Yahoo Eyes Hulu Now

According to eMarketer, the number of U.S. digital TV viewers is projected to grow from 106.2 million last year to 145.3 million by 2017. The researcher estimates digital TV viewers will account for more than a half of the total Internet user population in the country by 2014. The growth of digital video streaming will also spur growth in advertising in the segment. eMarketer predicts that out of the total spending of $42.52 billion on digital ads this year, marketers will spend $3.8 billion on online video ads.

Hulu’s Metrics
Online video streaming service, Hulu, is seeing this projected growth in their quarterly performance. Over the last quarter, they continued to grow their subscriber base significantly. Hulu ended last year with a little more than three million subscribers for their premium service, Hulu Plus. During the last quarter, they added another one million subscribers to end with more than 4 million paying members for Hulu Plus. For the first time ever, their viewers streamed over a billion content videos in a single quarter. Hulu did not disclose their financials for the quarter. Analysts estimate that they earned revenues of $700 million last year.

Hulu’s Content Development
Like other online streaming players, Hulu been investing significantly in content. Recently they announced plans to release a western comedy, “Quick Draw,” by writer/directors Nancy Hower and John Lehr. To attract a younger and Latino demographic, they will also release East Los High, a program based on the LA high school featuring an all-Latino cast, director, writer, and creator. Both the shows are part of Hulu’s original content development effort and are expected to be released by this summer. Including these two shows, Hulu now has a library of eleven original shows.

It is not just original content. Hulu also extended partnership to air new daily, half hour episodes of TV franchises “All My Children” and “One Life To Live.”

Hulu’s Possible Sale
In 2011, Hulu had put themselves up for sale for an estimated $2 billion, but they did not find a potential buyer. Earlier this year, existing investors News Corp, Disney and Guggenheim Partners were not convinced of the way forward and are expected to have stepped up efforts for a sale again. Recently the market is abuzz with news that they may have found a potential suitor in Yahoo.

Yahoo suddenly seems to have appetite. After the $1.1 billion acquisition of micro-blogging site, tumblrl, they are now in talks with Hulu. Analysts estimate that Yahoo would be willing to pay $600 million-$800 million for Hulu and the final terms will be dependent on Hulu’s existing license and content agreements. The acquisition will help Yahoo make a big leap into the online video market where they have been lagging. Earlier this year, Yahoo’s efforts to buy another online video site DailyMotion fell through. Hulu looks like their next possible bet.

Besides Yahoo, there are several other private investors that are evaluating Hulu as a possible acquisition. Some of these potential buyers include private equity firms KKR, Guggenheim Digital, and Silver Lake Partners.

As you see in the market trends, the video streaming business is fast becoming not only a distribution business, but also one that requires original programming. Netflix’s success with “House of Cards” is emblematic of this progression. Hulu recognizes that, and if Yahoo! decides to acquire them, I hope they do so with full recognition of this trend.