Some time ago, online media professional Dave Haber (and reader of this blog) emailed me an article from MediaPost, titled “How Can Independent Video Producers Compete In The Super-Premium Era?”
The article was written by Lewis Rothkopf, who is vice president of network development at BrightRoll, one of the pre-roll networks out there. As a side note, I really admire Brightroll’s CEO Tod Sacerdoti. Unlike most of the pre-roll intermediaries who seem to be either in denial or out of touch about that the pre-roll format, Sacerdoti is realistic about the pros and cons of the format, not insulting people’s intelligence about why his firm focuses on the unit.
Anyway, for some time, I was considering writing a related piece on indeed how independent video producers (such as WatchMojo.com, the company where I am the CEO) can compete in the super-premium era. It was the first time I’d seen someone else use those terms, because for some time, we’ve separated “premium content” (what new media producers like WatchMojo.com produce) from “super premium content” (what TV networks and film studios create).
Rothkop’s three tips included:
1) Compete on quality.
2) Compete on price.
3) Compete on advertiser-friendliness.
As proud as I am about WatchMojo.com’s content, I don’t think that economics permit premium content quality to surpass that of super premium. It won’t happen. After all, with text content, a kid in a basement can pass off for a Pulitzer-prize winning journalist. In video, that is pretty darn hard.
So while his ideas are good, I would add that you should also compete on:
4) Rights: giving partnerships the opportunity to go global and multi-platform
5) Frequency: the drawback with traditional media is that it does not really update as frequently as online consumers of media (be it listeners, viewers, readers) are grown accustom to.
I could list a few other things, but the purpose here is not to give away too much of our secret sauce.
The purpose of this article, in fact, is to look at how traditional media companies can avoid the music industry’s fate by understanding how new media companies fit in their strategies and ecosystem.
Tenet 1: The Web Shrinks Traditional Media
Due to the economic meltdown and subseqent slowdown in advertising, a lot of cable companies are regretting putting their shows online for free.
It’s not just the cable companies, though. From Michael Lynton, the CEO of Sony Pictures, via HuffPost:
I actually welcome the Sturm und Drang I’ve stirred, because it gives me an opportunity to make a larger point (one which I also made during that panel discussion, though it was not nearly as viral as the sentence above). And my point is this: the major content businesses of the world and the most talented creators of that content — music, newspapers, movies and books — have all been seriously harmed by the Internet.
Is that true? I think the Web shrinks the traditional media business (producers of super premium content) by giving an enormous opportunity for new media creators like WatchMojo.com (producers of premium content) to disrupt things.
Tenet 2: Amongst Traditional Media, With Online Video: Those Who Can, Won’t. Those Who Want, Can’t
As I’ve long argued: online video can be a salvation to print media, at least they should care about online video. The problem is that print media lacks the DNA - be it in terms of asset or people - whereas TV-centric media firms have the DNA but lack the financial incentive.
Either way for traditional media, it does not look good. Those who can, won’t; those who want, can’t.
Tenet 3: Super Premium Content vs. Premium Content
On the traditional media video company side of things, you have companies who slant towards scripted entertainment, news and sports (CBS, ABC, NBC and FOX) and then the non-fiction ones, such as Discovery Communications, Liberty Media (who owns the Travel Channel), Scripps.
The advertising budgets in television are massive. As such, these companies spend what it takes to produce “super premium content”.
Memo to New Media Guys: Know Your Role
I don’t think new media producers have the budget or financial incentive to create super premium content. Startups who raise tons of venture capital money to do so end up making mistakes because they borrow traditional media’s inefficient and wasteful ways and burn a lot of money early on, before the web video market (be it in the form of ads or subscriptions) materializes.
This is why, I think, you have seen companies like Mania TV shut down. I am not saying they were producing “super premium” content but by attacking the music category, they ended up adopting traditional media’s bad habits.
At WatchMojo.com, we made a counter-intuitive decision to avoid focusing on one niche and produce content across the main verticals: Automotive, Business, Education, Fashion, Film, Food, Health, Music, Politics & Economy, Space, Sports, Technology, Travel, Video Game categories. A lot of accomplished people thought I was crazy to do so, but we are one of the few media companies (traditional of new media) that gets guaranteed, recurring licensing fees. Judging by our revenue breakdown, the bet paid off:
The proof is in the pudding: our content is of high enough quality to merit getting licensing fees, but in the really grand scheme of things, I am not delusional: I don’t pretend that our travel content is going to trump The Travel Channel’s, or that our Science videos will put the Discovery Channel on the brink of collapse, or that our cooking videos will put the kybosh on the Food Network.
