Our friends at Blip.tv raised some money from Bain Capital. In case the name sounds familiar, that is the company that Republican Presidential candidate Mitt Romney ran for years. This is the second institutional round for Blip.tv, who Tech Crunch notes is keeping its cards to its chest. Smart move. A lot of companies spend more time issuing press releases touting how much capital they’ve raised, all the while neglecting their clients and partners. From our experience working with Blip.tv (disclosure: we integrated their player in our CMS when we relaunched the site in August 2007), they are the polar opposite of that.
In the summer of 2007, we had to make a call between:
- integrating VideoEgg’s player
- going with Brightcove
- building our own player from scratch
- integrating Blip.tv’s player.
We went with option d, and especially in light of Video Egg getting out of this market earlier this year, this ranks as one of the best moves I’ve made in my career… because had I picked Video Egg and had to migrate away to something else this year, I would have lost it. Every week, some company calls us and offers us their platform pro bono in the hope that we migrate away from Blip.tv… consistently, we say thanks, but no thanks.
As you know, financing processes take 6 - sometimes 12 - months. When you see companies raise money these days, you know they are top notch quality companies backed by great managers. Why? Financiers have the best excuse in the world to back out of deals these days (hmm… “the world is melting away!”) so when you see deals being announced now, it means that much more.
Worth noting:
Blip.tv was founded in May of 2005 and has grown to serving more than 51 million video views in September 2008, which would represent a 250% increase compared to September 2007. The company now distributes more than 37,000 actively updated Web shows, which release an average of three new episodes per month.
Technically, we’re one of those 37,000… but we produce 100-150 segments per month, and publish 50-100. Admittedly, our videos are 1-3 minutes… but still.
When Brightcove raised $80M, I presume they did so by stressing how much each one of their units would be worth down the road:
- The consumer site would take on YouTube, which commanded a $1.65B exit.
- The ad network would stand tall in the video space… given how much Doubleclick, 24/7 RealMedia, Blue Lithium et al. had sold for in the display ad network business… this figure could be huge.
- Its paid video business could be enormous too, especially when you considered how big the paid video market was to be, according to well-paid and in-the-know analysts.
- Last but not least, its advanced services for big publishers (WSJ, TheStreet, for example) would be cash cows with recurring payments… a division that would generate annuity-like revenue streams in perpetuity.
Investors must have been stoked. But, the actual story has unfolded quite differently. Brightcove has shuttered its consumer site, gotten out of the ad network business and instead partnered with Tremor Media, and today it announced what I’ve been saying for some time: no one wants to pay for content, especially for videos… and they will be ceasing those operations, too.
You better hope that 4th unit goes long, and gets big… because otherwise it will be very hard to get investors any semblance of a positive return, let alone a decent IRR. Bear in mind: Maven sold for a $160M exit off $30M in investment… so even if Brightcove crushes the ball… how much upside is there after $80M invested?
Anyway, we wish them well… but this just goes to show that raising too much money too early is usually the death knell of a company. Mind you, I doubt Brightcove is anywhere near troubled mode… in fact, I presume this means you can expect a Series Q round soon for an additional $50M or so.
Could the company at least acquire a bunch of similar players and ramp up that way? Maybe… I doubt it though.
Paid Content refers to a NYT article on CBS which calls for the company that Bill Paley built to make digital acquisitions, which begs the question: should they go for a big purchase or make small moves?
Of course, answering that question alone without addressing the backdrop to that question yields an incomplete picture.
CBS has hit some rough patches, according to Paid Content:
The parent company is under a mini-siege of sorts about
a) its performance,
b) Leslie Mooves’ salary,
c) Katie Couric’s disastrous tenure at the company,
d) layoffs (even on the digital side, as others are ramping up) and other issues (…)
e) CBS’s need for an acquisition is becoming apparent. Some CBS executives privately agree.
All right. I want to dive in and comment on e) but let’s run through this list quickly.
a) Its Performance
We’re not sure if they are referring to its financial performance or its stock’s, either way:
As per the NYT:
“Without the cushion of Viacom’s other properties, CBS has been more exposed to the struggles of the advertising market. In 2007, it earned $1.25 billion, down from $1.66 billion the year before. CBS stock closed at $21.40 on Friday, compared with $30.99 a year earlier.”
While no company or manager can control what happens to the stock price, I think big media will see a lot of revenue loss over the next few years. Print-centric media companies shrank, why would TV or radio-centric media companies be any different in the next wave of the Web’s growth?
After all, 1994-2003 saw text-based media explode online, 2003 is about audio/video-heavy media.
CBS is seeing this sooner and faster due to its exposure to TV and radio. However, they are strong in outdoors, the challenge there is the upside there won’t account for the downside in more traditional media.
So all hope signals point to online… which explains why:
“On Monday, the company’s interactive unit will officially open a fully staffed office in Menlo Park, Calif., in Silicon Valley, to stir innovation and content development.”
