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Summary:

Hulu could file to go public later this year, with an IPO scheduled for early 2011, according to a report by Reuters. The popular online video site could raise between $200 and $300 million in the offering, which would value the company at approximately $2 billion.

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Hulu could file to go public later this year, with an IPO scheduled for early 2011, according to a report by Reuters. The wire service reports that the popular online video site could raise between $200 and $300 million in the public offering, which would value the company at approximately $2 billion.

Hulu could use proceeds from the public offering to help it acquire more content and better compete with online video offerings from Netflix and Apple. While its primary business to date has been distributing broadcast video online in an ad-supported format, the company recently announced its Hulu Plus subscription offering, which places it head-to-head against Netflix. It is also aggressively making Hulu Plus available on a number of CE devices including the Sony PlayStation3, Microsoft Xbox 360, iPhone, iPad, TVs and Blu-ray players from Samsung, Sony and Vizio, as well as TiVo DVRs and Roku set-top boxes.

One potential stumbling block could be Hulu’s distribution deals with broadcasters, many of which are set to expire next year. Hulu distributes videos from content providers such as Disney, Fox and NBC, among others, and an IPO will largely be contingent upon it being able to extend those deals before filing. Those content providers are also Hulu’s corporate parents, with each holding a 30 percent stake in the venture. While they would all profit handsomely off an IPO, the broadcasters might not be as keen on supporting Hulu’s ambitions once it becomes independent.

According to Reuters, the company is expected to file for IPO by the end of the year, (just in time for NewTeeVee Live, which Hulu CEO Jason Kilar is keynoting) with the actual offering taking place sometime between January and May, depending on market timing. Morgan Stanley will likely lead the underwriting, Reuters reports.

Hulu was founded three years ago as a joint venture between NBC and Fox, with Disney joining the mix in early 2009. Since being founded, Hulu has grown dramatically, boasting revenues of more than $100 million in 2009. In April this year, Hulu said it was on pace to double that in 2010.

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  1. This brings to mind the wit and wisdom of Wilson Mizner.

    Like Dorothy Parker, Mizner is remembered more for his repartee than specific works. He was born a month before General Custer was killed in 1876 and died at the bottom of the Great Depression. During the intervening fifty-six years Mizner participated in the Klondike Gold Rush, befriended Wyatt Earp, married the Yerkes widow whose first husband was the inspiration for a Theodore Dreiser trilogy, managed the Rand Hotel in New York where he posted such notices as “Guests must carry out their own dead” and “No opium smoking in the elevators”, swindled Florida real estate investors in the 1920s, managed Hollywood’s Brown Derby restaurant, and wrote movie screenplays including 20,000 Years in Sing-Sing staring Spencer Tracy and Bette Davis.

    Mizner’s comment that “Most live wires would be dead ones without their connections” may illuminate the Hulu situation.
    The case for a Hulu IPO is dubious. For example, when video ads are removed from the statistics, Hulu’s ranking as a popular video site drops from second to tenth. More importantly, it’s doubtful whether Hulu’s program providers are truly committed to promoting Internet distribution of their TV shows and movies especially as consumers find ways to connect televisions to the Internet. For example, show providers required Hulu to block Boxee which is a software application enabling computer-connected TVs to conveniently display Internet videos.

    It seems likely that minority owner Providence Equity Partners is the source of IPO discussions. Ultimately Providence seeks a return-on-capital by selling its shares at the maximum price. Unlike Hulu’s media shareholders, such as Disney, News Corporation, and NBC Universal, Providence bought shares for about $100 million in cash while presumably the others were granted ownership largely in exchange for TV shows and movies.

    Providence is a prominent private equity firm with strong ties to both Wall Street and traditional media companies. Its partners are highly accomplished typically with Ivy League or equivalent (e.g. Stanford) educations. Consequently, investment bankers are normally eager to ingratiate themselves to the firm’s partners. There is no better way to win such favor than to manage a successful IPO for a portfolio company and promote its shares with influential stock analysts. It’s a time-proven formula for a steady stream of profitable and high-profile underwriting activity that can make-or-break an investment banker’s career.

    In short, it’s Hulu’s “connections” that animate IPO discussions. Without them, the initiative would be as dead as General Custer. Aside from Providence, it’s hard to overestimate how much investment bankers might hunger to gain favor from Disney, NBC Universal, and News Corporation, by “creating value” (their expression) out of thin air (my expression). Such companies lend credence to a Digital Media IPO which bankers can “hype” into market interest.

    The situation is similar to the Warner Music Group IPO five years ago when Wall Street bailed-out private equity investors and the song-writer scion of a distillery-and-media industry fortune. Marketing of the IPO emphasized the potential of new digital initiatives. Prior to the road show The New York Times WMG’s digital themes “to give investors whiplash.” Today the company’s shares trade at $5.10, down from the $17 IPO price in 2005. Among the private equity investors benefiting from the IPO was Providence Equity Partners.

    Perhaps a variation of another Mizner quote about Hollywood might apply to the realm of high finance in this context:

    “I’ve spent several years in Hollywood, and I still think the true movie heroes are in the audience.”

    1. Phil, what great commentary! Truly interesting and worthwhile read. Indeed, underwriters have had their moments where there was little value to be seen in hyped media IPO’s.. except by shorting. YOKU, anyone?

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  3. Hulu will flail away because its existence makes no sense moving into the next age of media consumption. Content providers understand now that young consumers get a lot of their media from the Internet. They also understand that these viewers demand content to fit their schedule, while also being very particular about the content. This reality creates a prisoner’s dilemma for Hulu partners. Content providers may decide to abandon Hulu just so they can get a bigger piece of the pie themselves. MLB.tv provides the best example of selling content by itself. For example, ABC-Disney might think their content catalog rivals NBC Universal, so ABC leaves Hulu to sell their own subscription service for set top boxes. All the networks follow suit, and consumers get to pick what they want. The expenses for a content provider to run their own Hulu are not very high, considering the former astronomical costs of starting a new TV network.

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