Hulu Eyeing An IPO

Hulu, which has rapidly grown to be the top destination for broadcast shows online, is readying itself to go public in an offering that could value the company at $2 billion, according to a report in the New York Times. Hulu’s got the name brand necessary for a successful IPO, but to make it as an independent company, it’s going to need the support of its content partners.

Hulu so far appears to be a success; founded just three years ago as a joint venture between NBC (s GE) and Fox (s NWS), the company has grown its site to include hundreds of content partners and millions of viewers each month. Revenue has also increased dramatically, as Hulu reported it generated more than $100 million in sales in 2009, and said in April it was on pace to double that this year.

Sales could grow even faster, as Hulu is launching a paid version of its service that will enable viewers to get older library content, including full seasons of shows that are currently airing and series runs for popular shows, like Lost, that are no longer on TV. It also enables viewers to stream their favorite shows to a wide range of connected devices, such as select HDTVs, Blu-ray players, game consoles and mobile devices. The premium subscription service, which costs $9.99 a month, is in private beta now, but could launch to the general public soon.

Even so, Hulu faces some challenges if it goes public. For one, despite the estimated $200 million that it could bring in this year, a good portion of those revenues — anywhere from 50 to 70 percent — go to its content partners. Those content partners, including parent Fox, NBC and Disney (s DIS), might not have as much incentive to ensure Hulu’s continued success once it becomes independent.

While Hulu’s done a good job of attracting viewer eyeballs as the go-to destination for broadcast video content, some of its traffic has come at the expense of broadcasters’ own online properties, which they can monetize better than Hulu currently does. Already, you can see some competition from ABC, which released a free, ad-supported iPad app long before Hulu rolled out its own app, which is tied to the Plus subscription service.

Viacom (s VIA), which had been a big contributor to Hulu’s success with cable programming from MTV and Comedy Central, pulled episodes and clips from flagship properties The Daily Show and The Colbert Report from the site earlier this year because it was unhappy with the revenue that Hulu was generating.

Hulu’s aggressive revenue growth and expansion into the subscription business bodes well for its continued success in the near term. But if Hulu’s partners begin to see themselves as competitors, they could withhold content from the site that can be monetized more effectively on their own web properties. Or, they could compete more aggressively on connected devices and mobile platforms. Either way, competition from Hulu’s partners could limit its potential for future returns. We may find out sooner rather than later, as the New York Times reports that it has been talking to investment banks about a public offering that could happen as early as this fall.

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