Entertainment Industry

Category: Providence Equity Group

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

Chernin Group forms partnership with Providence Equity

Peter Chernin
Providence Equity Partners is making an investment in the Chernin Group, the closely held movie and television production company founded by former News Corp. Chief Operating Officer Peter Chernin, who himself will become a senior advisor to the private equity firm.

As part of the agreement, Providence Equity will acquire a large minority stake in the Chernin Group and receive multiple seats on its board of directors. The Chernin Group will use the cash infusion to look for media investments in the United States and abroad. Terms of the deal were not disclosed, but people  familiar with the terms put the investment in $200-million range.

"Our goal is to build a global, diversified media company that leverages the key areas of value and growth in the world today -- the importance of premium content; exploiting opportunities in emerging markets, specifically Asia; and technology’s disruptive impact on the media industry,” Chernin said in a statement. The Chernin Group already has a majority stake in CA Media, an Asia-based media investment company.

Chernin has long ties to Providence Equity Partners, which is a large investor in the entertainment industry. Chernin worked closely with Providence Equity on the creation of the online video site Hulu, which is co-owned by the firm along with News Corp., Comcast Corp. and Walt Disney Co.

“We have worked closely with Peter for many years and have tremendous respect for his extraordinary creative savvy and world-class business acumen,” Providence Equity Chief Executive Jonathan Nelson said. "It is clear that together we have a team with tremendous depth of talent and expertise to build a media and entertainment company of scale."

The partnership with Providence Equity may put to rest the speculation about Chernin's future. Since he left News Corp. in 2009, his name has been mentioned every time a major media position opens up. The deal with Providence Equity seems to indicate a desire on Chernin's part to build his own media empire rather than run someone else's.

The Chernin Group has already made its presence felt in Hollywood. It produces the situation comedy "New Girl" for Fox, which has been renewed for next season. It also made the hit movie "Rise of the Planet of the Apes."

Beside Hulu, Providence Equity also has stakes in Univision, Warner Music Group and Yankees Entertainment and Sports Network, parent of the powerful regional sports channel YES.

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Photo: Peter Chernin. Credit: Scott Eells / Bloomberg

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