Digital disruption is reshaping the landscape of the cable-television industry on an almost daily basis, with competitors suddenly becoming partners and new entrants looking more and more like power players. In the latest twist, Time Warner is now a co-owner of Hulu, a streaming service whose ultimate goal is to essentially replace traditional cable TV.
The entertainment conglomerate said Wednesday that it has paid $583 million for a 10% stake in Hulu, joining an existing ownership group that includes Walt Disney, 21st Century Fox, and Comcast—each of whom now own a 30% stake. The acquisition values the service at almost $6 billion.
This deal has been a long time coming. Time Warner (TWX) has been in talks with Hulu for almost a year, and early reports were that the company was planning to spend as much as $2 billion for a 25% share of the service. According to Bloomberg, the stake was reduced in part because Time Warner was afraid that it might raise red flags with federal regulators.
The fact that the acquisition took a long time to come together isn’t surprising because Time Warner and Hulu are not natural partners, and so the negotiations were probably complicated. The entertainment giant has made no secret of the fact that it doesn’t like giving its existing shows to services like Netflix and Hulu because it wants to protect its existing business.
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Doing a deal with Hulu means that Time Warner is essentially funding a competitor to the cable and satellite providers with which it currently works. It’s not quite as bad as the company investing in Netflix (NFLX). But from the point of view of companies like Comcast, Charter, and Time Warner Cable, it’s probably pretty close.
The terms of its arrangement with Hulu show just how hard Time Warner is trying to have its cake and eat it too. The service won’t get access to the entertainment company’s current shows, the way it does from Disney (DIS) and Fox. However, those shows will be part of Hulu’s $40-a-month digital-only streaming service, which the company is expected to launch next year.
According to some reports, HBO is also in separate discussions with Hulu to provide some of its programming to the service, even though the network already has its own existing streaming service, HBO Now.
Apple has its sights set on Netflix. Watch:
The reality for Time Warner, like every other traditional TV provider out there at the moment, is that it is simultaneously competing with and trying to partner with virtually every service or platform that exists, and likely some that haven’t even been announced officially—such as Apple’s (AAPL) rumored cable competitor, or the project that YouTube (GOOG) is said to be working on.
Time Warner CEO Jeff Bewkes clearly understands that his existing cable business is in decline, thanks in part to cord-cutting and the more user-friendly nature of digital services. The company may still be making plenty of money from that business as its latest earnings show. But the long-term trend is still down.
That means building alliances with new entrants, or even funding them, is imperative. As Netflix and Amazon (AMZN) continue to grow more and more powerful, Hulu probably looks like the safest bet for a partner/competitor. But will it provide the kind of growth Time Warner and its other owners are looking for, or will it turn out to be just a stop-gap measure as the great cable-TV upheaval continues?