Hulu's strategic value to its owners. The firm
said Hulu is valued at $5 billion to $6 billion today, but it could
be worth $7 billion to $8 billion by the end of 2016. That is based
on an estimated growth trajectory from 10 million to 16 million
subscribers in the next couple of years, powered by Hulu's new
ad-free subscription option and content investments.
Bringing Time Warner on board could be hugely beneficial to Hulu
if the terms are similar to the arrangements with current owners.
Under its current operating structure, Hulu gets the rights to
offer many of its owners' broadcast network shows within days of
airing on TV. That gives it access to programming from NBC, ABC and
Fox and has been a major selling point of the service for would-be
cord-cutters.
Time Warner, meanwhile, has been shifting its digital strategy
lately to contend with changes in the media landscape. On the
company's third-quarter earnings call last week, Chief Executive
Jeff Bewkes said Time Warner is stepping up its investment in
digital distribution, and it will hold back more of its shows for
longer on its own on-demand platforms before selling them to
streaming services like Netflix. An investment in Hulu, a streaming
service with a different DNA than Netflix, would be a wrinkle in
that strategy.
Keach Hagey contributed to this article.
Write to Shalini Ramachandran at shalini.ramachandran@wsj.com
and Amol Sharma at amol.sharma@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
November 12, 2015 16:27 ET (21:27 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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