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

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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Changing TV habits center stage at digital media presentation

NEW YORK -- The prime-time television ratings drop took center stage at the Digital Content NewFront presentations in New York, with former ABC Entertainment Chairman Lloyd Braun seizing on the numbers as an opportunity to talk about changing viewing habits -- and the rise of digital media.

In an onstage conversation with MediaLink Chairman and digital guru Michael E. Kassan, introductions had barely been concluded before the topic was broached: The four broadcast networks have lost viewers in recent weeks. And, unlike in years past, audiences aren't gravitating to the cable networks.

Braun, who joined the world of digital media after being forced out in 2004 as the top programming executive at ABC, referred to a trend reported in the New York Times as evidence that viewers are moving away from watching television shows live, when they initially air. Viewers increasingly are using online services, such as Netflix Inc., to get caught up on past seasons of award-winning shows, such as the PBS series "Downton Abbey" or AMC's "Mad Men," and watch current episodes through digital on-demand offerings, he said.

"There is no reason anymore -- for most of this kind of programming -- to watch it live," Braun told a group of advertising buyers attending Microsoft Corp.'s digital advertising presentation Tuesday. 

The trend has been on the horizon for years, Braun noted, adding with obvious frustration that advertisers continue to pay higher rates to air commercials during prime-time TV, despite the gradual erosion of the audience. He said he expects the trend to continue, as buyers attend next month's presentations by the major networks of new fall shows and commit billions of advertising dollars for the upcoming season.

This year's ad sales season, known as the upfront market, is expected to raise nearly $9.2 billion in commitments from advertisers.

"What I think has been driving people crazy on the digital side, we've all seen these charts which show time spent on the Internet versus where the [ad] spend is going," said Braun, co-founder of BermanBraun, an independent media company that develops television, feature film and digital programs. "There's this huge gap where the audience is spending time online and with tablets and smartphones, and the ad dollars are not commensurate with that."

The desire to grab advertisers' attention -- and dollars -- is behind the Digital Content NewFronts, during which five major online distributors will highlight their new shows for buyers.

Microsoft brought out some star power -- including U.S. Olympic gymnast and gold medalist Dominique Dawes, now a Fox Sports analyst, actress Felicia Day of "The Guild" and Kate Snow, NBC News correspondent with "Rock Center With Brian Williams" -- to promote the content available through its MSN portal and through the Xbox Live service offered via its game console.

Ross Honey, Xbox Live general manager of entertainment and advertising, sought to portray the Xbox 360 as a broad-based home entertainment device that offers more than video game play. It has struck some 50 content deals in recent months, including agreements with cable giant Comcast Corp. and Time Warner Inc.'s premium cable network, HBO, that offer subscribers access to TV shows via the game console.

The Xbox Live service has grown 30% in the last year to 40 million members, Honey said. Indeed, Xbox 360 consoles outsold other individual devices that connect the TV to the Internet, including Blu-ray disc players.

Entertainment usage on the Xbox Live has more than doubled, year over year, Honey said.

"In the U.S., entertainment usage has surpassed multiplayer gaming on Xbox Live," Honey said, referring to the video game industry term for players who connect via the Internet to oppose one another. "That's a profound event. When Xbox Live started 10 years ago, what it was all about was mutliplayer gaming. Now, Xbox Live really is an all-in-one entertainment platform."

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Photo:  Lloyd Braun. Credit: Yahoo

Senate hearing on digital platforms hears calls for new laws

If new digital platforms are to survive and thrive, laws and regulations governing the media and telecommunications industries need to be overhauled, executives from Microsoft, Amazon and IAC told the Senate Committee on Commerce, Science and Transportation.

"Incumbents have the means and incentive to engage in economic and/or technical discrimination against online video distributors," IAC Chairman Barry Diller testified Tuesday morning at the hearing looking at the potential of online video. IAC is a digital content company.

Diller, a former television executive who became head of Paramount Pictures and was an architect of the Fox network, said during questioning that the Communications Act of 1996 should be revisited.

"The rules need to reflect that there is a potential positive competitor to what has become a very closed system ... dominated by relatively few companies," Diller said.

There was some agreement from the committee. Jim DeMint (R-S.C.) said, "Our video laws simply no longer reflect the current realities of the marketplace." Those laws, "should not promote or protect one technology over another or one competitor over another."

