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Hulu owners in talks with Time Warner Cable for investment

By Andy Fixmer
Bloomberg News

Hulu LLC’s owners are in talks to sell a stake in the streaming service to Time Warner Cable Inc. as they seek to create a stronger competitor to Netflix Inc.

An agreement, while not imminent, could be reached in as little as two weeks, said people with knowledge of the issue who asked anonymity because the talks are private. Time Warner Cable had previously sought to acquire a 25 percent stake, they said. Owners Walt Disney Co., 21st Century Fox Inc. and Comcast Corp.’s NBCUniversal last week called off plans to sell the service.

The talks coincide with a $750 million commitment from Hulu’s owners backing the online company’s drive to attract subscribers and take on industry leader Netflix, which has 34 million paying customers. The money will help Los Angeles-based Hulu buy programming, market its service, develop technology and attract employees, Disney Chairman and Chief Executive Officer Robert Iger said.

“We ultimately concluded that, even though we had some very compelling offers on the table, the future of Hulu is bright,” Iger said. “And if the future of Hulu is bright, we should hold on to it.”

The moves underscore the popularity of services like Netflix and Hulu, which deliver films and TV shows to smartphones, tablets and computers, as well as living rooms. With their investment, the owners say they have settled differences over Hulu’s future. The service faced uncertainty and management turnover as the companies debated its direction.

Hulu attracted bids from suitors including Time Warner Cable, DirecTV and Peter Chernin with AT&T Inc.

DirecTV, the biggest U.S. satellite TV service, and the partnership of Chernin and AT&T each were said to have offered about $1 billion. Time Warner Cable, the second-biggest U.S. cable system, has wanted to invest with Hulu’s owners, they said.

“This had nothing to do with the offers that were on the table — they were actually quite compelling,” Iger said. “When we compared them with what we saw the potential of what Hulu could be, particularly because we were aligned in vision, it was smarter for the shareholders of our companies for us to stay in.”

Throughout the auction that started in March, Hulu’s owners continued to weigh the value of the service and its long-term potential, Iger said. During that process, Disney and Fox overcame disagreements about Hulu’s direction, he said. The company has grown to 30 million unique monthly visitors, with annual revenue that doubled to $690 million last year, and more than 4 million paying subscribers.

Fresh capital will let Hulu buy additional programming and compete for subscribers with Netflix and Amazon.com Inc. Hulu offers a free version on computers and an $8-a-month Hulu Plus with more content on more devices. Shows on both have commercials. Hulu will also use the cash to attract and retain employees, develop new technology and for marketing, Iger said.

Netflix spends about 5 percent of its annual $2 billion programming budget on original shows, Ted Sarandos, chief content officer, said last month.

Hulu would have given pay-television providers the ability to offer a lower-priced alternative to their own cable and satellite video subscriptions. Online services are popular with people who cancel or cut back on pay-TV services, along with younger viewers who have never subscribed to pay TV.

“It’s a setback psychologically for DirecTV,” said Todd Lowenstein, portfolio manager with Highmark Capital Management in Los Angeles, which owns 91,325 shares. “Hulu represents a clear path to a future that makes Direc
TV viable in a new, mobile media landscape. These are scarce assets. When that option is removed, the attractiveness of DirecTV in some investors’ eyes is diminished.”



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