Could a Hulu Acquisition Pop DIRECTV Stock?


DIRECTV stock has been feeling the love from investors lately. The stock is up about 24% since the beginning of this year, and up about 40% over the past 12 months. Investors may be wondering what's next for DIRECTV, and rumors about a possible bid for the online streaming service Hulu have only fueled the conversation.

Foolish investors shouldn't buy stocks based on speculation, but it's worth taking a look at how a possible acquisition could impact DIRECTV's stock.

From satellites to streaming
A recent article in The Wall Street Journal said that DIRECTV was considering buying Hulu, although nothing has been set and there are no details clarifying whether the whole company or just part of it would be purchased.

DIRECTV may be considering a purchase to protect itself against the growing number of people who are canceling cable and satellite subscriptions. Though the company's subscriber base has risen over the past few years, cable and satellite providers are reaching a saturation point and many users are finding Internet streaming a viable alternative to traditional content providers. A Hulu acquisition would give DIRECTV 4 million paid streaming subscribers in a market that's only begun to blossom.

Making the transition from satellite provider to content streamer could be troublesome for the company, though. Sure, DIRECTV knows how to negotiate for content and sell it to consumers, but moving into streaming just adds more competition for the company. Netflix has about 30 million streaming customers, and is showing no signs of slowing down. Over the past three years, Netflix has accounted for one-third of all Internet traffic in North America.

The company's recent release of original programming has been largely successful, and additional original content is already in the works for the next few years. The critically acclaimed House of Cards and the upcoming relaunch of Arrested Development have only solidified Netflix as the streaming king.

The crowded streaming space
It's not just Netflix that DIRECTV would be competing with if it bought Hulu. recently debuted a list of 14 pilot episodes, and is asking users to vote for the ones they want to be turned into a full-length series. On top of its original programming, the company also has its subscription-model Amazon Prime content collection, as well as its online video-streaming rentals. Amazon is also rumored to be launching its own set-top box later this year. Hulu is already an established streaming destination, but DIRECTV doesn't have any experience creating original content and has limited experience marketing online content. Amazon is expanding quickly and DIRECTV would have to move just as fast to keep Hulu at the same pace.

Right now, the possible Hulu acquisition is just that -- a possibility. The online streaming company could firmly plant DIRECTV into the Internet content space, provide millions of subscribers, and offer additional revenue streams. But it could also be a difficult transition for the satellite provider to make. With so many additional competitors and the company's limited experience with online streaming, DIRECTV investors should be cautiously optimistic about the possibility of a Hulu acquisition.

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Fool contributor Chris Neiger has no position in any stocks mentioned. The Motley Fool recommends, DIRECTV, and Netflix. The Motley Fool owns shares of and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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