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Last week The New York Times broke news that Hulu is considering an IPO. The first line of the story identifies Hulu as a “rapidly growing online hub for television and movies” that could be valued at “more than $2 billion.” Not only was the news surprising, but the favorable coverage in a normally reputable newspaper was perplexing. However, as I pondered the matter recollections of the wit and wisdom of Wilson Mizner proved to be insightful.

Download Audio Narration to iPod, iPad, and iPhone (six minutes).

Like Dorothy Parker, Mizner is remembered more for his witty repartee than specific works. He was born a month before the battle at the Little Big Horn in 1876 and died at the bottom of the Great Depression. During the intervening fifty-six years Mizner participated in the Klondike Gold Rush, befriended Wyatt Earp, married the Yerkes widow whose first husband was the inspiration for a Theodore Dreiser trilogy, managed the Rand Hotel in New York where he posted such notices as “Guests must carry out their own dead” and “No opium smoking in the elevators”, swindled Florida real estate investors in the 1920s, managed Hollywood’s Brown Derby restaurant, and wrote movie screenplays including 20,000 Years in Sing-Sing staring Spencer Tracy and Bette Davis.

Mizner’s comment that “Most live wires would be dead ones without their connections” may illuminate the Hulu situation.

As others have reported, the case for a Hulu IPO is dubious. For example, when video ads are removed from the statistics, Hulu’s ranking as a popular video site drops from second to tenth. More importantly, it’s doubtful whether Hulu’s program providers are truly committed to promoting Internet distribution of their TV shows and movies especially as consumers find ways to connect televisions to the Internet. For example, show providers required Hulu to block Boxee which is a software application enabling computer-connected TVs to conveniently display Internet videos.

It seems likely that minority owner Providence Equity Partners is the source of IPO discussions. Ultimately Providence seeks a return-on-capital by selling its shares at the maximum price. Unlike Hulu’s media shareholders, such as Disney, News Corporation, and NBC Universal, Providence bought shares for cash while presumably the others were granted ownership largely in exchange for TV shows and movies.

Providence is a prominent private equity firm with strong ties to both Wall Street and traditional media companies. Its partners are highly accomplished typically with Ivy League or equivalent (e.g. Stanford) educations. Consequently, investment bankers are normally eager to ingratiate themselves to the firm’s partners. There is no better way to win their favor than to manage a successful IPO for a portfolio company and promote its shares with influential stock analysts.  It’s a time-proven formula for a steady stream of profitable and high-profile underwriting activity that can make-or-break an investment banker’s career.

In short, it’s Hulu’s “connections” that animate IPO discussions. Without them, the initiative would be as dead as General Custer. Aside from Providence, it’s hard to overestimate how much investment bankers might hunger to gain favor from Disney, NBC Universal, and News Corporation, by “creating value” (their expression) out of thin air (my expression). Such companies lend credence to a Digital Media IPO which bankers can “hype” into market interest.

The situation is similar to the Warner Music Group IPO five years ago when Wall Street bailed-out private equity investors and the song-writer scion of a distillery-and-media-industry fortune. Marketing of the IPO emphasized the potential of new digital initiatives. Prior to the road show The New York Times quoted me noting that there would enough spin on digital themes “to give investors whiplash.”  Today the company’s shares trade at $4.40, down from the $17 IPO price in 2005. Among the private equity investors benefiting from the IPO was Providence Equity Partners.

Well, perhaps a variation of another Mizner quote about Hollywood might apply to the realm of high finance:

“I’ve spent several years in Hollywood” he said,  “and I still think the true movie heroes are in the audience.”