Michelle Clancy ©RapidTVNews | 21-07-2011

Microsoft might have dropped out of the Hulu bidding, but search giant Yahoo! is apparently more than willing to take the $2 billion expected hit to acquire the online TV company--under one condition.

Sources inside Yahoo! told Business Insider that it is looking for a guarantee that Hulu's present owners, which include Walt Disney Co., News Corp. and Comcast-NBCUniversal, will offer Hulu their content exclusively for at least four or five years. Without that, Hulu is "not worth anything," the source said.

At present Hulu is offering a two-year exclusivity window on content and a five-year general availability guarantee.

Hulu's $2 billion expected price tag has already warded Microsoft off. To put that valuation in perspective, Hulu expects to make around $500 million this year, as subscriptions grow. CEO Jason Kilar said in a blog post that the company is on pace for surpassing 1 million subs for its paid, $7.99-per-month subscription service by he end of August.But Yahoo! sees online video as a crtical battleground going forward. In a bit of primary research, Yahoo! found that online streaming of full-length movies and TV shows is mushrooming, and it's mushrooming during prime time. Even though short video clips still represent as much as three-quarters of video streaming, in a given day 57% also watched a fuller length online video. And, it found there to be a 30% jump in online video viewership between the hours of 6pm to 9pm. All of that in turn bodes well for advertising and other monetisation opportunities...for Netflix and Hulu, that is, who excel in delivering on consumer thirst. And that's a game that Yahoo!, an online advertising specialist, does not want to be left out of.

Yahoo! has been making forays into the online video world at a steady clip: at CES back in January, Yahoo! revealed the Yahoo! Connected TV platform with content deals in place with ABC, CBS, HSN and Showtime for a pilot program in the first half of 2011. It also worked with Ford, Mattel and Microsoft to deliver interactivity with TV advertising, and was reportedly negotiating with Disney for content for connected TV.

Its Web TV widget platform meanwhile, which launched all the way back in 2008, is on eight million connected devices so far and is aiming for 16 million by the end of the year.

Even so, it's clear that the acquisition of Hulu could save it a lot of the market-building legwork necessary to grab the advertising revenue that appears to be on offer. According to comScore, Hulu generated the highest number of video ad impressions in June 2011, at more than 1 billion for a total audience who watched nearly 5.3 billion video ads in June 2011. Hulu's viewers watched an average of 38.8 ads over the course of the month.