Ironically, the CBS Interactive brass gets the Web quite a bit, but it’s true that they have been overly cautious, too. Being cautious is a bad thing in booming times and a great thing in corrections. The problem for CBS is that the correction is coming offline and online continues to charge ahead… so indeed, CBS does need to make some bold moves. But what are those moves?
Last year, we suggested an outright merger with Yahoo! With MSFT’s $45B gamble, those bets are off (hmm… are they?).
b) Leslie Moonves’ Salary
Last week Henry Blodget wrote: “CBS CEO Moonves Gets 29% Raise, Just Reward For Job Well Done“.
Clicking through, I realized he was being sarcastic by pointing to the seemingly inverse relationship between Mr. Moonves salary and CBS’ performance. While I appreciate Henry’s position, the truth is that CEO pay is determined on a number of things, frankly.
It’s also about the demand and supply for talent. As the CEO of CBS, Mr. Moonves could probably command a much larger salary elsewhere, if CBS’s Board wants to pay him $100M because that is what it takes to retain him, I am not sure CBS or Moonves should be blamed. For the record, he did not make $100M but rather $37M. Is that a lot of money? Yes. But the company made well over a billion dollars in profit and $14B in revenues. Of course, I’m an executive so my perspective is going to be different than that of an analyst or journalist.
But my point is: running a shrinking business in a mature market is not something most executives would embrace, to lure the best (or retain them), guess what? It takes a generous compensation program.
c) Katie Couric
Don’t care personally, but indeed, this is becoming an albatross and if indeed she is that horrific (I don’t watch TV), it’s time to try something else. I recognize she might not be best suited for news, but surely there is plenty of things she can be doing for CBS in other capacties (infotainment, mainly).
d) Layoffs
Layoffs are always demoralizing, especially when a company is making over $14B in revenue and remains profitable. But what about a case - like this one - when the company is shrinking? This is a tough question.
My gut says Jack Welch’s “the lowest 10% should leave” is not a bad thing… so while I don’t want to dehumanize the layoff dynamics and their effect, I think it’s unfair to question the layoffs.
Of course, I do wonder why layoffs are taking place in online areas… which is what both Paid Content and NYT refer to. But just bear one thing in mind: many traditional media companies are not necessarily well structured in new media; divisions and structures are sometimes borne out of legacy organizational systems and sooner or later a correction or adjustment is called for. If this is the case, then I don’t think it’s fair to bash CBS on this point.
e) Acquisitions
The question remains: should CBS make one big hairy and ambition acquisition or should it buy a number of smallish companies and roll them up and/or foster their growth?
For the record, CBS has done both. In fact, it’s done everything including investments in Spotrunner, Joost and many others. In terms of acquisitions: Last.fm was a mid-sized / big one; Wallstrip was a small one.
What would you do if you were Quincy Smith and company? Buy? Merge? Sell?
ACQUISITIONS:
You know what, I admit a small acquisition won’t move the needle, but a major acquisition won’t either. Who would they have bought?
- Bebo? Is a company that marketers love really well-served by serving advertisers social networking inventory? Nope.
- Facebook? Too expensive to buy. Nothing to see, here (perhaps a merger? See below).
- Gawker Media? That might be an interesting addition. But I think Gawker Media founder Nick Denton wants to become CBS, and not sell to CBS. Anywa, Gawker Media lags in video, CBS needs to look ahead and not look back.
- Speaking of video, one company that might position it for future growth is Blip.tv, but Blip.tv does not own any content… so that is a risky move because CBS might buy a great video platform with amazing bells and whistles but then lose all of the content therein. [Disclaimer: Blip.tv is a partner of WatchMojo.com]. In the same broad category as Blip.tv are Brightcove and Video Egg. Bright Cove also does not own any content and is way too expensive, having raised $80M in funding. Video Egg ain’t cheap either, with $40M of funding in the tilt.
- Then there’s all of the YouTube/MySpaceTV competitors: Revver, Veoh, Metacafe, DailyMotion, Break, etc. Mind you, CBS invested in Joost… so what message would that send? As well, Revver was on the auction block and I presume CBS looked at it and then balked. Again, none of those companies own any content, CBS needs to be stronger in web content. That would be the hedge for CBS going forward, of course, it also needs better distribution. I see CBS works closely with Veoh… but is Veoh big enough as a distribution source? [Disclaimer: WatchMojo.com syndicates video to all of the sites listed here]
- Craigslist.org? Not sure Craig Newmark would sell, no matter how progressive Quincy’s team might be. This is Big Media after all… but Craigslist.org would not unleash CBS’ digital revenues.