Of course, that is not the point. Right now, our content beats 99.9% of the content out there, and the 0.1% that traditional media’s super premium content represents is still only being tested online. I think Discovery’s CEO David Zaslav is 100% right to say:
“I’ve spent a lot of time looking at the economics. If you take out a pen and you add it up, there’s not a lot of economics there [of putting full shows online]. The business model is not that strong…we get substantial value by distributing our content on dual-revenue-stream platforms, domestically and around the world. We’ve been able to take the best of our content and use pieces of it through HowStuffWorks.com or on our other sites..there’s no reason for us to take a fire hose and take a fantastically valuable library and make it available on the Web for free.”
He’s right. The web right now, and potentially never (yes, I am saying never), will grow large enough to become bigger than TV is today. However, I think that TV will shrink enough and online will grow enough for the Web to surpass everything else.
I’ve compiled the experts’ projections and ran the numbers myself, it is highly possible that online video advertising will surpass search ads by 2018 as online ads altogether take over television advertisings by 2021.
Tenet 4: Is The Objective Not Maximizing Value?
If and when that happens, the television business will have shrank by so much and online video companies will have grown so much that the disparity in market value could very well be in the favor of new media players.
Right now, it is a given that Netflix is worth more than Blockbuster. Netflix is worth $2.25 billion; Blockbuster all of $135 million. That’s right. But ten years ago, that seemed impossible and 13 years ago, Netflix didn’t even exist.
Mind you: in 2008, Blockbuster lost $375 million on revenues of $5 billion; Netflix earned $83 million on revenues of $1.3 billion. Ultimately, it’s about each company’s prospects.
Don’t get me wrong, in 10 years, traditional media companies like Walt Disney (parent of ABC and ESPN), CBS, GE’s NBC unit and News Corp.’s FOX division might make more money each year than any new media outfit, but mark my words, some of the new media outfits involved in the production and distribution of premium content (such as our own WatchMojo.com, but also the Revision3’s and Next New Networks and countless others who get less coverage) will be worth more than some of those venerable traditional media brands.
I know, I sound crazy now, delusional. But you judge for yourself:
In all likelihood, there will be an enormous amount of consolidation and an outfit that amalgamates the pieces will be worth a lot. If the traditional media guys get it right, they will outright buy everything in sight now, and leave them alone for a while.
I respect the hell out of the CBS brass, but while they made a prescient bet on acquiring Wallstrip, they dropped the ball in the market meltdown of 2008 by rushing to shut it down. Again, this is not about CBS or Wallstrip per se, it is about the interaction between traditional media and new media content companies as one market shrinks rapidly and the other balloons faster than anything else.
Tenet 5: Actually, TV Can Avoid the Fate of the Music Industry
I came across this graph by Magna Insights via the GrowYourBusiness blog. If we were to extrapolate it to the video business (all filmed entertainment, be it theatrical releases, home entertainment, or television programming), you’d think that television is as doomed as music, but it need not be that way.
Regular readers know that I don’t think anything will “kill” television outright, but this graph does suggest that online video will shrink traditional video, as was the case in music. There is a rationale to support this argument:- if the traditional media companies don’t legally make their content available online, then there is the threat of piracy. Think of music labels.
- if they do publish their content online, then they shrink their businesses via the threat of cannibalization. This is what happened to print companies, the more aggressive ones actually shrunk much quicker than those who weren’t very aggressive (think NYTimes, or the Chronicle).
But, I think it doesn’t have to be this way.
Here’s my thinking:
Music is one-dimensional in every sense of the word: it’s just audio, meaning that despite what the crack-smoking analysts seem to think, advertising-supported music is dead on arrival. For music to generate revenue online, it would require subscriptions, and consumers don’t want to pay. Media companies might pay record labels for the right to distribute music, but record labels want such massive fees that this becomes killer, too. So ultimately, because of music’s limited scope, there is really no viable business model to support it.
This is why music is increasingly seen as promotional fodder to drive merchandising, ticket sales, etc. The artists get it, the labels are adapting to it.
Video content is different. Ad-supported economic models won’t replace offline revenue streams, but they can grow to become material over time. Of course, this isn’t enough to offset the losses in traditional revenue streams, I get it, but in music, the independent artists that used the Web to promote themselves did not generate any revenue for traditional record labels per se, however, in video, new artists can represent new revenue streams for traditional TV and film companies. As such, to illustrate the point, in addition to digital sales off traditional libraries (represented by the purple), there would be additional incremental revenues from new media studios (represented by the green), as I’ve tried to demonstrate in the make-shift graph below:
But the same way that music has become promotional for other, related activities (merchandising, ticket sales), I would argue that if traditional media companies use the promotional card righ, they can actually stop the pace that traditional television is shrinking. Notice I didn’t say reverse it. I don’t think anything will reverse it, but with the web, they can optimize their inefficient production processes:
- You know what will be a hit and won’t be a hit without having to burn tens of millions of dollars in production fees.
