From spring 2005 until summer 2007, News Corp. went on a digital media acquisition binge that could only be described as dizzying:
- Intermix, parent of MySpace
- Scout Media
- IGN (how they inherited me for six months via IGN’s acquisition of AskMen)
- Photobucket
- Flektor
- Strategic Data Corp.
Then Chief Architect Ross Levinsohn resigned, signaling an end to the shopping spree. Then Heather Harde - who supported Levinsohn in the M&A capacity left, too, to join Michael Arrington at Tech Crunch.
Within weeks, CBS picked up the baton, and it then went on an impressive shopping spree:
- Last.fm
- Wallstrip
- Spotrunner (investment)
- CNET - which we called, by the way, 8 weeks before it happened.
Today News Corp. hired Erik Moreno as SVP of M&A, reporting to Mike Lang.
My take: this is Rupert Murdoch reacting to his pal Sumner Redstone’s shopping spree.
In fact, money man Jim Cramer apparently viewed CBS’ buying of CNET as a “watershed” transaction that basically signaled the acquiescence of old media. “The big networks won’t be able to maintain the cash flow to subsidize loss-making digital investments, so now they’re shelling out big bucks to get in the game.”
I could hyperlink back to a dozen stories on CBS and News Corp. where this has been building up… but I agree with Cramer on this: big media’s erosion of offline revenues is starting to accelerate and you will certainly see an uptick in acquisitions, especially in this more sane (or read: less crazy) valuation atmosphere.
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WatchMojo NewsletterStep 1: After f*cking over Sean Parker at Plaxo, Sequoia is shunned from participating in Facebook funding, who raises money from former Paypal President Peter Thiel.
Step 2: Sequoia is snubbed once again from Facebook craze when Slide - founded by former Paypal encryption wunderkind Max Levchin - launches slide show maker for social networks. Social networking craze ensues… then starts to fizzle.
Step 3: Having had enough of being shut out of the FB ecosystem, Sequoia leads Series A (in January 2007 at $1.5M) and Series B (in March 2007 at $15M) rounds for Rock You, Slide’s arch enemy in FB app ecosystem. Note timing of Series B: right before FB launches apps.
Step 4: Realizing FB apps is as valuable as a warm bucket if spit, Sequoia (along with initial investors First Round, and Lightspeed Ventures) pass on investing in Series C round to display greater fool theory in mimicking Slide’s mammoth $50M round, get DCM to ride on Sequoia and First Round’s coattails by investing a $35M - the day after Slide says FB apps are pretty much useless. It’s worth noting, by the way, that according to one contributor on TheFunded, “would not take money from DCM if offered”.
Step 5: Sequoia can brag that they are participating and helped finance the FB craze… blah-blah-blah until next fad; DCM can claim that they invested alongside the great and venerable Sequoia.
Rock You now has raised over $51.6M in funding. Slide is up to $58M. That is early $110M in funding alone… would you pay $110M for both companies in a buyout?
I wouldn’t… see our first piece here.
UPDATE: Venture Beat notes: “Doll Capital Management led the round, providing $30 million. The remainder $5 million was provided by existing investors, Sequoia, Partech and Lightspeed.”
Yeah… that changes everything I said. Right…
M&A can happen quickly, but financing is a mind-numbing process that takes 6, sometimes 12 months.
As such, learning that Rock You just raised $35M for Facebook apps, you have to wonder, how do the investors feel upon learning that just yesterday, the #1 in this “space”, Slide, signaled a shift in strategy by stopping to develop new apps.
The money did not come from dumb money:
The round was led by venture firm DCM, with contributions from several private investors. Previous RockYou investors include Lightspeed Venture Partners, Partech International, and Sequoia Capital.
But all factors being equal, VC-backed ad-supported companies are prone to fail: no freaking clue how advertising works and too arrogant to admit it, too.