- Glam Media? That would be a shot in the arm with regards to bolstering its female audience online… but here’s the problem: female audiences still watch TV… what CBS might be better suited for is getting access to a men’s audience. [Disclaimer: Glam Media is one of WatchMojo.com’s syndication partners, too]
- Digg? Not a fan of this one, frankly. Maybe a combo Revision3 / Digg? Even less of a fan of that. Revision 3 is way too niche: it’s too tech-oriented and relies on two hosts, largely. Given how Kevin Rose’s interest waned from Digg to Revision3, then to Pownce, I am not sure he’s buyable because he’s the main asset of Revision 3. [Disclaimer: if you look very broadly at all video content, then WatchMojo.com is more or less competitive to Revision 3, though I view them as rather complementary to our programming].
- Federated Media? Too tech-focused and they don’t own any of the content on the blogs they rep. Big media needs to own content to make it worth their while. Sorry, but that’s just the way media works.
- Gorilla Nation Media’s audience might be a better fit, but as an advertising representation firm, it faces the same challenges: You are buying a stack of contracts that at any point could be severed. Unless you own the underlying content, those contracts are not worth the paper they are printed on.
- Heavy.com? They have a men’s audience, for sure. But if CBS is to buy a destination, it needs to be an enormous destination, I am not sure Heavy.com would move the proverbial needle. In fact, in 2005, News Corp. bought IGN Entertainment, but IGN was doing over $70M in revenues on the strength of its Media Properties (IGN.com, RottenTomatoes.com, etc.), had a lot of technology (in-game advertising + digital distribution of movies, music and games). Moreover, IGN Entertainment was far and away the leader in terms of men’s 18-34 audiences.
However, if Fox Interactive Media has become a new media behemoth, it has more to do with MySpace’s burgenoning audience than with IGN’s properties. That being said: IGN Entertainment does give a lot of content and audiences that marketers look for. The challenge for IGN is that a major chunk of their inventory comes from their message boards, which are notoriously hard to sell and monetize.
This being said, when one looks at how instrumental MySpace and IGN’s acquisitions were, it’s fair to say that the ROI has hitherto been higher on the MySpace deal. I am surprised at this, I won’t lie. But this lesson would encourage CBS to look for a MySpace and not an IGN.
I am not that familiar with Heavy.com’s business, frankly, but I am not even sure if Heavy is an IGN.
- IAC is way too e-commerce oriented. Its search engine Ask.com does not really fit with CBS, either. So pass.
- There’s Meebo, but at $250M or more in value… I am not sure if CBS would even know what to do with it. And, who are we kidding: do marketers really even want to advertise in instant messaging communications? That one makes sense in theory but in practice? Not sure.
- There’s the barrage of search video tools: Blinkx, Pixcy, etc., but CBS remains a media company; it should be technology-centric, I think. What I mean by that is that its content should be compatible with all tech platforms to make it was widely available as possible.
- There are a number of ad networks: Tribal Fusion, Specific Media, Casale Media, Adconion etc. I think the obsession over ad networks will pass. Moreover, a lot of media companies will build and launch their own, which is a mistake as well. I am not sure if CBS should plunk down $100-$500M on an ad network. Advertising.com rescued AOL’s butt because AOL was transitioning from a walled garden to a normal website but the fact remains, that says more about how poorly AOL was doing than how great Advertising.com has done (for the record: it has done great).
Valueclick is publicly traded, but expensive.
If it was interested in ad networks, it might as well skip over display ad-based ones and dive into video networks such as Tremor Media or Broadband Enterprises. Again, I am not sure being in the ad network business is the best capital allocation move.
- It could - much like how NYT invested $29.5M in Wordpress - make a bid for Six Apart (makers of Movable Type) or even Wordpress. But, again, I am not convinced it makes sense for a media company to own a platform without the underlying content. News Corp. buying MySpace made sense because the content on those sites become News Corp. property, or at the very least, MySpace gets a license to profit from it…
- Slide? At the company’s last $500M pre-money valuation, I think CBS would gain street cred in one block on SF by buying Slide but see Wall Street punish it. Hey, just being honest here folks: that is one expensive widget company with moutain-fulls of unsellable inventory!
- There’s TheStreet.com, though I am not sure if it’s big enough or whether CBS really wants to get that deep into finance and investments. Bear in mind Wallstrip was all about investing… so this would be a doubling down on one category. Moreover, at a market cap of $250M, it would eat a lot of money the company could spend elsewhere.
- CNET remains very tech-oriented but it has embraced a lot of lifestyle properties, too. In fact, CNET would be a good fit with 100M uniques, $400M in revenues etc. In fact, trading at $1.2B, it’s not that expensive. CNET would give CBS some web DNA and CBS would open up swarms of traditional advertisers to CNET. This could be the best move yet: unlike most other options, CNET owns a lot of content. It also owns a lot of URLs such as TV.com that with CBS’ help could come to life.
Updated: Oh, wow, they listened to me: it’s official.
MERGERS
- CBS could in fact merge with Yahoo! I wrote about this and frankly, this remains an option.
