Hulu appears to be thinking of a fall 2010 IPO with a stock offering to raise $2 billion, according to reports. But industry experts speculate that the Hulu IPO plans aren�t to beef up programming or boost bandwidth. Rather, the move is to push for one of two things �the implementation of a subscription service that charges internet audience, or a push to put more ads in content to boost profits.
Hulu has seen big success since its March 2007 launch, but either one of those moves could risk alienating viewers. Then again, a Hulu subscription will undoubtedly be cheaper than most cable bills and ads are already part of the mix � so would either move really make waves?
The bottom line is that Hulu�s bottom line is behind the move. Hulu’s 2009 revenue reportedly reached $100 million, but the joint venture between Fox network owner News Corp. (NASDAQ: NEWS), ABC�s Disney (NYSE: DIS) and General Electric (NYSE: GE) �property NBC Universal reportedly squeaks out an awfully small profit after all the bills are paid. Three and a half years after Hulu was born, it appears the television heavyweights behind the service feel that it�s time for the business to start making money.
There�s no doubt that the potential is there for Hulu to be as big a hit both with investors as it has been with the viewing public. The latest stats show that Hulu attracted 24 million unique users during June, and served up more than 566 million ads on the month. Though the visits make Hulu No. 2 in the online video arena behind YouTube�s stunning 144.5 million uniques, Hulu definitely has the edge when it comes to ads � serving more than double YouTube�s June advertising numbers.
So that means Hulu has two avenues to profits ahead of it: either charge its smaller audience for the service it provides, or increase the number of ad impressions so the viewership �pays� with its eyeballs.
And make no mistake � if Hulu is going to go public, it had better deliver significant profits. Under the current model where News Corp., Disney and NBC Universal all own about 27% of the company, they can talk about ancillary benefits such as exposure for their top shows or the business building experience in the online arena. If Hulu is going to stand alone with its own stock and allow investors to pore over quarterly revenue, profit and subscription numbers, it better be darn sure it can keep all of those metrics moving in an upwards direction.
But there�s the catch. Google Inc. (NASDAQ: GOOG) purchased YouTube in 2006 and has been struggling to find a way to make it profitable ever since. If an online superpower like Google can�t make a video service profitable, who the heck does Hulu�s leadership think they are? What�s more, Google can bury YouTube�s problems in the depths of its quarterly reports underneath other big successes like its online advertising business and its Android smartphone operating system. Hulu will be out there all alone, with no other business to hide behind.
But who knows � perhaps a small but loyal audience will gladly pay a nominal fee to watch their favorite shows whenever and wherever they want. In June, Hulu already announced a forthcoming subscription service called Hulu Plus where it will offer a broader library of shows for $9.99 per month — as well as access to mobile players for TV watching on your iPhone, iPad, PlayStation and other gadgets. There also could be a chance Hulu will be wildly profitable down the road as internet video replaces cable, and all it has to do is keep its head above water until its audience explodes.
But that kind of speculation is very risky for investors. And it certainly won�t make it any easier for TV watchers to stomach two bills in the meantime as they pay for Hulu and their cable service.
As of this writing, Jeff Reeves did not own a position in any of the stocks named here.
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