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Is Hulu Planning an IPO?

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If a report in today's New York Times is correct, premium video destination Hulu is planning the next step in its growth, an ambitious initial public offering (IPO) that would value the company at over $2 billion.

Citing anonymous sources, the Times says that Hulu executives have opened discussions with investment banks about an IPO, and are planning for a release this fall.

While Hulu has quickly become a major player in the online video space, thanks to its lineup of broadcast and basic cable full-length programming, the success of an IPO is anything but assured. In an effort to increase its profits, the company is currently beta testing a paid service called Hulu Plus, where subscribers pay $9.99 per month for access to a back catalogue of premium content. Getting viewers to pay for online content is notoriously difficult, and it's unlikely that many will pay for such a service when Netflix offers more streaming content for a lower price.

"Hulu has been pioneering the aggregation of prime time network content and using those assets to rapidly amass an audience while diversifying its revenue streams with Hulu Plus. Moving forward, it's going to face more challenges from traditional cable service providers as its programming comes full circle and makes its way back to the TV," says Ross Rubin, executive director of industry analysis at the NPD Group.

"An IPO would allow Hulu investors to monetize their assets in the new medium of the Web and other interactive platforms and provide increased revenue to build out more features and perhaps attract new content partners," Rubin adds.

Hulu has been able to stream more ads than rival YouTube (566 million in June, according to comScore, double that of YouTube), but its audience is fickle. If network sites begin increasing their amount of online content and doing so with fewer ads, Hulu would find its audience eroding quickly.

"Hulu as a public company is classic good news/bad news. The good news will come from the potential extra money in the IPO, which will give Hulu more avenues for getting more video content. The bad news will be the pressure placed on Hulu from shareholders, which will be harder to gauge than the current pressure from its 'parent' TV networks," says David Hallerman, senior analyst at eMarketer.

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