Why Would Anyone Want to Own Hulu?

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.

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