- It could merge with Facebook; won’t happen. At a market cap of $14B technically Facebook is worth roughly the same as CBS. This would be a bizzarro world deal where Facebook trades in growth for CBS’ $14B in revenue… but this one is so loopy.
- As crazy as it sounds, it could undo the merger with Viacom; won’t happen.
SALE
What about a sale to News Corp.? News Corp. owns FOX, it would love to own CBS. But for this to happen, it would mean Sumner Redstone and my old boss Rupert Murdoch would have to come to terms; won’t happen.
Incidentally, last Friday, GE lost 12% of its value, or $40B. It could have bought two CBS’s. By buying CBS, GE’s NBC Universal would own two of the three main networks, making this an impossibility.
That same obstacle is present in a sale to Disney, who owns ABC.
CONCLUSION
As you run down the list… you realize that all CBS is actually a great media company that just needs some tweaking. Yes, indeed: “Nobody likes negative growth, from the guy who shines shoes to the C.E.O. Everybody feels the pain” the truth is no one wants to blow something up either.
My two recommendations for CBS:
- Buy CNET for $1.5B - $2B (that would be a 25% to 66% premium), which would take its digital revenues from “$200M” to $600M. Combining CNET with Last.fm would also yield a lot of upside in digital music and video tie-in’s. But even then: for a company with $14B in annual revenues, does $600M mean much? Many analysts only give credit to a media company’s stock if digital revenues account for 10% of total sales. Even News Corp. or Disney do not claim that.
CNET remains one of biggest acquisition targets that represent meaningful revenue opportunities, and even that won’t move the needle. So what other options are there?
OR
- Merge with Yahoo!
Actually, there’s also one more option:
GO PRIVATE?
One way that no one will care about a) Performance or b) Les Moonves salary is if it were not publicly traded. Moreover, Wall Street is being unreasonable: yes the company is shrinking, but it will take time for digital revenues to grow, anyway. However, if someone came along and took CBS out at $20B, I think a lot of shareholders would buy that (or I guess, sell for that).
It then allows CBS to d) clean house if they so choose to (and will have to). Kate Couric becomes moot in the grand scheme of things… but most importantly, it will allow CBS to roll up a number of smaller web properties, content producers and tech applications to bolster its overall portfolio. In 4 years - when video advertising will be $7.1B in the US (up from $1B) and all online advertising will be nearly $100B in annual expenditure - it can then be go public again…
This might very well be the best course of action. The question remains: does private equity have the stomach for a $20B debt purchase? With $16B in annual revenues… I think so.
All righty, that was a great use of 40 minutes of my time. Back to work.
On Tuesday, Yahoo! CEO Jerry Yang mentioned that Yahoo! would be looking to invest in 2008. He did not name names.
Today Tech Crunch published a rumor that Yahoo! was going to be buying a video platform for $150M. Initially the rumor suggested it would be Brightcove, who’s raised about $80M in venture money, meaning a $150M buyout would not be sufficient to please investors. Then, some thought it might be Metacafe, previously rumored to be acquired by Yahoo!
Turns out the seller is Maven Networks. New Tee Vee confirms the price will be in the $160-170M range.
Maven powers videos for Gannett, Hearst, Fox News, Sony BMG, the Financial Times, Univision, TV Guide, CBS Sports, CNet, and Scripps Networks.
It’s worth noting that Yahoo! is making a bid for a platform for premium content, which is the exact opposite of Google’s M&A target YouTube, who is a platform for user-generated and pirated content. YouTube has since made a big effort to court TV and filmed entertainment content owners and “torso” content producers (such as WatchMojo.com).
It’s also worth noting that such a move comes with risk. When a media company buys a platform, there is a loss of clients. For example, will FOX remain a client, when you consider that FOX’s parent News Corp. has a deal in place with Google (for Fox Interactive Media’s search and contextual business) and Microsoft (for Dow Jones’ search and contextual business). While there is a merit to keep the video platform separate, as YouTube evolves and Google integrates Doubleclick and gets more and more serious about video advertising, expect this matter to come up in discussions. Judging by the client list, I do not see many major risks though, especially compared to the notable client flight risk that Google took on when it bought Doubleclick (and we highlighted - correctly - early on after that deal was announced).
But that is all secondary to the number of publishers that are about to check their contracts to see how quickly they can get out of the DCLK contract. And I’ve already addressed the number of advertisers who probably don’t want to work with a Google-owned ad server here. Just think of how eBay’s marketplace flopped. Sure, that was in TV, but who do you think Google is trying to win over with this deal? The major advertisers, who already fear Google’s ambition.
“I use DFP Reports daily to run the business. The ability to get detailed information on our ad operations has helped us to maximize our selling efforts and keep our advertisers happy.”
Matthew Goldstien, Vice President of Ad Sales Operations, MTV NetworksI really wonder how much longer Viacom’s MTV - the same Viacom who is suing Google for $1B - will be using Doubleclick’s (now Google’s) Dart for Publishers.
