The price point at which Hulu will sell may hit $1 billion. It is not worth that. As a matter of fact, in an extremely crowded video on demand market, it may be worth much less.

The rumored bidders for Hulu include Yahoo!, (NASDAQ: YHOO), KKR, buyout firm Silver Lake, Time Warner Cable (NYSE: TWC), DirecTV (NYSE: DTV, the Chernin Group, and Guggenheim Digital Media. Hulu’s value has a foundation in its revenue, which may be as high as $700 million, and its subscriber base which could be as high at 4 million.

Hulu is not big enough to make the list of the ten largest video sites, according to research firm Comscore. As should be expected, Google’s (NASDAQ: GOOG) YouTube dominates that list which includes Facebook (NASDAQ: FB), all three portal companies, and Amazon (NASDAQ: AMZN) which has a paid video site of its own. YouTube is in the midst of starting its own VOD service. It has the leverage of over one hundred million visitors a month. Its disadvantage is the low quality of most of its content.

Hulu, it has been pointed out ad nauseam, also has to compete with much larger NetFlix (NASDAQ: NFLX) which has over twenty million subscribers and annual revenue of over $4 billion. and a market value of over almost $13 billion. On the back of an envelope, NetFlix has a value of over three times revenue. For Hulu, that number is closer to one time. The market senses something about the trouble Hulu may face in the future.

The case in favor of a purchase of Hulu is plain enough. Portals, among others, need to build their libraries of content for which people will pay.  Hulu’s value in this regard could be undercut be current content providers which may see a new owner as competition. This includes current owners Walt Disney (NYSE: DIS) and News Corp (NYSE: NEWS-B) which may not want to have their own content out of their direct control. And, other providers of Hulu content may believe that they compete with a new Hulu owner as well.

Access to content does not stand at the middle of Hulu’s value proposition. The ability to build its subscriber base does. Major competitors which include cable companies, Amazon, Apple, and Netflix have the substantial advantage of tens of millions of customers to which they can offer their video on demand services. Hulu cannot match Apple’s huge customer base built around their devices and iTunes. Nor can it match Amazon’s massive data base of clients, and the lift Amazon gets in customer e-commerce activity due to the footprint of its Kindle and Kindle Fire product. Cable, with tens of millions of customers may be in the best position to compete with all of these. All of it customers pay for one sort of service of another.

Hulu’s value has strict limits, because it is at a disadvantage as it tries to add to its customer base.

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