3 reasons Hulu is a tough sell

Hulus board of directors has hired investment banks Guggenheim Partners and Morgan Stanley to consider options for a sale of the online video startup, according to the Los Angeles Times. The possibility of a sale comes after reports of an unsolicited bid from Yahoo, and suggests that the broadcasters who own the site may finally be ready to part ways with it.

Independence from media partners and stakeholders could be good for Hulu, as it would finally give the company some freedom to go its own way. But that freedom could be constrained by its next round of content deals and effective leadership if the transition isnt managed well.

Here are three reasons why Hulu is a tough sell:

Price: Any bidder for Hulu will have to be ready to pony up some serious moolah. The company was valued at $1 billion when it was founded with a $100 million investment from Providence Equity Partners. It announced $260 million in revenues last year, and is expected to approach $500 million in sales this year. Last year, when it considered going public, Hulu was reported to be valued at $2 billion. All of which suggests that any deal will be priced in the $2.5 billion range.

Unfinished business: Hulu is reportedly in the process of renegotiating content deals with ABC, NBC and Fox deals that were expected to be done months ago. Any buyer will want those deals done before a purchase is announced. But since its b! roadcast partners would no longer have a vested interest in its success, any re-up with Hulu would have much less favorable terms than the way its current broadcast TV deals are structured. Any new owner can expect a longer wait time and shorter access period for new TV shows, which could negatively impact viewership and ultimately the value of the property.

Management concerns: Jason Kilar has been the heart and soul of Hulu ever since he took over the startup in early 2009. In a strange twist of fate, Om even suggested that Yahoo buy out Hulu more than two years ago, in part due to confidence in Kilar as a strong #2 to just-hired CEO Carol Bartz. Echoes of that sentiment can be heard these days, as the Yahoo board reportedly seeks a replacement for Bartz and Yahoo has been linked to a purchase of Hulu. The only problem is that theres no guarantee Kilar will stick around to see Hulu through the next phase of its evolution, as word is that Kilars contract is up this summer. Just as any new owner would want to make sure Hulu has contact deals intact, it would probably help if Kilar stayed on board.

Hulus forecast of $500 million in revenues might look attractive, but theres not guarantee that it will be able to hold the attention of viewers or continue to execute without favorable content deals and effective leadership. That is, anyone who buys Hulu right now might not actually get what it has bargained for.

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