I expect competitors to start calling on Maven’s client list. Of course, as Yahoo! is searching for a video strategy (it’s already strong but needs fine-tuning), it’s worth noting that this could be seen as a major plus by clients who use Maven’s platform. Brightcove is a high-profile player in the space, it’s founded by Jeremy Allaire and has a cornucopia of big name investors, but an exit of $160-170M is a bad comparable given all of the money that’s been poured into the company.
Maven on the other hand “only” raised $30M from Accel, General Catalyst, and Prism Ventures. All in all, when you consider the buzz around user-generated content in 2006 and 2007, you start to see that that train has left the station and the market is moving up-market.
Expect a lot more consolidation in the video space, be it:
- platforms
- ad networks
- content plays.
In fact, you are seeing many VCs make calls to continue to fight in online video networks and platforms (by investing more money) or sell out. VCs have over-invested in file networks and platforms and this sale of Maven is, in my humble opinion, a manifestation of that. A $150M or $180M exit is fantastic, do not get me wrong, but for VCs who like to aim for the fences, this is not a grand slam by any stretch of the imagination, it is, I think, an admission that the network and platform space is crowded.
If the VCs owned 50% of the company, that means about $75M to $90M, split three ways, that is a $25M to $30M windfall for each. But the company’s been around since 2002. So six years after being founded, the VCs suddenly accept that kind of return? What happened to the bravado gents? I suspect once an IPO seemed implausible, then a sale became a good choice (why is an IPO out of the question? Exhibit 1: the stock market’s tepid start to 2008).
In fact, I’d argue that even sales are no slam dunk: when you think about it, when this rumor crept up, Maven was the third company that people thought of but there could be 10 others that come to mind.
The demand and supply dynamics are generally not in favor of your average, run of the mill platform or an network. I am not commenting on the businesses here, they are all fine businesses I am sure; I am commenting on these as VC case studies. Yahoo! could have made overtures to a number of these services and ultimately Yahoo! had a world of advantage over any selling party.
I personally see far better dynamics in the content space (a- the wheels have come off the UGC train, b- TV and Film content companies are still not confident in trading offline dollars for online pennies).
As such, the lead a company like WatchMojo.com is building grows… that still does not mean that VCs will or should invest in media content plays - as I had called for last year, I do not think most typical VCs understand media and content to dip their toes - but it does show that the upside to content plays is becoming bigger and bigger because the demand and supply dynamics are quite stronger in video content than platforms or ad networks.
I won’t make any friends in high places… but I probably won’t lose many either… so here goes:
Brightcove made more and more promises to investors to raise more money (we’re a CMS platform, a YouTube like destination and an ad network), then it scaled back its consumer destination strategy (wisely) and gave up its dream to be an ad network (wisely). So now it’s a video serving platform, only. It’s good to focus, but it sure will be hard to make that $80M in funding generate a positive IRR… but who’s keeping track of that when it’s other people’s money, right?
Now, they’re seemingly giving up the low-end, long-tail market and going for high-end publishers only (I think).
Latest strategy shift from the folks over at Brightcove:
Dear Brightcove.TV member,
Beginning December 18, 2007, we plan to end support of direct consumer uploads to Brightcove.TV. As a result, you will not be able to upload new videos to Brightcove.TV after December 17, 2007. But videos you have already uploaded to Brightcove.TV will remain available on the site and through your Brightcove.TV channel. Videos you have embedded in other sites and blogs will also continue to play.
If you have a Brightcove Platform or Network account, which means you use the Brightcove Console, then you will still have the option to promote videos on Brightcove.TV.
Brightcove.TV will continue to be a guide to great video from Brightcove media and business partners. The site will have new videos added to it daily from these partners and these videos can be saved as favorite videos in your channel.
If you work for a media company, marketer, non-profit, or business and are looking to purchase the Brightcove platform to publish and distribute video on your own site, please visit the Brightcove Products Overview section of our website.
We appreciate your interest in Brightcove and apologize for any disruption this change may cause you.
Sincerely,
The Brightcove Team
I don’t even know what this means anymore. The company’s raised $80M in VC money and from media companies. Nice!
Related:
- Media companies investments in Video
- Brightcove’s Strategy du Jour
- Brightcove: Keep is simple stupid
Apparently, traditional media’s love and hate relationship with YouTube took an interesting turn tonight: NBC canceled its channel on YouTube.
I won’t comment on that directly since WatchMojo.com is a content provider on YouTube and enough people are already commenting on the unconfirmed news, but I’ve been meaning to look at the interesting dynamic between traditional media companies and web video startups, and this is one more chess move in the big game that’s really only starting.
When you realize that Web Video is a $150B market cap opportunity by 2011, but not for traditional media and What The Math Suggests Old Media Should Do with Web Video (invest, not acquire), it’s not a surprise to see media companies wanting to be in control of their destiny.