- You can advertise your television and theatrical releases online, which is cheaper than offline media.
- etc.
The point is, even if revenues get clipped, costs should fall too. If this is managed right, then the traditional media companies’ can technically preserve their profit margins.
I think it is sheer lunacy to take a $1M production made for TV - where the economics are sound - and put that online and get nothing. But using the examples I outlined above, since audiences are increasingly online, I think there’s an argument to be made for:
- the Travel Channel to partner with us on our travel content;
- for Discovery Channel to partner with us on our science content;
- for the Food Network to partner with us on our food content;
- etc.
Tenet 6: Gobble, or be Gobbled
Eventually, though, I think traditional media companies can use new media companies for much more than just promotional vehicles. In fact, they can use the CBS/Wallstrip example and outright acquire new media ventures and commercialize the new media library while protecting the core value of their offline stuff, which can be showcased online, but not in its entirety.
Does this open the door for some piracy? Sure. But Wolverine was pirated but in the end, it probably helped augment buzz for the movie.
CBS is working now with EQAL, for example. Eventually it might outright buy them. It might not, of course.
Tenet 7: It’s All About the Multiples
Ultimately though, as the traditional media companies become more digital, via
a) the acquisition of new media companies
b) the digitization of some of their traditional assets
c) the convergence between shrinking offline revenues and growing digital revenues
their price-to-sales and price-to-earnings multiples will grow… meaning that the companies can remain very valuable, avoiding Blockbuster’s fate.
Tenet 8: Print Shall Strike Back
Of course, because print media companies lack the DNA to dive fully into video, and because online video is purely incremental, I suspect a lot of the print companies (both newspapers and magazine ones) will put the new media video companies in play on the M&A front.
It is possible that the current wave of managers in print still likes to stay within their comfort zone (behind a typewriter/computer) and not behind a camera, but the economic argument over time will be too great to overlook. To clarify on this point, it is not that I suggest that in 2009, online video revenue can make up for print loss of revenue. Rather, I suggest that print revenue will do dry up in the next decade and online video will so grow that these two will converge, and unlike for TV companies, this revenue will be incremental.
Tenet 9: The Reality Remains the Same, Though
But despite all of this, the reality remains the same: old media is fundamentally inefficient in today’s digital and connected world. Perhaps the carnage of the past 6 months has forced traditional media companies to cut back, but many have not. The NYTimes has a staggeringly large newsroom, its relevance and survival is at risk by leaner new media outfits.
Tenet 10: History Repeats Itself
A decade ago, a lot of savvy media folks didn’t quite recognize the full extent of online media’s risk to print. Today, the writing is on the wall.
Ultimately, if television wants to avoid the fate of music labels, then maybe it can dive in to the history of newspapers.
The media (and executives in general) like to say someone “gets it” or “doesn’t get it”. I think everyone gets it and doesn’t get it at the same time, to varying extent.
It all depends, frankly, on the cards you’re dealt. One guy who I personally think gets it quite a bit given the cards he’s dealt is Discovery Communications’ David Zaslav:
Discovery Communications Inc. chief David Zaslav is in no rush to put his content on Hulu, the online video site owned by NBC Universal and News Corp.
“We’re waiting to see if an economic model develops,” Zaslav said at the National Assn. of Broadcasters convention Wednesday in Las Vegas. Discovery does not shun all of broadband. It has made footage of its non-fiction programming available on YouTube as well as its own sites.
From LA Times blog via Business Insider. Is there a risk for Discovery to become irrelevant by not being online? Sure, of course there is. But the faster and more aggressively they move online, the smaller their core business becomes.
One of the biggest bears of taking long form TV content and slapping it online is Discovery Networks David Zaslav. Ok. Not true. You can put NBC’s Jeff Zucker ahead of David… who frequently complains about trading offline dollars for online pennies, but you get the point.
– Keeping it short: You will find plenty of short-form clips of Discovery’s shows, as well as some special features tied to its programming. But that’s about all you’re going to get, Zaslav said. “What you won’t see is any long form content on the web. There’s no value to doing that. We’ continue to run more and more clips, but we have a 20-year-old library and we’re not giving it away. As for where do we find additional value on the web? That’s something I don’t have the answer to.”
The funny thing is: I actually I think I have the answer to his question…
This quote captures the argument for made-for-web video content producers such as WatchMojo.com. Online video content is a sum of super premium from traditional media companies, premium content from made for web producers such as ourselves, and UGC:
- Yes, TV content is extremely valuable.
- No, web advertising will never be enough to make the TV companies able to make up the dollars they’re losing offline.
