• by Wayne Friedman , November 13, 2015

News that Hulu was talking with Time Warner about becoming another large media partner in the premium digital video site has some media analysts scratching their heads.

Todd Juenger, senior media analyst at Bernstein Research, wrote: “This is ironic because just last week in their earnings conference call, we thought we heard Time Warner say they had concluded that SVOD [subscription video-on-demand services] was harming the value of the pay-TV bundle, and therefore they were going to stop or delay licensing new content to that platform.”

He adds:  “It seems hard to reconcile that stance with the duty they would have as JV [joint venture] partners to drive as much value as possible to Hulu.”

Two weeks ago, Rich Greenfield, media equity research analyst at BTIG Research, wondered about any existing investment in Hulu as it pertains to cannibalization of traditional pay TV packages.

“You can rationalize Hulu’s co-owners preferring Hulu to Netflix, given the value accretion to the asset they own one-third of, yet Hulu does not appear to be “protecting” the MVPD bundle nor sustaining the $65 billion-plus TV ad industry," he noted. "In many ways, it actually feels more disruptive to the bundle and advertising than Netflix.”

A report in The Wall Street Journal believed a Time Warner stake in Hulu could be valued at $5 billion to $6 billion -- this for a 25% stake in the company, making Time Warner partners with Walt Disney, Comcast and 21st Century Fox.

The good news for Time Warner? Andrew X. Smith of Barclays said: “This [value] number taken at face value appears very cheap to us.”

Barclays Smith says Hulu has approximately 12 million subscribers as of November 2015, up more than 60% over a year ago. Annual revenues are $1.2 billion, according to estimates. Smith believes 62% of Hulu’s revenues come from advertising.

Hulu just started an ad-free option for $11.99 a month, to go along with their $7.99 a month plan that includes a limited number of commercials (versus that of traditional linear TV).

Time Warner also has a direct-to-consumer digital video platforms -- HBO Now, a would be growing competitor to Netflix, and perhaps Hulu.