NewTeeVee has a fantastic overview of media companies’ investments in web video startups, which I will shamelessly copy, paste, update (they forgot CBS’ stake in Spotrunner, for one, amongst a few others). I’ll also add some color.
Does it help or hurt companies when they get an investment by media companies?
Like most fine questions, answer is: It depends.
Why Strategic Money Helps
When it comes to strategic investments, one school of thought is that it encourages VCs to invest because they see a clear connection between investment and exit. From an operational perspective, clearly, getting a media company to invest in you will help in terms of validation, sales and marketing. Right Media said that they got a lot more calls for business after Yahoo! bought 20% for $45M. In their case, it also helped prop up the value of the company, subsequently selling the remaining 80% for $680M. Of course, what helped Right Media mainly was the market environment that saw 24/7 RealMedia, aQuantive and Doubleclick get acquired for high multiples.
Why Strategic Money Hurts
Now, the flip side on selling a stake to media companies: The other school of thought suggests that this also closes potential upside in any negotiations: if (say for example) NBC owns a strategic stake, that is great in many ways, but they might ask for a First Right of Refusal (FROR) in any M&A talks, meaning that it’s their right but not their obligation to match any offer and buy you.
The problem with this scenario is not in theory but in practice, because a would-be buyer, say CBS for example, would not even consider looking at buying you because it means they have to spend time and money on due diligence and then the holder of the FROR can walk in, match the offer and win.
Worse off, there’s nothing that forces the holder of the right to initiate talks. They have the option to do so, but not the obligation. It’s also not like you have the conceptual equivalent of a pull option, which is the right to sell. So while I myself love the allure and operational upside of getting a media company to back you, I also understand why some investors that I talk to don’t share that optimism and bullishness.
So technically, while some amongst the “smart money” might love strategic money, as an entrepreneur, I’d be wary (in all candor, I’d also consider it and reach out for it because the benefits are long and clear, too).
How to Structure a Strategic Investment by a Media Company?
When I was at the Tech Crunch 40 conference, Jason Calacanis (who raised money from News Corp. for his Mahalo project) suggested that the optimal way is to have an institutional investor (such as a VC) set the terms and have other strategic investors tag along, instead of have the media company set the terms. I think that is probably the wisest way to go, though one might not always have the luxury, of course.
What About Derivatives in Lieu of Equity?
Of course, some times a media company does not actually invest cash, but they strike a business deal and want to get some skin in the game. In this case, you can look at derivatives, such as warrants.
We’ve seen this happen before, too. Google did that when AOL and Yahoo! used Google to power their search engine and did not actually invest any money.
I’m not recommending any entrepreneurs to pitch warrants in lieu of equity in exchange for a cash investment… I’m pretty sure if you have NBC, CBS, News Corp., Walt Disney’s ABC, etc. sitting in front of you and showing interest to invest cold hard cash and you suggest warrants, they’d spit in your face and pile-drive you into the boardroom.
I’m just saying that in those rare events when it’s a business development partnership, an entrepreneur should consider warrants, as Google did, to get the larger media company interested in seeing you grow, cause the potential capital gain is a nice incentive and bonus.
Investments Made by Media Companies in Web Video Related Startups
Anyway, here are some investments by media company courtesy of NewTeeVee, with a bunch more I’ve added. I’ll continue to update this and if I missed anyone email me at ash@mojosupreme.com.
- Brightcove: video-publishing tool provider
- BroadLogic: video processing chips (with Comcast Interactive Capital)
- Ripe Digital Entertainment: on-demand TV network for young men
- ScanScout: contextually relevant video ads
- Veoh Networks: online video platform
- Visible World: video advertising for TV and broadband (with Comcast Interactive Capital)
Comcast Interactive Capital (CMCSA)
- BlackArrow: video advertising platform for cable
- BroadLogic: video processing chips (with Time Warner Investments)
- Revver: video-sharing with revenue sharing for all creators
- RGB Networks: video networking systems
- Visible World: video advertising for TV and broadband (with Time Warner Investments)
- Vitrue: white-label video sites and advertising services
Peacock Equity (GE)
- Firebrand: commercials as content portal (launching next week)
- Adify: contextual video ads.
- NBC also has an investment in Worldwide Biggies, a digital studio.
Hearst Interactive Media (HTV)
- Brightcove: video-publishing tool provider
- Sling Media: place-shifting hardware devices (sold to EchoStar)
- The NewsMarket: news video archive
- Worldwide Biggies: digital studio
Steamboat Ventures (Wall Disney’s VC Arm)
- Move Networks: streaming television platform
- 56.com: Chinese video-sharing site
- CTS Media: Chinese video advertising
- Netmovie: Chinese VOD
- UUSee: Chinese Internet TV platform
Yes, I noticed the obsession over China.
Bertelsmann Digital Media Investments
- UITV: Chinese Internet TV site
- Joost
- Spotrunner
- Stake in male-oriented video-sharing site Break.com.
