Hulu LLC, the video website owned by three of the biggest U.S. broadcast networks, is preparing an initial public offering that may value the company at more than $2 billion, according to a person with knowledge of the plan.
Hulu is talking to investment banks about going public as early as this year, said the person who declined to be identified because the plan is private. The New York Times reported the IPO discussions earlier today.
Founded in 2007 by General Electric Co.’s NBC Universal and News Corp.’s Fox, Hulu started as an advertising-supported service for people to watch previously broadcast TV shows for free online. In June, the company announced the Hulu Plus paid service that offers current and archived TV shows on computers, cell phones, Apple Inc.’s iPad and TV sets for $9.99 a month. Going public may be difficult with an untested business model, said Todd Dagres, a general partner at Spark Capital in Boston.
“Way too early,” said Dagres, whose venture capital firm has invested in video startups including Boxee Inc. “The jury isn’t back yet on their model.”
Brandon Boone, a spokesman for Los Angeles-based Hulu, said the company doesn’t comment on rumors or speculation. Walt Disney Co.’s ABC is also a partner in the joint venture, and Providence Equity Partners Inc. is a co-owner.
Hulu Chief Executive Officer Jason Kilar has said that Hulu garnered more than $100 million in revenue last year. In an Aug. 2 interview with Bloomberg Television, he said Hulu is “net income positive” and had already drawn more than $100 million in revenue in 2010.
Kilar also said at the time that while his focus is on making sure Hulu is built for the long term, an IPO “is certainly open to us.”
Hulu Plus is currently accepting new customers by invitation only and will become widely available in time for the start of the new broadcast TV season in September. Hulu’s subscription offering puts it in more direct competition with Netflix Inc., which supplies online and mail-order access to movies and past-season TV shows starting at $8.99 a month.
“They haven’t proven people will pay,” Dagres said, adding that an IPO would allow Hulu’s owners to cash out. “This is not about making money for public investors. I wouldn’t touch it.”
Hulu drew 28.5 million unique visitors in July, ranking 10th among U.S. online video sites, according to ComScore Inc., which recently changed its methodology. Hulu viewers watched 783 million video advertisements that month, the most of any U.S. property, ComScore data show.
IPO Filings Rise
Hulu follows several other media and technology companies looking to raise money by selling shares in the U.S. this year, including Demand Media Inc. and Skype SA, the provider of software for Internet phone and video calls.
Last quarter, filings for U.S. IPOs climbed to the highest level since 2007, and the Standard & Poor’s 500 Index posted its biggest monthly gain in a year in July. MakeMyTrip Ltd., the Gurgaon, India-based operator of that country’s largest online travel company, last week surged 89 percent the day after completing an $81 million IPO, making it the largest first-day trading gain for a U.S. IPO since 2007.
Demand Media, the creator of content for websites on topics from fitness to travel, plans to raise as much as $125 million in an IPO, according to an Aug. 6 regulatory filing. Demand Media, the Santa Monica, California-based company that also develops applications for social-media websites such as EHow.com, hasn’t posted a profit since it was founded in 2006.
Nielsen Holdings BV, the television-audience rating company owned by KKR & Co., Thomas H. Lee Partners LP, Blackstone Group LP and Carlyle Group, filed in June to raise as much as $1.75 billion in an IPO. Today, Nielsen boosted the amount to $2.01 billion, according to a regulatory filing.
Relativity Media LLC, Hollywood financier Ryan Kavanaugh’s film production company, is also considering a public stock offering after striking a deal to add distribution and marketing capabilities. Kavanaugh said he’s weighing an IPO in a July interview, without providing a timetable.
Hulu-owner Disney fell 2 cents to $33.66 at 4:01 p.m. today in New York Stock Exchange composite trading, and GE rose 8 cents to $15.46. News Corp. gained 2 cents to $12.97 on the Nasdaq. Comcast Corp. is currently seeking approval to buy a majority of NBC Universal from GE.
Financing may help Hulu afford more programming for its service. Hulu is in talks with CBS Corp. and Viacom Inc. to add their TV shows to the subscription service, people with knowledge of the discussions said in June. Hulu’s audience shrank earlier this year after Viacom pulled “The Daily Show with Jon Stewart” and “The Colbert Report.”
The website also needs to renew rights to programs from owners including NBC at the end of 2011, according to Laura Martin, a Needham & Co. analyst.