BUSINESS BLOGS
BUSINESS BLOGS
category: business
23 Nov 2007

Yesterday I discussed WatchMojo.com’s syndication network and commented on the importance of building a relevant and authentic audience for the content we produce and distribute, as opposed to boosting numbers to get viral buzz but little else.

Today, let’s look at the value we create by doing that, or better yet, why we do that in the first place.

Let’s start far out from the big picture and drill in to the nuts and bolts of how we build the most valuable IP on the most valuable communities online.

NOT ALL BUBBLES ARE CREATED EQUALLY

“Even a broken clock is right two times a day”, is the saying, so according to VC Josh Kopelman, “by proclaiming a bubble every year, everyone can say they ‘called it’.”

Sure, Kopelman would stand to lose if we truly were in a bubble, his Midas-esque First Round Capital would probably take a pounding, but he has a point. For the record, I don’t think we’re in a bubble (for one, a bubble’s main criteria is that it is defined after it has burst), but we are hearing a lot of noise and seeing a lot of hype.

THE MOTHER OF ALL NOISE FACTORS: SOCIAL NETWORKS

Few companies have as much noise and hype as Facebook. And when it comes to the hype surrounding Facebook, a lot of it has to do with its platform and the applications developers build for these.

Let’s face it: most, if not all, of the applications have little usefulness, which is highly ironic given Facebook’s self-description as a social utility.

WEB APPLICATIONS SHALL INHERIT THE EARTH

I’m probably (read) definitely not the best person to describe what is a web application. For that, check out the definition on Wikipedia. Regardless of the official, literal and technical definition, ultimately, an application on a social network such as Facebook competes for interactivity, attention and mindshare… much like, you guessed it, content. In the loose sense, an application, therefore, is no different that any other type of content.

On a site as popular as Facebook, that interactive converts to value, because marketers like to advertise where consumers are drawn. Facebook draws people, whether or not the applications will retain that attention, time will tell.

For the record, I think Facebook is less interesting to me due its lack of content. I don’t spend much time on it. I also think MySpace becomes more interesting by becoming a media and entertainment vehicle. But, of course, as a media person myself, I’m biased.

ARE SOCIAL NETWORKS GHOST TOWNS?

I’m probably not alone on my “what am I missing” reflections on Facebook.

VC Rick Segal pontificates on Facebook:

I realize that Facebook is all the rage and with the gazillion dollar valuation, massive user base, cult following, and its ability to cure most major diseases, it is not fashionably cool to speak ill of her highness.

Fortunately for me, I am not fashionable on any scale so here are some observations on Facebook.

He lists a number of observations and comments, I’ll skip most but will highlight one thing at the tail end of his post.

Some dirty little secrets you probably already know.

- Nobody is really using applications, at least not yet.

- Applications are hot and not with lighting speed.

I don’t know Rick Segal, but if I did and if I could, I’d send him a hug, a beer, a shout out… whatever the equivalent of a props would be in Facebook parlance. The point I am trying to make is that Facebook is a neat service, but a $15B ecosystem, I think not. At least definitely not yet. For that to happen, we need real applications and things that have some value.

CONTENT IS KING

Previously, we had pointed to a study that showed that web browsers spend 47% of their time consuming content. In other words, yes, search is monetizable, social networks sexy, but content is king.

ONLY IN SILICON VALLEY, DOES CONTENT GET NO RESPECT

Reading Segal’s post led me to think about CRV’s (another VC) George Zachary, who last week at the NewTeeVee conference argued that social networks, ie. distribution, were creating the 1,000x return for VCs. He was sitting on a panel on video content and funding thereof, but he was arguing against the merits of investing therein. It was lunacy to me - and to Spark Capital’s Dennis Miller - that just because YouTube, MySpace and Facebook were billion dollar enterprises (the latter only on paper) then all social networks were automatic successes whereas all content plays were duds.

What exasperated my frustration - as a biased content producer mind you - was that social networking video file sharing clones numbered 200 in 2006 and 1000 this year in 2007. Out of such a large sample size, I sure hope that 1, 2, 3, heck 10 even become billion dollar exits. However, when I think of VC-funded content plays, I can think of about 10 tops. How many of those become 1,000x returns? Well, unless you plant the seed and water the plant, it’s hard for the flower to blossom. In fact, at a time when magazines and newspapers are dying, I can’t help but think that 10, 25 or 100 years out, there will be some really valuable video content companies that will be the 21st century’s versions of Conde Nast, Hearst, etc.

WHY HOLLYWOOD REMAINS FROZEN ON THE SIDELINES, TOO

In other words, Silicon Valley will gladly fund platforms and technology that will raid content owners IP, but they won’t fund content. Furthermore, because Hollywood sees its IP create $1.65B companies in YouTube yet they get none of that value, they are adamant to fund new media content, too.

