Why Amazon Should Buy Hulu

Amazon announced earlier today that it has reached a content licensing agreement with NBC Universal to stream video over its Amazon Prime Instant Video service. The agreement fleshes out a growing library of content offered by Amazon of 90,000 TV shows and movies of which NBC Universal will add about 9,000. Amazon still trails Netflix and Hulu in total content licenses, which brings up an interesting point – what is stopping Amazon from kicking the tires on acquiring Hulu?

On one hand, it makes a lot of sense. Folding Hulu into its Prime package would give Amazon almost a million more paying premium video subscribers, dramatically increase its content library and add legitimacy to its nascent Instant Video service. Amazon is among one of the few companies that can comfortably afford Hulu and it presents less of a threat than Apple or Google, whose deep pockets and wide reach have been disrupting the networks and studios for years. It seems like perfect match … or does it?

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Hulu Cost Prohibitive for Amazon?

The question that Amazon has to ask itself is if it is cost prohibitive to buy Hulu straight up with a guarantee of content licenses for several years from the networks or continue to license content from the networks and studios piecemeal, the way it is currently doing. The rumored rate for Hulu is somewhere in the range of $2 billion. Would Hulu boost Prime enough that it could be considered a sound investment over, say, the next five years?

From a consumer perspective, Amazon would be the best of all worlds. It is a company that cares about innovation, spends a lot of money on research and development, has a familiar, integrated payments system and is user friendly. Amazon is a better developer ecosystem than a company like Yahoo (which probably makes the most business sense in a Hulu acquisition) and Hulu would be easily integrated into the existing Amazon framework, from payments to cloud hosting.

There is also the matter of devices. Though CEO Jeff Bezos has not come out and said it yet, Amazon Android tablets and smartphones are on their way, probably sometime this quarter. This is where having Hulu would give Amazon a significant leg up on Apple, Google or any of the OEMS – it would be the only device provider with a popular premium video streaming service integrated straight into the device.

Apple has iTunes but it cannot make that claim and Google is in the same boat with movie rentals from the Android Market. Add Amazon’s payment system to the device + content mix and there is significant growth potential there.

A Good Fit In The Ecosystem

Amazon (and to a lesser extent Yahoo and AOL) is a destination for Hulu that the Web ecosystem could be content with. On the other hand, Apple may be the worst place for destination for Hulu. As we have discussed here before, Hulu is a cog in the upcoming battle over net neutrality between the operators and the over-the-top content distributors, such as Netflix.

If Apple is seen as a bully and creating a content monopoly (to augment its mammoth music operation) then there are distinct possibilities that the operators will revolt and start putting hard data caps or selling premium bandwidth to the distributors (Apple could just go and buy an operator if it really wanted). This is especially true considering Apple’s iOS reach and the strain it would put on the operators’ networks.

In comparison, Amazon would not make the same type of impact. It would not solve the problem of carriers missing out monetizing the content that is carried over their pipes, but, in the operators’ minds, at least it is not Apple or Google doing the bullying.

Amazon, or any Hulu buyer, would still have to deal with the content licensing landscape in the long run. That may be how the networks want it, preferring to license content as a source of revenue and develop in-house apps (like XFinity TV or the ABC Player).

For instance, Hulu would have to deal with Fox and its recent “authentication” program and any other such initiatives coming from the studios. Yet, Hulu could also grow in content if it is not strictly owned by the networks. For instance, Amazon reached a licensing agreement with CBS (which is the only major network NOT in on Hulu) last week.

So, it just comes down to whether or not it is fiscally responsible for Amazon to make the move. That is a larger, more complicated question. Yet, from a user prospective, it could not make more sense.

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