- Brightcove: video-publishing tool provider
Yes, everyone owns Brightcove.
That’s just the investments, if you consider acquisitions, the list would be longer, and that’s something I’ll start working on.
You might notice the notable absentee is News Corp., and I don’t think it’s a coincidence.
Yes, they own 5% warrants in ROO, with the option to buy 5% more, but that was given to them… When News Corp. makes investments, they’re not small, they’re in large entities, see for yourself.
As I said, this is not a coincidence. When I was attending another conference, Paid Content’s EconSM shindig, I was in the audience when Mike Lang, Executive Vice President Business Development & Strategy at Fox said that News Corp. wasn’t interested “in leasing companies, he was looking at buying companies” and if I were News Corp., I’d share that outlook, frankly…
Not all media companies have that outlook, of course: it is interesting that CBS’ Quincy Smith and Michael Marquez have decided to take CBS Interactive in a different direction by mainly investing in - and not buying - young new media companies.
Time will tell which decision yields the best results.
Related on HipMojo.com:
- What Old Media Should Do with Web Video: The Math
- Web Video is a $150B market cap opportunity by 2011, but not for traditional media.
Last year, Brightcove worked hard at trying to be both a platform and a destination. The former to large media sites that needed a robust video platform, the latter to compete for ad dollars against sites like YouTube et al.
Today, they throw in the towel on the latter, according to AdWeek, via Paid Content. Technically, they don’t shut down the site altogether, “It’s something that runs itself,” Adam Berry, VP of marketing and strategy, told Adweek.
“Runs by itself?”
I think they said that about the Titanic, too. In all seriousness, here’s a company that has raised $85M. I ask, oh wise ones, was that $85M a function of
- the opportunity for being a platform that is in fact a software subscription service, or
- the opportunity to also generate lucrative advertising dollars.
Investors include AOL, IAC, GE Finance, Hearst, Accel Partners and General Catalyst Partners etc. Yes, I’m jealous. Well, not jealous, but you know what I mean.
Here’s a wild forecast of my own: investors will not meet their IRR on that puppy…
Related:
Ages ago, well, in Web time, I spoke to the CEO of Grid Networks who was telling me about some of the feedback he was getting from media companies, particularly TV companies. The gist was that until 1 Million viewers could in tandem watch a movie online at once without it affecting the user experience, the Web was not really going to matter to them as much as the “smart crowd” thought it should.
It was clear that he - both the CDN CEO and the media executive - was right. But today I got an example of that, biggatime.
PaidContent finally published a video of its EconSM panels and for whatever reason (well, it seems obvious and like the right thing to do), they decided to publish the entire 65 minute clip in one piece (Update: I see this morning that they reduced the screen size, which will actually help quite a bit).
Until you publish video that seems like a harmless thing to do… It’s not harmless. The Web just ain’t there yet.
I emailed them to give them some friendly advice as someone who has produced, published and syndicated 100 hours of broadband content for web, wireless and out of home networks, this is suicide!
The simple solution is to publish 6×10 minute clips or better yet, 12×5 minute clips… though I hate to say it: even that is pushing it! Anything over 3-4 minutes and the streaming gets messed up and fuggetabout it, all of a sudden Rafat is a ventriloquist.
I swear for the love of all things holy this ain’t a knock on PaidContent, Ali or the Brightcove player, it’s just a dose of reality on where things are at… and why publishing video online is a programming and tech challenge. And that’s really a fraction of the issue at hand. I’d tell you the rest of the issues, but I’d have to disconnect you.
All to say, it’s bad now, and it will be worst tomorrow morning when the site’s readers get online and check out the site.
This also says a lot about Brightcove. I’m not knocking them, I’m knocking the state of matters. The firm’s raised a gazillion dollars and is backed by everyone you can imagine, it’s founded by the cream of the crop, but in the time it’s taken me to post this post, I’ve yet to get to the 10th frame of the freaking video. I’m on ultra fast cable, I was on wi-fi, just logged on wired up, and still, not much.
Yes, online will one day be huge, but right now, to a TV executive, it’s a freaking joke. Mind you, the last laugh might be on them, but please, let’s not get too drunk on the koolaid just yet.
Variety reported that my former employer (from Sept. to Dec. 2005) News Corp. decided to partner with Brightcove and have it power and syndicate its video content.
Beet.tv said ”syndication will never be the same,” hmm… not really when you read the fine print… and, News Corp. could have really killed two birds with one stone, and it didn’t, instead it just laid an egg that will hatch a headache in 12 to 18 months.
While I like to be “fair and balanced” in my reporting on News Corp. and all of its subsidiaries, sometimes I think the most powerful global media company does not go far enough (and trust me, I know all about News Corp. going too far when they shouldn’t).
