Netflix Is the Real Winner of the Hulu Sweepstakes

Netflix Is the Real Winner of the Hulu Sweepstakes

After years of false starts, it finally seems as if Hulu is about to get hitched. And the big winner may surprise you.

The number of remaining bidders for the streaming TV-show service has supposedly been whittled down to just three potential buyers. CNBC reported yesterday that a joint bid from Guggenheim Media Partners and private equity giant KKR was dismissed for being too low.

Guggenheim, the parent company of The Hollywood Reporter and Billboard, would probably have kept Hulu intact. There would be no reason for Guggenheim to disrupt the free ad-based model. This is the media mogul, after all, that publishes Adweek and manages the annual CLIO awards.

However, that group's exit leaves nothing but pay-TV providers holding up bidding cards.

DIRECTV , the likely victor, is the country's largest satellite television provider. U-verse parent AT&T and Time Warner Cable are also in the running as part of larger joint bids.

Hulu is unlike Netflix , which proudly wears its "rerun TV" badge, since it often doesn't have streaming rights until a show's run is over or the subsequent seasons begin. What would DIRECTV, U-verse, and Time Warner Cable gain from owning a popular streaming service that broadcasts shows online within a day or week after the episodes air? They could keep Hulu as a free ad-supported site to attract new subscribers, but the bigger catch has to be making Hulu -- or, at the very least, the Hulu Plus premium service -- a platform exclusively for its premium subscribers.

"A pay-TV provider could choose to shut down the free, ad-supported side of the business and refashion Hulu as a TV Everywhere walled garden, as a way to defend their existing businesses from online competition," suggests industry watcher Variety. "See ya, Hulu-as-we-knew-it."

The big winner under this scenario, naturally, would be Netflix. Anything that makes Hulu more restrictive makes a Netflix subscription that much more compelling.

DIRECTV, AT&T, and Time Warner Cable generate too much money providing cable channels to consumers to encourage cord-cutting by keeping a free, ad-based Hulu around. It just wouldn't make sound business sense.

Things have changed considerably since the bidding war heated up two years ago. DIRECTV, AT&T, and Time Warner Cable weren't front-runners. DIRECTV was reportedly booted early in the process for bidding too low. It was the Guggenheim of 2011. The leader board at the time was mostly dot-com giants wanting in on the streaming-video market. Things are different now. DIRECTV, AT&T, and Time Warner Cable are hungrier, and no matter which pay-TV provider is the one that ultimately turns Hulu into a walled garden, it's going to be a big boost for Netflix.

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Longtime Fool contributor Rick Munarriz owns shares of Netflix. The Motley Fool recommends DIRECTV and Netflix and owns shares of Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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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