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Owners of Hulu have abandoned the plan to divest the company and have decided to invest in the online video streaming company instead. The owners aim to create a strong competitor for market leader, Netflix Inc. (NFLX - Analyst Report). This is the second time in two years that the sale of Hulu has been called off.

Hulu is currently owned by News Corp. (NWSA - Analyst Report), Walt Disney Co. (DIS - Analyst Report) and Comcast Corp (CMCSA). Notably, Comcast acts as a silent partner following its acquisition of NBC Universal.

Hulu attracted bids from several potential bidders, which included big companies like DIRECTV (DTV - Analyst Report), Time Warner Cable Inc. (TWC - Analyst Report) and a joint bid from AT&T Inc. (T - Analyst Report) and Chernin Group. While AT&T and DTV proposed a $1 billion dollar bid, Time Warner Cable wanted to become a stake holder in Hulu.

However, the bidders were restricted from owning the content rights for Hulu for more than two years. Network companies generally hike prices post the completion of the agreement.

The current owners have decided to retain ownership and inject $750 million for future growth. In spite of having no management control, Comcast will contribute an equal share of the $750 million investment.

The media houses have agreed that they will retain the subscription base model and will deliver content to enhance the customer’s subscription value. However, postponing the sale still leaves the possibility of a stake sale.  

Hulu received such high interest from potential bidders as growing saturation in the U.S. pay-TV market and increased competition from online video streaming service providers has sliced the traditional pay-TV operator’s market share. Furthermore, Hulu boasts a strong subscriber base of more than 4 million and has generated $700 million revenues last year through advertising and monthly subscriptions.

Owners of Hulu wanted a buyer keen on investing in programming and maintaining its growth momentum. The media groups have confirmed that they themselves will spend on programming, marketing, technology and expansion from the proposed $750 million investment.

Acquiring Hulu would have given the traditional pay-TV operators the leverage to negotiate better with the media companies. Nevertheless, Hulu’s independent standing is favourable for the customers.  We believe that stiff competition from this over-the-top (OTT) companies like Hulu may force the pay-TV operators to reduce their monthly fees to remain competitive.

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