The point is: allowing users to embed clips everywhere online is progressive, bold and the right thing to do. But wait, that’s NOT what this deal entails, according to this observation:
Unfortunately, “retaining control” means that Fox’s offerings may seem like Internet TV on training wheels - limiting you to watching their content on their terms - or as Fox describes it - “managed syndication to select website affiliates.” (…) In other words, you can enjoy the viral power of embedding Fox videos in your blogs or MySpace page…..
While Beet.tv says “News Corp. goes one step further than CBS in allowing folks to embed clips,” which CBS does not, News Corp. is not really doing anything differently. But that’s not even my objection here (from a strategic perspective).
All media companies - WatchMojo.com as well - are going towards full embed or pretty close to full embed. We’ll be moving in that direction in the next couple of weeks after 18 months of not offering embeds off our site (we’ve always encouraged embeds off our syndication network of 20+ of largest viral, file sharing sites). YouTube made that issue a non-debate: let users grab and embed your code everywhere. Until YouTube, it was not clear if this was wise; today, it’s a no brainer.
But speaking of YouTube, which News Corp. was miffed on not buying when it sold to Google, I think partnering with Brightcove is doing it halfway and in fact creating a headache down the road.
I understand News Corp. is a content, sales and marketing company and not a tech company per se, but MySpace is fighting tooth and nail to try to usurp YouTube’s throne as the largest video site, why would News Corp. strengthen Brightcove’s hand and not reinforce MySpace’s hand? Frankly, one of the few places people can embed the videos will be on MySpace, so why use Brightcove’s player. Brightcove is a fine product but it’s not sliced bread.
It’s one thing to stab Chris and Tom in the back publicly, Mr. Murdoch, but why create a monster in Brightcove? Sure, Brightcove does work with a plethora of companies, but I’m still not convinced about Brightcove. Read my initial KISS Brightcove post here.
Brightcove’s backers include General Catalyst Partners, Accel Partners, AOL, Hearst Corp and IAC. They’ve plunked in $60M and News Corp. is really just creating a competitor when it need not to instead of bolstering their own. Of course, it could be that News Corp. is kicking the tires for an eventual acquisition or investment in Brightcove. That’s certainly an option… but seeing how MySpace knocked down the valuation in Photobucket before buying them, this runs counter to Murdoch’s modus operandi.
So, in a crazy way, I commend News Corp. for this move, but from a “strategiary” perspective, it does not make sense.
But wait, there’s more:
News Corp. also paid $650M for IGN (my employer from May 2005 to Dec. 2005) and its digital distribution platform can be, in theory, be embedded in News Corp.’s player… I’ve argued that ad-supported video will destroy download sales, here and here, but you might as well leverage the digital distribution business and embed that into your video offering.
So I rate this move as a small step forward, but one that News Corp. will probably come to regret.
Bottom line: and I swear this is not me taking a shot at any managers within the FIM empire, but FIM needs some help with integration of their far-flung assets; and this is a clear sign thereof.
Brightcove, who has raised $80M, is going to be using Tremor Media Networks as ad sales partner. You’d think that $80M would buy you an in-house sales team and position you to develop your own network, right?
Brightcove Network content sold by Tremor Media will be incorporated into Tremor’s network channels and sold on a category, targeted, or custom channel basis, and not as individual publishers. Brightcove will continue to sell strategic offerings to brand advertisers and agencies directly.
Don’t get me wrong, these are arguably best of breed sites, but something is odd about the state of video advertising and content. Brightcove is a myriad of services and features, mainly the Brightcove Platform and the Brightcove Network. The former is for larger publishers and the latter is for smaller sites, blogs etc. I’d guesstimate that this deal with Tremor is mainly for the Brightcove Network, but this is really just making the pie smaller for content producers, who now have to divvy up ad revenue with Tremor and Brightcove.
In fact, Tremor can basically hit up video content producers itself, or in fact, smaller producers can sign up to Tremor. By now going through Brightcove, we’re just cutting the pie in more pieces and not really working on the real issues. What are the real issues?
Separately, Tremor and Brightcove have announced plans to begin addressing issues facing the digital video advertising industry–including measurement, standards and best practices. As a first step toward this goal, all ads sold under the new agreement will be 15 seconds or less in duration. Other areas of focus will include frequency and rotation management of ad creative.
This is key. In fact, the more pressing issue I find is standardization, or a lack thereof, of anything from file formats, to size, encoding specs etc. And that’s just the content, let alone the ads. Video on the Web would be far greater in terms of content and advertising if there were more streamlined standards.
At WatchMojo.com, we’re growing our core flagship destination and signing many syndication deals, I’d guesstimate that as an online-only video producer, we have one of the largest reaches online, when you tally how many places our content is on and how many views these get… but we’d be doing many more deals and bringing more high-quality, “torso” content to sites needing and looking for content if the standards for the content itself were common, and they’re not.
That’s what we need to look at, before looking at the ads… but that’s just me.
PLAY
