DirecTV (DTV) Is on the Verge of Acquiring Hulu

Valuentum Best Ideas Newsletter holding DirecTV (NASDAQ:DTV) is allegedly in advanced talks to close a deal with internet TV provider Hulu. The source asserts that the deal will be in the billion-dollar range. Hulu posted approximately $695 million in revenue in 2012, and people watched 24 billion minutes of entertainment on the service last year. Yet, we at Valuentum do not know what the bottom-line looks like. This valuation is contrary to other tech companies, which have fetched sky-high valuations during the past two years. In fact, it has been rumored that competitor Dish Network Corp (NASDAQ:DISH) bid $1.9 billion for Hulu in 2011, while Google Inc (NASDAQ:GOOG) offered $4 billion with a number of conditional terms that squashed the offer.

Taking a Look at Competition

The entire pay TV sector, which includes cable companies like Time Warner Inc (NYSE:TWX) and Comcast Corporation (NASDAQ:CMCSA) as well as Dish Network Corp (NASDAQ:DISH) and DirecTV (NASDAQ:DTV), acknowledges that mobile access will be an important part of a well-rounded product offering going forward. Dish Network Corp (NASDAQ:DISH) goes as far as to offer a free Apple Inc. (NASDAQ:AAPL) iPad  so subscribers use the hopper—a service that allows consumers to view live TV, on-demand, and DVR recordings from anywhere (shown above). DirecTV (NASDAQ:DTV) offers a similar service in its TV Everywhere, as well as the Genie, which is another service helping drive customer growth. The Genie allows consumers to record 5 shows at the same time, and also lets consumers use one box for an entire house. Comcast Corporation (NASDAQ:CMCSA) has made an effort to compete with TV via its Xfinity On-Demand Streaming service, but its offering isn’t that compelling at this point because it doesn’t offer a full-suite of competition.

On top of the traditional content distributors, we think Hulu competes with Netflix, Inc. (NASDAQ:NFLX) and YouTube. Netflix, Inc. (NASDAQ:NFLX) lacks commercials, but it also does not have a free option. YouTube may not carry as much content from large content creators, but it does have an endless library of other entertaining content. Both YouTube and Netflix can be accessed from the same portals as Hulu.

Cutting the Cord is Overblown…

The obvious benefit Valuentum sees for DirecTV (NASDAQ:DTV) from acquiring Hulu is as a hedge against “cutting the cord.” Cutting the cord is the premise that more consumers are choosing to eliminate cable/satellite TV in favor of competing services like Netflix. However, we think the “cutting the cord” trend is a bit overrated. The US doesn’t quite have the same age demographics as Japan and Europe, but the US still has a tremendously large population of retirees and soon-to-be retirees. For those living on a fixed income, cable/satellite TV offers a tremendous amount of content and entertainment for a relatively low monthly cost. Hulu and Netflix can’t compete with the breadth of content yet.