Hulu purchase would make DirecTV a Broadband Virtual Network Operator

Jim Barthold, FierceIPTVThere is a risk-reward element to DirecTV's (Nasdaq: DTV) supposed offer to buy Hulu for about $1 billion.

The reward is pretty clear: DirecTV would gain a respectable web presence and a bunch of new tech-savvy customers who would transform the satellite provider from a downstream TV purveyor to a web-savvy content provider. It might even find a place to develop new exclusive programming content--a la Netflix (Nasdaq: NFLX).

Those who believe that downstream TV delivery is about as relevant as four broadcast networks believe DirecTV must do something. What worked well in the last century--delivering a more attractive package of TV channels with better quality and better customer service than incumbent cable operators--is threadbare in an era of interactive IPTV, OTT and TV Everywhere. While DirecTV deserves kudos for its efforts at home networking, it's hardly on a level with Comcast (Nasdaq: CMCSA), Verizon (NYSE: VZ) or AT&T (NYSE: T), simply because they can all leverage their own connection to the home. It's no small matter that you must first install DirecTV and then link it to somebody else's broadband network.

The reward of becoming a force in the new webbed netherworld is, many believe, worth the $1 billion or so the satellite operator would shell out. It may even be worth it just to keep one of those other connected players from taking over one of Internet TV's prime players.

On the other hand, there is the risk that DirecTV could become the 21st Century version of an MVNO. You remember those? Mobile Virtual Network Operators. They were supposed to be the answer to the big impersonal mobile operators by offering branded services from the biggest brand names, like Disney (NYSE: DIS), which would use cute Disney features to draw phone customers away from the impersonal big guys and throw them into the arms of a Cinderella company. Of course, fairy tales don't always come true.

DirecTV's scheme is based on becoming a BVNO--Broadband Virtual Network Operator. The premise leans heavily on the notion that DirecTV won't need its own broadband pipe as long as it has Hulu's content. It can run atop whatever Verizon puts in the home … or AT&T … or Comcast … or Time Warner Cable (NYSE: TWC) … or Google Fiber (Nasdaq: GOOG) … or any of those guys who spent their own billions building out high-speed broadband networks and who continue to invest in making things go faster and faster.

This risk should not be underestimated. While it's unlikely--okay, illegal--for any big wireline service provider to tamper with the signal being used by a BVNO like DirecTV, there's nothing to stop it from offering a better package of services, bundled together with its own TV and voice (as if that's relevant anymore) and maybe even mobile play. Convenience may just be the trump card. At least, the wireline service providers are hoping it is.

Everything changes over time. DirecTV and Dish Network (Nasdaq: DISH) gained traction because the incumbent cable operators were arrogant. Those operators have used their broadband strength to convince customers that they want more than traditional TV; they want interactive content on any device at any time. Despite ongoing hiccups that are more like death rattle choking, TV Everywhere and broadband wireline networks can deliver relatively ubiquitous TV coverage to sate that demand.

With Hulu, DirecTV will overcome the content hurdle. It's anybody's guess whether that will be enough to hurtle the broadband hump.--Jim

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