Three months ago I asked “why is there no YouTube fund” to match Facebook or iPhone funds, even though online video will be far bigger than social networking ads, and wireless ads is really hype driven for the time being (for the record, I am far more bullish on the iFund than the FB funds). Today’s announcement by YouTube that content owners can sell ads against their own content and monetize their content is validation and support of my argument that there is a need for a YouTube fund. After all, online video ads in the US is supposed to grow from $1.25B in 2008 to $7.1B by 2012… while social networking revenue projections are being reduced. To drive the point home: YouTube’s market share in video is more strangling in video than Google’s is in search, yet right now, YouTube only does $75-200M in annual revenues… so the upside - while both clear and unclear - is there.
As I said, some investors must be waking up today feeling rocked. To see how something so stupid can even happen, click here.
Blogging is becoming harder and harder because I am never sure when I can start talking about something a partner does. Generally speaking, I err on the safe side, because it’s the right thing to do.
But seeing how YouTube “sell it your own damn self” ad strategy is in the open, I do want to comment about one thing:
While YouTube will continue to sell some ads, by opening up content owners’ respective inventory, video content owners will now be pitching the same underlying media property - YouTube - to a lot of the same advertisers.
After all, while social media sites (such as YouTube) are hard to monetize, YouTube is one that many marketers want to be on, so long as the content is safe. But the pool of advertisers who would advertise on such sites remain relatively small.
Moreover, since a lot of the most popular legal clips are music videos and those are not always advertisable, there is a lot of demand for safe, ad-friendly content. Incidentially, this is one reason why WatchMojo.com has the editorial strategy it has, but I digress. As I say: first comes content, then distribution, then monetization. Distribution is all but locked up and growing.
So don’t get me wrong: I love this decision, especially as a former ad executive.
But by adopting this “sell it your own damn self” ad strategy, advertisers are now going to be pitched the same fundamental opportunity: advertise to YouTube’s massive audience and that might create channel conflicts. Translation: if YouTube is doing this to a) sell more inventory and b) boost rates, it might accomplish a) no doubt, but b) becomes almost impossible.
The only hedge towards this, frankly, is to be able to deliver what you promise to advertisers. Online, said delivery boils down to delivering the impressions you sold.
Advertisers look for a number of things. For content owners to succeed on YouTube, and in generating revenues in general, they will need:
- reach, as measured by audience size
- relevance, as measured by demographics
- frequency, as measured by publishing cycle
- fit, as measured by content. This can also include surety of content.
Online marketers will also look considerably at engagement, or time spent on a site, but I think that is BS because advertising is actually always obtrusive and unwelcome, and engagement is one buzzword the social media experts coined to look smart.
Anyway, all of those things are important, no doubt. However, I will break my rule of talking about partners and add one thing, the one thing that YouTube has had a challenge with, and the one thing that is not even directly mentioned in the list above. I think this is the reason why they are adopting this “sell it your own damn self” strategy, and that is predictability… not predictability of content safety, but predictability of volume.
Marketers don’t care if your video or channel generated 1M streams last month; they need some assurance that you will generate 1M streams going forward. Few can do that. I think we can. So far, so good.
In other words, not only does a video (or channel) need to be broadcasting high-quality content, safe to advertisers, match their target audience etc., but they also need to be able to deliver the impressions that advertisers look for.
You can sell a $1M IO (insertion order) but unless you deliver the impressions, you will only actualize a few pennies on the dollar. I once sold a $300K per month deal, it actualized at $52K. That was frustrating… that day was caught on film, by the way.
For the record, YouTube has been net-net a solid partner. I get along very well with the folks there. In fact, when WatchMojo.com launched, co-founder Steve Chen would even be the one who would sometimes reply to my suggestions and inquiries. Of course, times have changed: YouTube is now a high-profile unit of Google. I cannot fault them for experimentation, particularly something like this “sell it your own damn self” that I basically pleaded with them to offer us.
I am not sure if YouTube will be the property that will command the lion’s share of ad dollars in the video space. I am pretty sure that despite their smaller sizes, the media companies will be able to do that (News Corp., CBS, Disney, NBC Universal, Viacom etc.)
But when it’s all said and done, this is something I expected to happen the day Google bought YouTube (if not sooner) and this is why we have been sprinkling our thousands of video clips across dozens of categories and tried to keep every clip evergreen. Whether or not that strategy spells success on YouTube and the broader video landscape remains to be seen… but I certainly like the direction that the industry is going in.
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