Yahoo! Inc. (YHOO): Should It Be Desperate For Video?

For example, Disney just signed a deal with Netflix, Inc. (NASDAQ:NFLX) for content. Although the Disney deal is separate from ABC, why bother having to deal with owning and operating the distribution for ABC content when it, too, could simply be sold to the highest bidder. Getting out of Hulu, then, could be a big boon for Disney, which also has Lucas Films content, like Star Wars, still to sell. Content sales, then, is an issue Disney shareholders should keep an eye on.

Netflix, for its part, is getting increasingly picky about the content it buys. So in-demand content is only likely to increase in value. NBC and FOX see this, too. The more valuable content that Neflix has locked into exclusive deals, the more subscribers it is likely to get, or hold onto, as the online video market matures. Content bidding wars will be a big issue for the company’s shareholders to keep an eye on. Though, at this point, it is still unclear how much is too much to pay.

Fundamental Issues

The problem that Yahoo! Inc. (NASDAQ:YHOO) faces from buying Hulu is primarily distraction. Hulu’s model doesn’t compete well with Netflix and is vastly different than Google’s YouTube offering. Moving to compete with YouTube doesn’t seem like a good plan, particularly with Dailymotion already trying to break into the U.S. market. And, such a transaction would be a massive business shift for Yahoo!

On the other hand, once the main content providers sell out of Hulu, it isn’t certain that they will be willing to allow the changes necessary to better compete with Netflix. While some sort of content contracts would be likely, there is a big risk that the content providers could simply bide their time until they can just get out of the venture altogether, effectively gutting Hulu.

The idea of buying Hulu is sound, but Yahoo! is likely to find the reality of such a purchase proves more difficult than it would like. Hulu simply isn’t executing well enough to be a quick add on, it’s a fixer-upper.

The article Desperate For Video originally appeared on Fool.com and is written by Reuben Brewer.

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