The auction of online video site Hulu has been slowed by recent developments which could derail it completely, according to sources familiar with the process.
Among the issues are conflicts over complicated digital rights, a wide bid-ask gap, and Yahoo being sidelined as a potential buyer by its own issues. Moreover, NBC Universal's hiring of Morgan Stanley banker Stuart Epstein, who was involved in the sale process for the bank, as its chief financial officer complicates a potential deal.
And then there is the lack of commitment to sell by Hulu's owners -- News Corp, Walt Disney Co, Comcast Corp's NBC Universal and Providence Equity Partners.
News Corp Chief Operating Officer Chase Carey even acknowledged during the company's third-quarter earnings call last month that a Hulu sale might not happen.
A new round of bids are due next week and price will be in a key issue in whether the auction moves forward, according to a source close to the situation.
Other sources with knowledge of the talks said an unusually wide gap has developed in recent weeks between the price bidders are offering and what the Hulu owners are willing to accept. Hulu's owners are becoming more steadfast about the price and feel enough strategic alternatives are available to reject low-ball offers, sources said.
Bids have ranged from as low as $500 million to as much as $2 billion. The most serious suitors include Google Inc, Amazon.com Inc, DirecTV Group Inc and DISH Network Corp.
Yahoo Inc had been viewed as one of the most enthusiastic likely bidders, but that was before its leadership imploded last week with the firing of CEO Carol Bartz. The company is likely to be too preoccupied with its own issues to digest a multibillion dollar deal. Moreover, Hulu's owners would be reluctant to sell to a company undergoing an internal upheaval.
As with any sale, the situation is fluid and there remains a chance Google or another party could swoop in with a rich offer. Reports have suggested Google was planning an offer, but company insiders are uncertain Hulu's media owners would sanction a sale to the search engine giant -- at least not without caveats such as blocking piracy searches, for example.
After intense initial interest due to Hulu's huge and growing popularity, the sale has stalled as bidders questioned what they would get for their money.
One senior media executive said the nature of Hulu's content deals is key to whether a deal happens or not.
I guess the brand and technology are worth something, but probably not for that asking price because digital companies could develop a site on their own, the executive said, who asked not to be identified speaking about a partner company.
CBS Corp boss Les Moonves openly questioned Hulu's value during an interview at a Paley Media Center event on Thursday.
What are they getting and how long are they getting it? asked Moonves, whose company is not a Hulu owner or content provider. Are they buying two years of programs for $2 billion? I don't know. I shouldn't say more, I'll get in trouble.
The issue of rights, particularly on newer platforms such as the Web and mobile, are both unclear and complicated, adding to the potential deal's complexity.
BTIG analyst Richard Greenfield said a recent decision by NBC Universal to offer programs for free via an iPhone and iPad app without requiring a cable subscription effectively undermines the value of the rights Hulu's owners are trying to sell. The move also potentially conflicts with News Corp unit Fox TV's strategy of allowing Hulu users to access only the latest TV shows if they are a pay-TV subscriber.
It gets more challenging to push through the Hulu sale, given what NBC just did, said Greenfield.
Comcast agreed, as part of the regulatory restrictions attached to its takeover of NBCU, that NBCU would abstain from key management decisions at Hulu.
If the sale falls apart, it will mark the second time its owners have fashioned a full or partial exit strategy that has failed. After nearly six months of planning, the owners ditched an initial public offering last December to raise up to $300 million. Such an IPO would have valued the company at about $2 billion.
But the decision to ditch the IPO in favor of a sale prompted industry observers to wonder whether media companies should risk handing over their future online to digital rivals such as Google and Amazon. Greenfield has described the plan to sell Hulu as a mistake of epic proportions.
Hulu appears to be the perfect weapon for networks and content creators to embrace so they can grow revenues and profits, even if the current multichannel ecosystem becomes unglued over the next decade, said Greenfield in his client-targeted blog.