Much of the hearing focused on whether online video will emerge as a serious competitor to cable and satellite television. Besides Diller, others testifying were Blair Westlake, corporate vice president of Microsoft Corp.'s media and entertainment group; Paul Misener, Amazon's vice president for global public policy, and Susan Whiting, vice chairman of Nielsen Co.

"The TV landscape will likely experience more change in the next 18 months than in past five years," Westlake predicted.

At the same time though, there was a general consensus that online video is not in a position to overtake current multichannel video program delivery systems. Diller said online video will be a supplement but not a replacement for pay television.

Diller and others expressed concern that traditional media companies that control content and distribution will have little incentive to see online video emerge as a serious competitor. Asked about net neutrality -- a principle that requires a broadband distributor to treat all Web traffic equally -- Diller said that without it,  "You will see the absolute crushing of any competitive force."

Amazon's Misener added that his company had seen indications that traditional media companies "may wish to restrict the availability of competing content," and said the situation needs to be "monitored vigorously" by Congress and the Federal Communications Commission.

As is often the case in a hearing about content distribution, the subject of how channels are packaged and sold by cable companies was also a topic. Sen. Jay Rockefeller (D-W.V.), who chairs the committee, complained about having to pay for 500 channels when he only watches 10. Sen. John Thune (R-S.D.) asked why ESPN doesn't just sell itself directly to consumers, seemingly suggesting that this is something that programmers want but that distributors are against.

Diller made it clear that ESPN and other programmers have little interest in changing the current system.

"It would be insane for ESPN to sell itself directly to consumers," Diller said, noting that he doesn't watch ESPN yet is paying for it. "Selling it individually is something they would avoid."

There was an interesting dust-up at the start of the hearing between Diller and DeMint. Diller is a backer in Aereo, a company that sells tiny antennas to consumers and thus allows them to access broadcast TV signals over the Internet. The company launched in New York this year and broadcasters are suing to shut the service down, claiming Aereo does not have the permission or the legal right to retransmit their content via the Internet and is in violation of copyright laws.

DeMint asked Diller what his reaction to Aereo would be if he still had his broadcasting hat on. Diller acknowledged he'd be protecting his turf.

But Diller also said that Aereo, which charges consumers $12 a month, is not reselling broadcast content but is rather a technological platform.

"We charge a consumer for an infrastructure we put together," Diller said. "We don’t charge for programming that is broadcast on this free direct-to-consumer system."

DeMint indicated that is a distinction without a difference, and when he was done questioning Diller turned to Amazon's Misener and sarcastically asked, "Do you plan to intercept broadcast signals and sell them over your network?"

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Photo: Testifying before the Senate Committee on Commerce, Science and Transportation are, from left, Barry Diller, IAC chairman; Susan Whiting, Nielsen Company vice chairman; Paul Misener, Amazon.com vice president for global public policy; and Blair Westlake, vice president of Microsoft's media and entertainment group. Credit: Karen Bleier / AFP/Getty Images.

MGM movies coming to YouTube, Google Play

Seeking to make more money from a library that still provides virtually all of the independent studio's revenue, Metro-Goldwyn-Mayer has signed a deal to rent more than 600 of its movies through Google's YouTube video site and its digital media store.

The partnership unveiled Monday covers more than 600 of MGM's best known titles, including "Rocky," "Terminator," "West Side Story," "Rain Man," "Robocop" and "Moonstruck." They will be available directly on YouTube or via Google Play, the tech giant's digital media store that offers movies, music, books and games to rent on the web and Android mobile devices.

Google already has similar movie rental deals with all of Hollywood's major studios, save 20th Century Fox, and 10 independents, including Relativity Media and Miramax. Typically, it charges $3.99 for new releases and $1.99 for older titles.

Though it is the leading player in online video-watching through YouTube, Google has a tiny share of the fast-growing but still nascent Internet video-on-demand business, which is dominated by Netflix and Apple's iTunes. The company is trying to grow its content collection, however, in order to better compete and make more revenue from online video.

MGM, meanwhile, wants to make its movies available as broadly as possible as it starts moving back into production under a new ownership and management team. Many of the titles it is offering through Google are already available to stream, rent or buy via Netflix and iTunes.

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Photo: Peter Weller in "Robocop 2." Credit: Orion Pictures

DreamWorks Animation joins Wal-Mart disc-to-digital launch

DreamWorks Animation is joining Wal-Mart's disc-to-digital service as it launches today.