MANIFESTATION OF INSANITY: FACEBOOKS APP FUNDS

Ultimately, as I connected the dots, from last week to today, I could not help but think of the VC funds that are popping up funding - gasp - Facebook apps.

It’s somewhat crazy, as Weblogs Inc. co-founder Jason Calacanis would argue, to build your business’ distribution only on one site, no matter how big. Facebook Apps take this lunacy one step further by not only relying on distribution on such sites, but by building their entire business on one site, as well. I personally would never invest in such apps, let alone companies, but to each their own.

VIDEO IS THE KILLER APP

Stating the obvious, “video is the killer app” is short for killer application, be it on the web or wireless, and that my dear friends implies on social networks, too.

SOCIAL NETWORKS WILL OWN AUDIENCES

I don’t doubt that of late, social networks have created a lot of value - think MySpace, Facebook, heck even YouTube was one part social network and one part video; similarly, Flikr was one part images and one part social network… but as sites like YouTube, Veoh, Revver, Metacafe, Daily Motion, etc. continue to grow as social networks, the applications that will be most important are naturally videos.

This is a very, very obvious thing to those in video, and particularly in video content, but to some of the ones underwriting startups, I guess it’s not.

As more and more audiences rush to those very same social networks, the value of these rises provided there is compelling content that advertisers embrace. Since we seem to agree to social networks will conquer audiences and video is the killer app, then is it a fair assessment to conclude that video on social networks will be the greatest conqueror of mindshare and creators of value?

I’d say, yes. Does anyone disagree?

ALL VIDEOS ARE EQUAL, BUT SOME VIDEOS ARE MORE EQUAL THAT OTHERS

Yesterday, we discussed how YouTube was both a promotional and commercial distribution platform:

YouTube is a distribution outlet that offers both a promotional and commercial platform. If you are Hollywood movie studios, major record labels, varieties of very well known consumer brands, and a number of different startups, both domestic and international, you probably view YouTube as a promotional platform and as such, only care about driving as much views of your video as possible.

If you are a content producer that turns to YouTube for distribution, as we are, clearly you care about the number of views, but you are more concerned about sustainable and legitimate views. Historically, publishers that create fake traffic or drive up pageviews through low-quality end up paying for it by having a hard time to charge premium ad rates and retain advertisers.

Videos are not just broken up into commercial and promotional; they’re also broken up into premium TV/Studio content, made for web (torso) content and user-generated content.

In 2006, a prevailing argument was “why create videos for the Web” when users are creating and uploading it for free.

In 2007, marketers smashed that argument and ran for the hills, shunning risky and unsure UGC.

In 2007, traditional media companies strengthened their grip on content, reducing the convenience with which users could watch videos, effectively dramatically curtailing choice, too.

As such, we know by now that not all videos are created equally:

- User generated content is not what advertisers want, and advertisers underwrite much of the online economy

- TV and movie companies will remain controlling of their content, thereby reducing the convenience with which consumers will be able to consume the content, so they too will not create the most valuable applications.

If we know, by now, that social networks will own the audiences, and that video is the killer app, then it’s a matter of determining which videos will win.

Work out the math, eliminate the common variables and you’ll see once again, that the most valuable applications on social networks will be video-based, and within the video category, the most valuable applications will be made-for-web video content.

EXPONENTIAL AND VIRAL GROWTH

I view Facebook as a great distribution and promotional platform. I probably need to spend more time on it, to better understand what to do (if you are reading this and thinking that YOU should be our social network guru for WatchMojo.com, email me at ash@watchmojo.com).

I also think MySpace is great, as is YouTube, Veoh, Revver, Metacafe, Daily Motion, etc. etc. etc.

Notice how our distribution does not rely on any one partner? That’s right, while some people are writing applications without any real value, we’re developing video applications otherwise known as content and making them universally applicable on every destination possible.

Examples of streams for individual clips are:

- YouTube (with clips being seen by 60K or 250K viewers and growing)
- DailyMotion (5K and growing)
- Metacafe (25K and growing)
- Veoh (45K and growing)

These are examples of our reach and audience for one clip on each network. We have produced 4,000 clips, published 3,000… our syndication network partners listed above have anywhere from 100 to 750 each, at most. The trend is evident and obvious:

As we continue to syndicate aggressively by blanketing the Web with more clips in more and more places and video monetized - just like search did - the value of our audience is quite staggering… and the reach of our audience approximates to that of the Web because we don’t limit ourselves to any one distribution partner.

I like to think that we are building the most valuable applications on the most valuable communities online to create a very valuable company. The fact that we use content as a conduit is secondary to that fact. Ultimately, an application or bit of content competes for attention and in an ad-supported web ecosystem, for marketers’ dollars.