Providence Equity pulling out of Hulu

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Four years ago, former News Corp. president and COO Peter Chernin helped bring Providence Equity Partners into Hulu as a ground-floor investor. Now, the Rhode Island-based private equity group is reportedly looking to pull its money out of Hulu and put it into Chernin’s production company.

On Thursday, Bloomberg reported that the Providence Equity is in talks to sell its 10 percent stake in Hulu to the three media conglomerates who serve as its major shareholders, News Corp., (s NEWS) the Walt Disney Company (s DIS) and Comcast/NBCUniversal. (s CMCSA)

With Hulu valued at around $2 billion, that would seemingly peg Providence Equity’s share of the company at around $200 million — a nice return, given that the equity firm’s initial investment was $100 million. That helped the joint venture get a $1 billion valuation before it had a name.

“This would be the optimal outcome,” David Bank, an analyst at RBC Capital Markets, told Bloomberg. “The real value of Hulu will be discovered on a longer time frame than what’s likely optimal for Providence.”

Indeed, Providence seems to be shifting around its investments in the media world.

Last week, the firm revealed that it is investing around $200 million into the Chernin Group, the film and TV production company launched three years ago by Chernin (pictured).

Under its agreement with the Chernin Group, Providence Equity will acquire a large minority stake in the production company and receive multiple seats on its board of directors. Chernin will use the cash to look for media investments in the U.S. and abroad. On Thursday, for example, the Chernin Group announced that it’s Asia unit is purchasing a 49 percent stake in the Indian operation of European production company Endemol.

In October, Providence Partners had an opportunity to exit Hulu thwarted when Disney and Fox opted not to sell the company. Hulu employees, including CEO Jason Kilar, also missed out the ability to cash in on company shares. However, Providence’s pullout will create a “liquidity event” for them to convert shares into cash this time around.

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Andy Hunn

All the folks at the networks that started Hulu 5 years ago are gone. Comcast’s purchase of NBC required them to give up a management role and be a silent partner. Can one really expect that those running Hulu today, Fox/News Corp. and ABC/Disney, really want to work together? Last year, they tried to sell Hulu, but then changed their mind. Hulu may be making money but at the expense of their deals with their cable distributors. And while it may be better to take money in this new platform through Hulu, it is hard to imagine that they can mutually manage this partnership without a lot of arguing and disagreements as to strategy and execution of tactics. Without a middleman like Providence Equity to referee those battles, one wonders post their withdrawal from the business whether the remaining partners can still work together.

Last point, if they can agree to come together, is it time to pursue CBS to join the Hulu team? The big 4 broadcasters partnering to own the digital streaming landscape. Not likely, but what if.

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