Netflix, Inc. (NASDAQ:NFLX) finished Thursday’s trading with a 3.5% slump due to a Wall Street Journal (WSJ) report, which stated that rival Hulu LLC will sell a stake to Time Warner Inc. Finally, Barclays lowered their price target on Time Warner from $89.00 to $88.00 and set an “equal weight” rating for the company in a research report on Tuesday, October 20th.
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Interestingly, the analysts at Barclays believe Hulu’s ad-supported revenue model could make it a strong competitor to Netflix.
But first, Time Warner needs to conclude the Hulu deal is in the best interests of its own shareholders. However when Disney/ABC TV Group agreed to license the popular show, it negotiated to showcase ABC’s promotion as well as vignettes of a few of the other shows owned by Disney on Netflix.
Hulu’s stakeholders have also announced that the streaming service will continue to invest in content, which will give long-term benefits to Hulu. A deal with Time Warner would mean the share of existing stakeholders would reduce to 25% while Time Warner would be a new stakeholder with 25%. The deal is expected to be valued at over $5 billion. It has a market cap of $12.76 billion.
But Bewkes wouldn’t be buying into Hulu because it’s a good investment.
Reports said that the streaming service has given an added significance for its owners as they put more movies and TV shows online.
The most positive outcome, Juenger hypothesized, would be if Time Warner could make Hulu a centralized, on-demand hub available only to authenticated pay TV subscribers, according to analyst Todd Juenger. While it’s too soon to tell just yet, perhaps networks, with a more limited supply of ad slots to dole out, will be able to charge advertisers more money to reach viewers.
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But while the strategy sounds good on paper, Juenger admitted any scenario gets very complicated very quickly. And owning a piece of Hulu is something entirely different than licensing programming repeats to Netflix. On top of that, Bloomberg points out that advertisers worry that their messages are being lost in the chaos of so many commercials.
