DIRECTV (DTV), Time Warner Cable Inc (TWC): Who Wants Hulu More?

Hulu, the video streaming website, is in the news again, putting itself on the auction block. Two of the earliest bidders were DIRECTV (NASDAQ:DTV) and Time Warner Cable Inc (NYSE:TWC). These pay-TV companies are struggling to keep television subscribers as more households turn to online content for entertainment.

A Hulu acquisition for either company would turn a competitor into an asset, much like Facebook Inc (NASDAQ:FB) did with Instagram. For that reason, I expect either company would be willing to pay a premium over bids from a company like Yahoo! Inc. (NASDAQ:YHOO), which is also in talks with the website owners.

Time Warner Cable: an independent thinker

For a long time, Time Warner Cable Inc (NYSE:TWC) operated under the big media conglomerate Time Warner, which owns television stations such as TNT, TBS, and HBO, as well as Warner Bros. films. As such, the bundle was a very integral part of its cable business.

The company was spun off in 2009, and is now an independent concern. CEO Glenn Britt has publicly stated that he thinks “the structure [of pay-TV] needs more flexibility.” Large programming packages disenfranchise many households who can’t afford $100 monthly cable bills, and sends them and others looking for less expensive options. It’s no secret the company is losing subscribers. The company lost 119,000 video subscribers in the first quarter of 2013.

Hulu can help Time Warner Cable Inc (NYSE:TWC) offer that flexibility, and make the company more consumer-friendly. By offering free Hulu Plus access with its internet service or a moderate cable package, it can provide customers with an excellent television watching alternative. It could feasibly use its set-top boxes to give subscribers access to the service right on their television sets, making the experience nearly seamless.

TV Everywhere

Most cable and satellite providers offer some form of TV Everywhere service. Unfortunately, many consumers are simply unaware the service exists.

DISH Network Corp. (NASDAQ:DISH) has done an excellent job promoting its TV Everywhere service with its set-top Hopper box. The service has made it one of the few pay-TV providers to actually grow its subscriber count, adding 36,000 net new subscribers in the first quarter. Still, that compares poorly to the same period in 2012, when the company netted an additional 104,000 subscribers. Dish Network blames the slower growth on a higher churn rate caused by increased package prices.

DIRECTV (NASDAQ:DTV) is Dish Networks’ main competition, and is growing more slowly in the United States. The company added 21,000 net new subscribers in the first quarter, and suffered a 1.45% churn rate. Its TV Everywhere service is not as heavily advertised or as well known as Dish’s, and Hulu could put a well-known brand behind the pay-TV provider’s service.

Time Warner Cable Inc (NYSE:TWC) only started delivering on the vision of TV Everywhere in mid-April. The company launched content access on the iPad and iPhone, and opened up access to over 100,000 WiFi hot-spots across the nation to its cable subscribers. The latter is an important aspect of TV Everywhere service, as phone companies generally put a cap on the amount of mobile bandwidth subscribers can use.