With Time Warner paying $583 million to become a part-owner of Hulu, all eyes turned to the Eye.
Owned by 21st Century Fox, Walt Disney Co. and Comcast in addition to Time Warner, Hulu is planning to launch a streaming service that will include live channels next year, potentially making it one of the more powerful virtual Multichannel Video Programming Distributors.
CBS has resisted investing in Hulu and some folks, including analyst Richard Greenfield of BTIG Research ask if a service that doesn’t include CBS would be an attractive-enough proposition for viewers.
Hulu is losing about $500 million a year, according to Greenfield, and needed Time Warner’s cash to build its MVPD and compete for content with Netflix and Amazon. With its investment, Time Warner gets all of its channels carried, which is why Greefield says valuing Hulu based on Time Warner’s investment overstates how much Hulu is worth.
The live video service Hulu is building aims to compete at a price point around $40 a month, but Greenfield figures it is already committed to license fees for programming of about $35 a month, with $12 a month going to Disney alone.
Which raises a couple of questions. Can Hulu afford to have CBS in its bundle? And can Hulu afford not to have CBS in its bundle?
Greenfield notes that CBS is getting more than $2 per sub from cable operators and would seek a premium from a newcomer like Hulu. CBS has shown no interest in investing in Hulu, which means it would benefit by licensing content to Hulu, boosting its top and bottom line, while not contributing losses, as Hulu does for its equity partners.
According to Greenfield, the new Hulu service relies heavily on sports, which would make excluding CBS and its two NFL packages, as well as March Madness, a problem for Hulu and create an opportunity for premium pricing for CBS.
Greenfield figures that Hulu should get CBS into the package sooner rather than later. If it waits, CBS could wind up in a combination with Viacom and Hulu would be forced to take an even more expensive package including MTV, Nickelodeon and other Viacom Networks.
During 21st Century Fox’s earnings call Tuesday, Greenfield got to run this by Fox CEO James Murdoch.
Murdoch said that Hulu wasn’t in discussions to add any more equity partners but was in negotiation with additional programming suppliers. He said Hulu was looking for a balance between having programming that would drive demand and consumption with an attractive price point.
He noted that viewers already can stream CBS programming via CBS All Access. “I think that does have an impact on how you would think about price and what you’d be willing to do to have it there,” he said.
Murdoch added that “I don’t think any one network given where we are today with Disney and Time Warner and the Fox products there, I don’t think any one particular network has hold-up value at this point. I think it’s a great proposition today. We’d like to make it better.”