Hulu IPO: Providence Equity’s Exit Strategy?

The knives are already out for Hulu’s planned IPO, but Providence Equity Partners is hoping that they prove dull.

Providence invested $100 million in Hulu three years ago, in exchange for a minority stake. Now, however, sources say that the firm hopes that the video streaming service could help fill a hole left by investments like MGM (particularly before formally hitting the market to raise a new $8 billion fund).

“If Providence wasn’t a PE investor [Hulu] probably wouldn’t be going public,” one buyout exec told me earlier today. “If [Hulu] were doing so well why not just wait? They would benefit by waiting if they thought the subscribers would take up the pay service.”

Backed by News Corp., Walt Disney, NBC and Providence, Hulu was meant to go head-to-head with YouTube and other free sites. YouTube, which has yet to turn profitable, has remained the undisputed leader in online video, according to the New York Times, which cited comScore data.

It’s not clear whether Hulu will actually go public. Providence could be using the IPO as a mechanism to price its stake and let the studio buy them out. If Hulu does launch an IPO, the transaction would provide a way to bring more funds into the company. “Hulu continues to lose money and the partners don’t want to put more money into it,” the buyout exec says. “They want the public to do it.”

Providence took a bath with its MGM investment. In 2004, Providence, along with Sony Corp., TPG, Comcast Corp., DLJ Merchant Banking and Quadrangle, acquired MGM. Providence put in $525 million, according to a press release.

MGM, which has a $4 billion debt load, has been teetering on the edge of bankruptcy. The studio has been on the block for several months with SpyGlass Entertainment reportedly in talks to run the studio (and take partial ownership).

“MGM is a bust at this point,” a private equity executive says.

Officials for Hulu declined comment. Providence couldn’t be reached for comment.