All those wet blankets trying to smother an initial public offering by Hulu LLC should try drying out awhile in the warm glow of Netflix Inc.'s (NASDAQ:NFLX) financials: an Ebitda multiple pushing 26 times, a sales multiple bumping against 4 times and a market cap in excess of $7 billion.

The latter compares with a valuation of $2 billion that's being bandied about for Hulu. That, in turn, suggests Hulu would surface as a public company with less than a third of the value the market accords Netflix.

The discrepancy seems fair, intuitively, given prognostications not only for electronic distribution but for the leading roles Hulu and Netflix are destined to play in the electronic distribution, or ED, firmament. Today, as a video streamer, Hulu is to television what Netflix is to movies. Tomorrow, that distinction will blur as content providers of both stripes seek additional outlets for their product.

The trick for Hulu, says a veteran of the Internet who was around for its previous bubble, will be to use the Form S-1 that precedes its going public to explain away two potentially troubling issues: Does its business model have sufficient clarity to justify an IPO? And can partial owner NBC Universal Inc. be appeased while it, too, undergoes a major change in ownership?

Getting around the clarity issue won't be easy for Hulu. The joint venture with strategic partners News Corp. (NASDAQ:NWSA) and Walt Disney Co. (NYSE:DIS), in addition to NBCU, has been advertising-supported for almost all of its three years. Then, at the end of June, Hulu expanded its offering to include a subscription service.

The new service, Hulu Plus, streams fewer commercials than free Hulu. It also offers more content across four screens: computers, mobile phones, tablets and TV sets.

Yet, aside from calling it well received, the company hasn't released data on consumer response to the $9.99-a-month service. And if it wants a flotation before the end of the year, as press accounts claim, Hulu Plus could be too nascent for investors to get an accurate read on its potential.

In addition, Hulu's revenue of $100 million last year seems awfully light to accommodate a $2 billion valuation. Never mind that these meager sales will more than double this year; they'd have to double yet again to assume parity with Net-
flix's 4 times sales ratio.

Fortunately for Hulu, data compiled by comScore Inc. (NASDAQ:SCOR) could save the day. Americans viewed more than 783 million ads on Hulu in July, or 73% more than its nearest competitor. Hulu also had a high engagement score, with the average viewer spending 158 minutes on the site -- second only to the 283 minutes recorded for the average view of YouTube-dominated sites of Google Inc. (NASDAQ:GOOG).

"This means there's a real underlying business there," the Internet veteran says. "People who watch it, like it, and they aren't afraid of watching ads along with it."

As for the change in ownership at NBCU, which has a 32% stake in Hulu, good stewardship dictates that designated seller General Electric Co. (NYSE:GE) leave NBCU's assets intact until designated buyer Comcast Corp. (NASDAQ:CMCSA) is in position to chart their course. Yet even Comcast recognizes the Federal Communications Commission and the Department of Justice may not sign off on its deal to take a majority interest in NBCU before the end of the year. Until then, the cable company is prohibited from managing any of the entertainment assets it plans to acquire.

In this case, however, it's likely that a Hulu partner other than GE is leading the IPO push. Note that the JV also includes Providence Equity Partners LLC, which may well want to sell its interest on the strength of Netflix's extraordinary comparables.

The JV's strategic partners, in contrast, most likely believe they'd be giving up too much control, were they to vacate their seats at the Hulu table and, by doing so, lessen their influence over the future of ED. So expect them to sit tight and not sell their interests, with the only real change being one of allegiance -- to Comcast's interests rather than GE's -- by NBCU's representative to the JV.