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Hulu owners to buy Providence Equity's stake for $200 million

Hulu Chief Executive Jason Kilar

Providence Equity Partners is selling its stake in online video service Hulu for about $200 million, according to people familiar with the situation.

The move, first reported by Bloomberg News, is expected to give at least two of Hulu's media company owners -- News Corp. and Walt Disney Co. -- a greater ownership stake in the rapidly growing online service. 

The 5-year-old service now has more than 2 million paid subscribers to its Hulu Plus offering, and about 38 million visitors a month to its free site, which offers catch-up episodes of such popular television shows as "Glee," "Revenge," "The Daily Show with Jon Stewart," and "Late Night with Jimmy Fallon." 

The buy-out of the private equity firm would resolve some of the tensions that have been simmering for more a year. The stakeholders have long argued about Hulu's direction, priorities and monetization strategy.  Nine months ago, the partners considered selling Hulu, but the media companies opted not to shed the venture because they did not want to lose control of the online distribution of their valuable content.

All the while, the Rhode Island-based Providence Equity made it clear that it was increasingly interested in cashing out its stake.

People close to the situation, who asked not to be identified because no sales deal has been finalized, said the media companies have a "hand-shake agreement" to pay Providence Equity about $200 million for its 10% stake.  However, these people said, the overall valuation of Hulu would be less than $2 billion. The partners instead agreed to pay Providence a premium on its investment.

The approximately $200 million payment would allow Providence Equity to double its investment. The firm contributed $100 million in 2007 to help founding companies NBCUniversal and News Corp. launch Hulu. Disney came aboard as a partner in 2009.

Hulu's ownership structure has been complicated by NBCUniversal's equity stake.  Although the media company helped launch Hulu, NBCUniversal's new controlling owner -- Comcast Corp. -- agreed to give up NBCUniversal's seats on the Hulu board and any voice in the management of Hulu as part of a 2011 settlement with federal government. The Department of Justice and Federal Communications Commission, government agencies that reviewed Comcast's takeover of NBCUniversal, were concerned that Comcast might use its interest in Hulu to stymie the development of an online video service that competes with Comcast's core business of providing bundles of television channels to consumers. 

The two managing partners -- News Corp. and Disney -- have not determined whether to use cash on hand to buy out Providence, thereby increasing their stakes in Hulu, or bring in more private money, according to one person close to the situation.

The agreement being worked out also would allow the vesting of some shares held by Hulu's chief executive, Jason Kilar, and other ranking members of management. However, one person close to Hulu said that Kilar is expected to stay on, at least in the short term, to run the company.

Both Hulu and Providence Equity declined to comment.

In an interesting twist, the news comes in the same week that Providence announced it would invest $200 million in Peter Chernin's entertainment company, The Chernin Group.  Chernin was one of the architects of Hulu, when he was president of News Corp., and he brokered the deal to include Providence Equity in the ownership structure. In addition, Chernin was named a senior advisor to Providence Equity.

Chernin, through a spokeswoman, declined comment.

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Hulu is popular, but that wasn't the goal

-- Meg James

Photo: Hulu Chief Executive Jason Kilar at the company's Santa Monica headquarters in July 2010.  Credit:  Gary Friedman / Los Angeles Times

 
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