It’s been a long time coming, but private equity firm Providence Equity Partners has sold its stake in Hulu for $200 million, people familiar with the matter have confirmed. The buyout of the firm’s shares by Hulu’s media owners, which has closed but has not yet been announced, will have a huge impact on Hulu and could significantly shape its future.
Providence was an early investor in the online video site — back before it was Hulu — as News Corp.’s Peter Chernin and NBC Universal’s Jeff Zucker sought to create a new aggregator for their long-form broadcast TV content. In 2007, Providence put $100 million into Hulu and retained a 10-percent stake in the joint venture.
During its tenure, Providence acted as an independent voice on the board, which was otherwise controlled by Hulu’s media partners. According to a source, it also helped bring Disney — the third broadcast partner to invest and join the consortium — on board in 2009. But after five years serving as an outside investor, the private equity firm will no longer participate. With Providence out, that leaves just NBC Universal, Fox, and Disney as investors, with the latter two holding the majority of Hulu’s board seats.
The buyout has long been expected, as Providence had an option to exercise its shares in Hulu at 2x the amount it put in, in lieu of an IPO or sale to another company. Hulu looked at both options over the years: It explored an IPO in 2010 but backed away from those plans. The following year, Hulu put itself on the block and entertained sale options from a number of suitors such as Yahoo, Google, and Dish, before ultimately deciding not to sell.
Will CEO Jason Kilar Stay?
The sale of Providence shares also means some Hulu employees can cash out. That includes CEO Jason Kilar, who has been seen as the driving force behind the video site. According to a report in Variety in August, Kilar stands to gain about $100 million as a result.
That, by itself, would be seen by many as a reason to leave Hulu and to take a good long vacation before figuring out what to do next. But a bigger reason might be the current board structure, which would leave Kilar with few real allies as the company moves forward. Kilar has always had an uneasy relationship with his corporate overlords, in some cases even getting into public spats with them indirectly through the company blog.
This change in the board’s structure could also mean that he’ll have little strategic control over the long-term prospects of Hulu. But for an entrepreneurial guy like Kilar, being held hostage by the board might be a deal-breaker.
Good for broadcasters, bad for consumers
Hulu has always had a bit of a sweetheart deal from Fox, NBC, and Disney. But with no real impetus to sell or go public, Hulu’s parents and media partners could seek to reign in its biggest advantage over competitors: exclusive, next-day access to broadcast content.
Hulu was formed at a time when most media companies were still experimenting with web video as a way to combat piracy and make a little incremental money along the way. As a result, it had been founded with an exclusive license to the content of its media partners Fox, ABC, and NBC. But today, with the growth of competing online video properties such as Netflix and Amazon Prime Video, it’s become clear that there’s more money to be made by licensing content to multiple distributors.
With the likes of Fox and ABC in charge at a board level, those companies will definitely seek to make Hulu’s access to most broadcast shows non-exclusive, and they will most likely expect the company to begin paying market rates for their content. That could be a huge blow to Hulu, which pulled in just $420 million in revenues last year. While that amount is not bad for a five year-old startup, Hulu is not very well positioned to compete against the likes of Netflix or Amazon in licensing content.
Ultimately, that means users could see some of their favorite shows disappear over the next year or so, or show up later than the next day, or be available on other sites before they show up on Hulu. That might not be a deal breaker for some, but Hulu’s entire value proposition is a providing a one-stop place for next-day broadcast content. Without that, Hulu could have a difficult time competing.
What’s next for Hulu
No changes are likely to be announced right away — don’t expect Kilar to step down tomorrow or this season’s Modern Family episodes to show up a week after they air. But over the next 12 months we’ll probably see a slow unraveling of some of the things that made Hulu great.
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