Microsoft drops out of the bidding for Hulu

SOFTWARE GIANT Microsoft has dropped out of the bidding to buy online video service Hulu, according to a source close to the company.

Microsoft informed executives at Hulu last week that it would not be entering the second round of bids, according to Bloomberg. No explanation for this decision was given, but potentially the price has escalated beyond what Microsoft is willing to pay thanks to the large number of interested parties.

The anonymous source did not rule out the possibility of Microsoft re-entering the bidding at a later date, but it seems unlikely if the company has decided to back out so early.

Microsoft has been in intense negotiations for the potential acquisition of Hulu over the past four weeks, with talks being conducted with bankers Morgan Stanley and Guggenheim Partners, who are in charge of the sale.

Microsoft already allows users of its Xbox Live service to subscribe to Hulu, but owning it would put those subscription profits directly into its pockets. It could also incorporate some of Hulu's features directly into Xbox Live in order to steal players away from rival consoles.

Other potential buyers include Google, Yahoo, AT&T, and some eight others who have not been identified. Amazon is another potential bidder, but a source quoted by Bloomberg suggested it would not bid without guarantees of access to shows from parent companies Disney-ABC, Fox Entertainment, and NBC Universal.

Part of the Hulu deal will reportedly involve two to five years of exclusive access to TV shows and old movies from these networks. Some reports suggest that this deal could be worth around $2bn, and it's likely that this half a decade of TV licensing is why so many companies are interested in bidding. Google, in particular, is likely to want Hulu for its Google TV, which failed to get the network approval it originally sought.

Hulu was first approached with an unsolicited offer in June, which it said made it consider the option of selling, which it had not thought of before. It's not clear which company this was, but we imagine the figure offered was large enough to make Hulu open to accepting bids.

Neither Hulu nor Microsoft would comment on reports of Microsoft's departure from the bidding. µ