Hulu Charging Ahead

According to IMS Research, the over-the-top video market, which includes TV and video services over the Internet, is projected to grow at 32% annually to reach $16.4 billion by the year 2016. The researcher expects not only digital companies such as Google and Yahoo! to become more active in the digital rental and purchase of media content, but also retailers to enter the market. The acquisition of U.K.-based LOVEFiLM by Amazon, and, more recently, Tesco’s purchase of an 80% stake in video-on-demand company, Blinkbox reflects that trend. Clearly, the market is heating up.

Hulu’s Financials
Within the U.S., private player, Hulu reported their biggest quarterly growth. In a blog post, Hulu’s management reported subscriber base for Hulu Plus, the paid service, to have grown to over 875,000. They claimed to have added more paying subscribers in June than they did in the first two months of the quarter.  Hulu now expects to cross the one million paying subscriber milestone before the end of the summer, ahead of their earlier projections of crossing that milestone by the end of this year. Here is an graph from their blog depicting the growth of Hulu Plus since its launch in November of last year.

While Hulu is still small compared with Netflix’s more than 23.6 million subscribers, it has become a formidable player in the market. During the quarter, Hulu retained the largest market share by revenue in U.S. online video advertising market. According to comScore, Hulu serves nearly twice the number of video advertisements of the next largest advertising service.The company is expecting to report annual revenues of $500 million this year, ahead of the previous year’s $263 million. The market pegs their valuation at $2 billion.

Hulu’s Expansion Plans
Hulu is working on expanding their market reach through tie ups with consumer electronics manufacturers. Recently, Hulu Plus was made available on Microsoft’s Xbox 360 and Kinect, Android smart phones, TiVo Premiere DVRs, and select models of Samsung Blu-ray players. Through the expansion, Hulu expects to enable additional 25 million devices capable of accessing the Hulu Plus service. The service is now accessible on leading consumer electronic and mobile devices with a combined installed base of more than 100 million users.

Hulu’s Sale
But, despite the strong growth, Hulu’s future is unclear. As the market waits for their IPO, co-owner, Disney’s CEO, Bob Iger, has suggested that Hulu will be sold off instead. Potential acquirers include not only online giants such as Google and Yahoo!, but also some unlikely players such as Microsoft, AT&T, and Verizon. All these players are eyeing Hulu’s subscriber base and a successful business model to building a strong foothold in the fast growing digital video segment. Hulu’s owners are said to be evaluating a list of eight to ten potential buyers for the company. Like others, I am waiting to see who among these few will be able to win the $2 billion asset.