Time Warner announced Wednesday that it had joined forces with several rival media companies to chart a new future for the streaming television service Hulu, acquiring a 10 percent stake in it and committing programming for its new live TV offering.
Time Warner paid $583 million in cash for the stake, valuing Hulu at $5.8 billion, an executive said during a conference call Wednesday. Hulu’s other corporate owners are 21st Century Fox, Comcast and the Walt Disney Co.
The development makes Time Warner “an official member of the ‘cool kids’ club,’” Todd Juenger, an analyst with Sanford C. Bernstein, said in a research note.
It comes as Hulu, which got its start primarily as a rerun service for broadcast shows, prepares a new offering of both live and recorded programming from a streamlined bundle of broadcast and cable channels. The initiative is expected to start early next year and is part of a broader evolution at Hulu. Over the last year, the service introduced an advertising-free option and also continued to invest in original programming and secure exclusive streaming rights.
The new Hulu service is an attempt by its traditional entertainment company owners to secure their footing in television’s digital future, where streaming has become the norm and competition from deep-pocketed rivals like Netflix and Amazon has intensified. Hulu has more than 10 million subscribers, compared with Netflix’s 46 million paid subscribers in the United States.
“This investment from Time Warner marks a major step for Hulu as we continue to redefine television for both consumers and advertisers,” Mike Hopkins, Hulu’s chief executive, said in a statement.
The transaction came at a crucial time for Hulu. The service was “facing rapidly mounting losses approaching $500 million” a year, according to Richard Greenfield, an analyst with BTIG Research. The investment from Time Warner reduces the amount of funding needed from its existing owners, he added.
“Hulu is locked in a fierce battle for content with far larger Netflix and a far better funded Amazon, with Hulu’s subbase not scaling as rapidly as we would expect based on its content investments,” Greenfield said in a research note. “In turn, the Hulu partnership is eager to find additional partner(s) to enter the joint venture to help fund the losses, which are likely to increase meaningfully” with the start of the new live service.
Time Warner said that its TNT, TBS, CNN and other Turner cable networks would be available live and on demand on Hulu’s new live-streaming service.
Jeffrey L. Bewkes, chief executive of Time Warner, said the Hulu deal was part of the company’s broader commitment to allowing viewers to watch the programming they wanted to watch, where and how they wanted to watch it. Time Warner has made its offerings available across a range of new streaming services, including those operated by Dish, Sony and Verizon. It also operates stand-alone streaming services for some of its networks, including HBO.
“Our investment in Hulu underscores Time Warner’s commitment to supporting and developing new platforms for the delivery of high-quality content and great consumer experiences to audiences around the globe,” Bewkes said.
The transaction includes no representation on the board of Hulu, which gives Time Warner less say in dictating Hulu’s destiny but also reduces the complicated ownership structure of the venture. Time Warner previously was in discussions about coming in as an equal partner in the venture, according to a person briefed on the discussions.
“We don’t have an active role, and coming in as the 10 percent investor without a board seat, we think it reduces complications around governance,” Bewkes said during a conference call.
He added that the transaction would infuse Hulu with more resources to “fostering competition and innovation” among streaming services as well as traditional cable and satellite distributors.
One big concern about the new streamlined bundle from Hulu is that traditional cable and satellite distributors view it as a threat. That could put at risk the billions of dollars that the TV networks receive each year from those traditional distributors.
Both Hulu and its corporate owners have downplayed those concerns, stating that it is designed for people who don’t subscribe to a traditional pay television service.
The Hulu announcement was included as part of Time Warner’s second-quarter earnings release. The company reported net income of $951 million for the three months ended June 30, down 2 percent from the same period last year. Adjusted earnings per share were $1.29, beating Wall Street’s profit estimates of $1.16.
Total revenue was down 5 percent in the quarter to $7 billion, with a decline at the company’s Warner Bros. film and television studios offset by growth at its Turner and HBO units.