AGILEVC My idle thoughts on tech startups

September 27, 2011

Like many of you, I’ve been following the ongoing auction of Hulu.  I’d normally say “to the highest bidder” at the end of that sentence, but in this case Hulu’s owners might sell to someone other than the highest bidder or might not sell at all.  You know why?  Because content is still king.

I remember 5-6 years ago, when YouTube was still in it’s infancy but was rapidly gaining audience.  A lot of people talked about the rise of UGC and how it might displace a large amount of professionally produced video content (TV shows and movies).  Hollywood writers and producers were jumping ship to create their own indie web series.  Content was no longer king.

It’s true that YouTube, Facebook, and other platforms have radically changed the amount of personal content average people share.  And YouTube, how-to websites, and others have offered both an audience and monetization outlet for small scale video producers.  But whether in a browser, or streamed by Netflix, or on pay TV services most video viewing still happens at the head end not the long tail of the content creator curve.  And distribution rights to that content are still paramount to building digital video businesses.  That’s why Google paid lots of money to get SNL and other content on YouTube.  And it’s why Hulu’s auction is playing out the way that it is.

Hulu’s genesis was all about content rights so it’s no surprise it’s exit is too.  Hulu’s interesting because Fox, NBC, and Disney (ABC) all jointly owned the company.  Providence Equity invested $100M at a $1B valuation not because of their technology or product, but because the network owners contributed a lot of valuable content… or at least access to it for 2years.

Fast forward to the Hulu action which has played out in slow motion over the last several months.  Business Insider, which has done great reporting on this auction, higlights the fact that the current high bidder is actually Google which at $4B has tabled an offer more than double the next highest bidder (Dish Network at $1.9B).  But whereas Dish will take the “clean” deal the owners are offering, which includes only 2 more years of content on the free ad-supported product, Google will only buy with a much longer term guarantee of content rights.  In otherwords, the majority of Google’s offer value is directly attributed to these content rights and not Hulu’s product, audience reach, team, etc.

It’s not just Hulu either.  HBO only turns out a few shows a year, but it’s the major cash generation engine within Time Warner these days.  Despite the fear gripping traditional content producers and distributors, innovators like Netflix, Apple, and others still have plenty of battle scars obviously over the tussle for digital video rights.

Turns out content is still king…