The Glendale studio will make all of its previously released DVDs, including the "Shrek" and "Madagascar" series and "How to Train Your Dragon," available for consumers to convert into digital copies stored on Wal-Mart's Vudu service.

It's the sixth Hollywood studio to join with Wal-Mart, which will charge $2 to make a copy of a movie in the "cloud" that can be accessed from any compatible digital device ($5 to convert the movie to high-definition). It launches Monday in about 3,500 Wal-Mart stores across the U.S.

The lone holdout among the major film companies is Walt Disney Studios. However DreamWorks is the first independent to take part -- Lionsgate and The Weinstein Co. are also not yet participating.

Getting as many studios to particpate -- and to offer as many of their movies as possible -- is critical for Wal-Mart in growing the service, which it hopes will help stem declining revenue from DVD sales. The more movies from their shelves that they find they aren't able to convert to digital, the more discouraged potential customers are likely to be.

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Wal-Mart's disc-to-digital service is simple, if you know Vudu

This post has been updated. See note below for details.

I brought nine DVDs to Wal-Mart, waited maybe 10 minutes for an associate to enter them into a computer, and when I got home they were ready to stream on my TV and PC.

Wal-Mart's new "disc-to-digital" service, which was shown off to the media this week before launching nationwide on Monday, is that easy. But I'll be honest: It helps a lot that I've used the retail giant's digital movie service Vudu before and know how to use it on my Xbox 360 and computer.

At the front of the Wal-Mart in the Los Angeles suburb of Rosemead is a sign promoting "Walmart Entertainment, powered by Vudu" and offering "digital movie conversion" at a price of $2 for "same quality" or $5 to upgrade from a standard DVD to hi-def. Walking to the back of the store where photos are printed, I found another "Vudu" sign and a clerk ready to convert my discs.

The process itself was surprisingly painless -- a rarity in the digital world where format problems and rights restrictions drive so many consumers batty. I simply filled out a form listing my movies and whether I wanted to upgrade the standard DVDs to hi-def, along with the email address associated with my Vudu account. (If I hadn't already had an account, they would have set one up for me.)

Then Wal-Mart employees, as I watched, simply entered the same info into a computer. And they stamped the words "Walmart Entertainment" onto the back of each disc, to ensure I didn't loan the same movies to a friend to put into their Vudu account. (Walmart and the studios should be grateful if the service becomes popular enough that they have that problem.)

I went home, turned on Vudu, and there the movies were. With a few clicks I was watching "Star Trek" on my TV via the Xbox in more-than-adequate hi-def quality. (It looked good, though not as good as a Blu-ray disc.) I did the same thing on my computer, though my tiny laptop doesn't make for much of a cinematic experience.

But let's be honest: I'm a pretty digital-savvy guy. If you haven't used Vudu before, finding the movies when you get home can be trouble. Especially if you're trying to figure out how to activate Vudu on one of the many devices that can put it on your TV. This is for people who are comfortable getting their movies from the Internet.

Luckily for the studios, though, that's more and more of us every day (thanks largely, thus far, to Netflix). Disc-to-digital provides a relatively painless way to at least move the films you already own into the digital environment.

But not all of them, it should be noted. Only certain movies from certain studios can currently be converted to digital. Wal-Mart provided me with a list, the same one that will be posted on the Vudu website, so that I didn't waste my time with unavailable films. But it was a bummer I couldn't bring some of my favorites, like Christopher Nolan's "The Prestige" or the Michael Douglas comedy "Wonder Boys."

Whether it's worth $2, or $5, for a movie you already paid for is, of course, up for debate. I figure there's certainly some value to being able to access your films outside the house without carrying around all those discs. And to not having to worry that your investment is ruined if your DVD gets scratched or lost or drooled on by the dog.

A final note: Wal-Mart's disc-to-digital service is part of a larger initiative by the company to make Vudu part of the Ultraviolet consortium of studios, retailers and tech companies backing a single way to buy and store movies online. But Vudu doesn't seem to be integrated with Ultraviolet yet.

While my "disc-to-digital" films are on Vudu, movies I previously bought for my Ultraviolet "digital locker" aren't there. And the films I converted at Wal-Mart aren't in my Ultraviolet locker when I access it via partner site Flixster. [Update, 3:30 p.m.: A Wal-Mart spokeswoman said that Vudu will link to Ultraviolet lockers by the time the disc-to-digital service launches to the public on Monday.]

