NEW YORK ( TheStreet) -- Hulu has become a hot property in recent weeks, as multiple bids have come in for the company, including Yahoo! ( YHOO). Now, AT&T ( T) is reported to have thrown its hat in the ring. I'm just not sure why. AllThingsD reports that AT&T is interested in joining with The Chernin Group to bid for the online entertainment company. So far, the other potential buyers are DirectTV ( DTV), Time Warner Cable ( TWC), private equity firms KKR, Guggenheim Digital and Silverlake Partners, as well as the aforementioned Yahoo!, and talent agency William Morris Endeavor. The major problem with Hulu, and it has been for years, is who actually owns the content and what the licenses will be if the company changes hands. Hulu is owned by Walt Disney ( DIS), News Corp. ( NWSA) and Comcast ( CMCSA), via its ownership in NBCUniversal. Given the increased premium placed on video content, it's pretty clear that any deal for Hulu would have issues with the content rights. "Whatever price they
the winners pay they need to add a minimum of $2 billion in content costs annually to grow the business," says Hudson Square Research analyst Dan Ernst. "To compete with Netflix ( NFLX) and cable, it's a money loser." Hulu was able to generate $700 million in revenue last year and has more than 4 million paying Hulu Plus subscribers. That's certainly worth something, but is worth noting that The Chernin Group reportedly bid $500 million in its initial offer for Hulu, valuing it at less than 1 times revenue. Google ( GOOG) was reported to have bid $4 billion on the company a few years ago; $500 million is a long way away from $4 billion. Private equity firm Providence Equity Partners sold its stake in the company, which valued Hulu around $2 billion. Hulu has had exclusive access to content from Fox, ABC, and NBC, but Hulu isn't a major revenue generator for these networks. If the networks were to make Hulu the exclusive home of online TV, it could cost them revenue. That's not something shareholders want to see, and is partly the reason why CBS ( CBS) doesn't have its content on Hulu. It's able to sell its older content to places like Amazon ( AMZN), making incremental revenue off older shows, while retaining exclusivity to its newer shows.
The content owners have demonstrated over the past few years that new and old content is worth a lot. After all, people are spending more time than ever watching content and consuming data. There's a reason why the share prices of CBS, News Corp., Disney and Comcast have returned 58.97%, 69.96%, 42.15%, and 40.38%, respectively, over the past year. These companies have figured out that selling content multiple ways is the best path, at least for the time being. Perhaps the only reason why AT&T would want to own Hulu is to expand its out-of-network services, as well as keeping it out of the hands of competitors, Ernst noted over the phone. AT&T's U-Verse video service, which competes with Verizon's ( VZ) FiOS, only has a few million subscribers, and isn't nearly as big as FiOS, or DirectTV. Other bidders, such as Yahoo!, The Chernin Group, DirecTV and others might believe they could get content cheaper than a $2 billion annual run rate, though I'm not sure I believe that. Content owners realize that content is king, and people are consuming more and more of it. I'm not sure why these companies think they can outsmart the smartest guys in the room. Hulu, at the right price, is worth something to a strategic bidder, if it is willing to put money into content costs for the next few years to continue attracting subscribers in hopes of one day turning a profit. If not, then a Hulu acquisition becomes another money losing venture by the acquiring company that doesn't make sense. -- Written by Chris Ciaccia in New York >Contact by Email. Follow @Chris_Ciaccia