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In November, The Wall Street Journal reported that Hulu was in talks to sell a piece of itself to Time Warner in a deal that would value the company between $5 billion and $6 billion. If this deal goes through, it would make Time Warner an equal stakeholder to Hulu's current owners, and would mean that Disney, Comcast, Fox, and newcomer Time Warner would each own 25% of the online video streaming hub.
In short, Hulu is owned by the TV giants, and the Macquarie analysts think this makes it the perfect tool to help them stop selling shows to Netflix.
Right now, selling shows to Netflix is easy money for these companies. But some top TV executives have begun to regard these deals as a slow-acting poison, perhaps capable of eventually destroying the linear TV business.
Cut the the ties
Hulu gives them an out. If the traditional industry titans can make enough money licensing to Hulu, they can cut many of their ties with Netflix, and stop inadvertently financing their biggest threat.
The analysts estimate that at Hulu's current growth rates, by 2017 the company could have 23 million subscribers, and replace about half of the revenue that its four owners get from licensing to Netflix. They estimate that Hulu's owners get about $650 million per year from Netflix.
So where's the other half going to come from?
The analysts say this could come from efforts to protect the pay TV bundle, if in a slightly altered form. One tactic the analysts point to is putting more video-on-demand content on "TV everywhere" platforms that still require a cable subscription.
By being more strategic with how they distribute content online, and leveraging their ownership of Hulu to help in this, the analysts estimate that protecting the bundle would be worth at least $500 million per year. And even if their efforts aren't entirely successful, that could still mean that, combined with Hulu, these companies could eventually make a break with Netflix.
What would this leave for Netflix?
Netflix has probably already foreseen this possibility, which is one reason it is investing so heavily in original content. CEO Reed Hastings has repeatedly said original content is the future for the company, and this might mean that Netflix will start to resemble something like an HBO on steroids.
This might not be as gratifying for Reed Hastings as dismantling the entire model of linear TV, but it doesn't mean that Netflix will suddenly implode if it gets cut off from a lot of reruns.
The analysts say in the future, Netflix will likely be more focused on its own content, especially the "hits," and more reliant on its international expansion.