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Photo: Movies converted via disc-to-digital on the Vudu website.

Xbox now used more for online entertainment than online gaming

In a significant milestone for a device once known only for blasting "Halo" opponents, Microsoft's Xbox 360 video game console is now used more for watching movies and TV shows and listening to music online than playing video games online.

Microsoft has long attempted to use the Xbox 360 and its predescessor, the original Xbox, as a "trojan horse" that would use video games as a way to become the digital entertainment hub for families in the living room.

"The original vision for the Xbox was for it to be the heart of connected digital entertainment and it has been amazing to watch the arc," said Otto Berkes, a senior vice president of consumer technology at HBO who helped to launch the Xbox at Microsoft.

Yusuf Mehdi, who heads up marketing and strategy for Microsoft's Xbox business, said households now spend an average of 84 hours a month on the Xbox Live online service playing games, watching videos and listening to music. That's up 30% from a year ago. Just over half that time is spent on videos and music.

By comparison, the average household spend about 150 hours a month watching television.

"What we're seeing is that people are turning on the Xbox to play games and then keeping it on afterwards to get other types of entertainment," Mehdi said. 

Over the past few years, Microsoft has added number of entertainment applications to the 360, including Netflix, ESPN, Hulu, Vudu, and YouTube.

On Tuesday, it is adding new video applications from HBO Go, Major League Baseball and Comcast Corp,'s Xfinity on demand video service.

The additions bring the total number of music, television and movie services available on Xbox Live to 36.

The new applications require that users be paying subscribers to Comcast's cable service, the HBO premium network, or MLB.tv. Those who pay will be able to watch more than 2,400 baseball games or more than 1,000 of HBO programming, including every episode of its original series like "Game of Thrones," "Boardwalk Empire" and "The Wire." Comcast subscribers will have access to thousands of movies and television shows from a variety of channels via Xfinity.

The launch of HBO Go on the Xbox is a big step towards the premium cable network's digital on-demand service becoming a direct alternative to its linear channels. While HBO Go is available on computers and a variety of digital devices like iPads, Xbox 360 owners will be able to watch it on televisions. Previously, the only way to get HBO Go on a TV was via the Roku box, which is far less popular than the Xbox 360.

"The Xbox has an extremely broad user base that can deliver a rich visual experience, which is a pretty big differentiator," said Berkes.

More than 20 million people are paying Xbox Live subscribers who can access the console's entertainment services. A total of 66 million Xbox 360s have been sold worldwide.

Microsoft previously said it would launch HBO Go and Comcast's Xfinity on its console before the end of 2011.

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Internet to surpass DVD in movie consumption, not revenue

Consumers will watch more movies online than on DVDs in 2012 for the first time, but will spend far less doing so, according to a new report.

The number of movies rented or bought online from outlets like Netflix and iTunes will grow 135% this year to 3.4 billion, according to IHS Screen Digest. But the research firm said people will spend only $1.72 billion on digital movies, compared to $11.1 billion on DVDs and Blu-ray discs.

In total, online stores and services will account for 57% of movie consumption in 2012, but only 12% of spending.

"The result would be a net decline in home entertainment revenue even as consumption reaches previously unattainable heights," IHS analyst Dan Cryan wrote in the report.

The reason: The array of low-cost options to consume movies online, particularly "all you can eat" subscription services like Netflix, which streamed more than 2 billion hours of video during the fourth quarter of 2011.

IHS said that Netflix and smaller competitors like Amazon.com and Hulu accounted for 94% of online movie consumption in 2011. Digital purchases accounted for only 1.3%.

Studios have responded to the trend by trying to keep more movies away from Netflix and other cheap rental services while also making it more attractive to buy films online. Most allow only older titles released at least a decade ago to be available for subscription streaming.

At the same time, Hollywood is aggressively pushing the new UltraViolet format, which enables consumers who purchase films to store a copy in a virtual "cloud" that they can access from a wide array of digital devices.

Giving the technology a significant boost, retail giant Wal-Mart recently agreed to back UltraViolet and to allow consumers to copy DVDs they already own to the cloud for as little as $2 each.

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Photo: "Bridesmaids" on the iPad. Credit: Kirk McKoy / Los Angeles Times

Wal-Mart in exclusive deal to convert DVDs to digital for $2 each

Wal-Mart has unveiled an exclusive arrangement with five of Hollywood's top studios to convert DVD collections into digital copies.

