Will YouTube Buy Hulu?

Google’s (NASDAQ: GOOG) YouTube may be a near-perfect owner of Hulu.

Several news organizations have reported that premium video website Hulu may be for sale. It has struggled to make a profit. It runs paid advertising with some of its content. It also has a new “Hulu Plus” service that charges for some programs.

Hulu probably would not be for sale if it was very profitable. NBCUniversal, News Corporation (NYSE: NWS), The Walt Disney Company (NYSE: DIS), Providence Equity Partners and Hulu management share in the ownership of the company. Control of NBCUniversal recently passed to Comcast (NASDAQ: CMCSA) which may not be interested in supporting a service that competes with its cable offerings.  Providence is probably anxious to make money on its investment which would be normal for a private equity firm.

It is not possible for one of the media company partners to take full control of Hulu. Other media firms would be rightly concerned that one of their competitors owned a business that is meant to help them move content online.

The most likely buyer of Hulu is Google. It  has tried with only modest success to add premium content to its huge content-sharing site YouTube. YouTube is the largest video site in the world. About half of all video viewed online in the US is viewed at YouTube. Its reputation as a place where pirated content runs has put off some of the large media companies, but YouTube has done well as it polices that problem. YouTube still has tens of millions of  clips of amateur  content, and it has tried to segregate those from its premium content. YouTube has won enough of the studios over to have a movie rental service. Ownership of Hulu would help YouTube accelerate its efforts to be the primary online site for premium content. Otherwise, with Hulu as a competitor, that process may be very slow.

Google can afford to buy Hulu. It needs to show investors that it can make YouTube profitable. Google will almost certainly win any auction of the video site if it is sold because few buyers are as motivated.

Douglas A. McIntyre

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