Beginning April 16, consumers will be able to take their DVDs to about 3,500 Wal-Mart stores and have a digital copy stored in the cloud -- a storage system offering access from a broad array of Internet-connected devices -- for $2 each. Customers will have the option to upgrade standard DVDs to high-definition online copies for $5 each.

Wal-Mart -- by far the nation's largest retailer of DVDs -- will be the only store that can offer so-called "disc-to-digital" until its period of exclusivity ends in the fall. The retail giant received exclusive rights from the studios in exchange for an aggressive offer to launch the service first, according to people briefed on the matter but not authorized to discuss it publicly.

The news came as part of an event held in Hollywood on Tuesday announcing Wal-Mart's support for UltraViolet, the online movie technology backed by most movie studios and a coalition of technology companies. The previously expected news provides a major boost to UltraViolet, which has had a rocky launch and faces a formidable competitor in Apple's iCloud film service.

As part of the announcement, Wal-Mart's online video store Vudu is now part of UltraViolet and all movies that it sells will be compatible with that service's online cloud, which allows consumers to access films they own from a wide variety of digital devices.

Home entertainment executives from 20th Century Fox, Paramount Pictures, Sony Pictures, Universal Pictures and Warner Bros. at the event said Wal-Mart's backing was the biggest advance yet for UltraViolet. They were particularly excited about the disc-to-digital option, which they said would acclimate consumers with existing DVD collections to storing their movies online.

Customers can take their DVDs to Wal-Mart photo centers where employees will add digital copies to Vudu accounts. To make sure the same disc is not copied multiple times, store associates will stamp the discs after the conversion is done. They won't accept DVDs rented from outlets such as Redbox, Netflix and Blockbuster.

Not every movie will be available to convert, however, as studios have not yet created digital copies of all their movies. Universal Pictures, for instance, currently has about half of its library of 1,300 titles online.

Studios are hopeful that the Wal-Mart deal will pressure other retailers that don't yet back UltraViolet, including Amazon.com and Best Buy, to jump on board.

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Photo: "Bridesmaids" on the iPad. Credit: Kirk McKoy / Los Angeles Times

Apple movie cloud service launches, but without two major studios

Apple Inc. is putting movies in the cloud, providing a boost to Hollywood film studios' small but growing digital business.

Movies purchased through Apple's iTunes Store from five studios -- Paramount Pictures, Sony Pictures, Walt Disney Studios, Warner Bros. and Lionsgate -- will be accessible via the technology giant's iCloud service from any of its devices, including the Apple TV, iPad and iPhone.

Apple announced its plans, which have been in the works since last year, at a Tuesday news conference, where the company also unveiled new versions of the iPad and Apple TV, an Internet-connected device that displays the movies and TV shows from iTunes and other services on televisions.

20th Century Fox and Universal Pictures are not part of the iCloud movies launch. That's because of restrictions in their distribution deals with pay cable channel HBO, said people close to the situation not authorized to speak publicly because of the privacy of negotiations. But both studios are negotiating with HBO and expect to add their films to iCloud soon, those sources added.

In addition to new purchases, the iCloud service will store any movies that users have already bought from iTunes. Previously, Apple customers had to store movies they bought on the hard drive of their computer or other device.

The news is significant for Hollywood because Apple accounts for approximately 75% of all movies bought online, according to one person involved in the digital distribution business but not authorized to share the data. However, the percentage of iTunes movie transactions that are purchased has fallen in the last year, that person said, from nearly 50% to about 33% -- the rest being movie rentals.

Studios are eager to reverse that trend because movie purchases, which typically cost between $15 and $20, are significantly more profitable than rentals for $4 to $5.

Another potential boost to digital movie sales comes from the new version of Apple TV. While the previous Apple TV only allowed movie rentals because it did not have a large hard drive for storage, consumers will be able to buy films on the new version that are stored in the cloud.

Movies in iCloud will likely prove a formidable competitor to UltraViolet, the digital movie technology backed by every Hollywood studio, save Disney, and most major electronics manufacturers, except Apple. Backers have been aggressively trying to grow UltraViolet since it launched last October and expect a big boost next week when Wal-Mart will announce it is supporting the technology in stores and online.

However, the studios apparently concluded that their top priority was growing the digital movie business with Apple on board, rather than only supporting UltraViolet.

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Photo: "Bridesmaids" on Apple's iPad. Credit: Kirk McKoy / Los Angeles Times