Online, the majority of the video content will indeed be UGCrap, with a sliver coming from super premium sources… those who focus on the middle portion of the following pyramid will capture the lion’s share of online video advertising dollars, whatever they might be!
Everyone is freaking out over the fact that YouTube is trying to monetize but 4% of its massive inventory.
Truth is, I thought that number was lower. But whatever the number, it’s a good thing.
YouTube is much bigger than its competitors. I do not think it’s easy for an outsider to realize just how much bigger YouTube is than Veoh, Daily Motion, Revver, Metacafe, etc.
We syndicate clips to a lot of places, and trust me, relative to its peers, YouTube is eons larger. We also syndicate clips to MySpace TV. MySpace is unique, in that MySpace.com is gargantuan, so if and when a clip gets a push off MySpace TV, it can spike your traffic.
Anyway, we love all of our partners… but the point I am making is that YouTube has so much inventory that even if it could sell ads across 100% of its inventory, all that would do in the short term is pummel ad rates because supply for video ads would shoot up but demand won’t change.
The problem is that the TV companies are generating the bulk of online video ad revenues, but they control their content, so you are seeing a bottleneck of video advertising revenue on a few major sites, such as the portals and the traditional media companies (and judging from the list below, the lines blur due to partnerships and joint ventures):
- Yahoo!
- MSFT and NBC’s MSNBC.com,
- Disney’s ESPN.com, ABC.com and Disney.com
- Viacom’s MTV.com, Atom.com, Spike.com, etc.
- News Corp.’s FOX.com, and MySpace TV (despite what the denigrators say, the much vilified MySpace did do $750M of Fox Interactive Media’s $900M in revenue, people)
- Time Warner’s AOL.com, CNN.com and related properties also probably generate meaningful revenues…
- CBS - who until its recent $1.8B acquisition of CNET was out of the Top 10 properties - has embraced a more open distribution strategy, but I suspect that will tilt to a more closed (or balanced) as it owns a larger web audience where it can keep 100% of revenues (this is why, I think, you will see CNET and CBS start to get more serious about web video, something that, well, both companies should be stronger in).
Then, of course, there is market darling Hulu, who reasonably and fairly can do no wrong. Hulu - whom many miss the point about its raison d’etre - can generate revenues off 100% of its inventory, but its inventory will always be relatively small compared to Veoh et al., let alone YouTube.
The problem is these high quality sites already charge an arm and a leg in ad rates for traditional placement (banners, etc.). Then for video, they want you to take out a second mortgage. Technically, new players like YouTube, Veoh, etc., would be ideal places for more cost effective video ads… but with these, the problem is UGC. In this case, UGC stands for User Generated Crap, or User Generated Crime (as in piracy). So net-net, advertisers balk and the entire inventory (or in YouTube’s case, 96%) becomes untouchable.
But here’s the thing, in YouTube’s case, this is a Godsend, anyway:
YouTube commands a 75% market share… maybe more. So even if it can generate revenues off only 4%, well 4% x 75% is still a meaningful chunk of the ad dollars up for grabs. Trust me, Google might refer to the 4% as a problem to get Wall Street off its back, but any self-respecting ad sales man will tell, it’s the inventory, stupid.
I am not saying that ceteris paribus (did we just break out the latin?), YouTube would not prefer more sellable inventory… of course it will… but that is over the mid and long term, when advertisers come on board and embrace online video.
Right now, they just ain’t.
Editor’s note: I knew we were speaking too soon. One more deal to add to the list: Time Warner to buy Quigo. Added to the bottom of the list, under ad networks.
According to The Jordan Edmiston Group Inc.’s October 2007 Client Briefing report, the number of deals through the first three quarters of 2007 exceeded full year 2006 figures: 637 transactions with $95B in value thus far. Do the math and that is $150M per deal, quite rich.
As such, publishing our list in November 2007 is a bold and potentially premature thing to do. Regardless, why wait?
What started off as a Top 10 list turned into a Top 27 list: then it got out of hand because we were comparing apples with oranges. We’re at over 30 M&A deals in web-oriented sectors that stood out.
The deals are not listed by size or order of magnitude, just a combination of value, strategic fits and long term potential. Others made the list due to the storylines, frankly, or because they took a while and garnered the media’s attention.
At least one, you’ll see which one, has yet to be finalized, but we expect that it will.
Enjoy, feel free to add, criticize, re-order etc. Surely we’re missing some major ones… some time in December, using emails, comments, suggestions and votes I’ll probably publish a top 10 list of 2007 acquisitions…
ONLINE/OFFLINE PRODUCTIVITY SUITES & COLLABORATION TOOLS
- Yahoo! acquires Zimbra for $350M
Yahoo!’s email service remains the most popular in the world, but when it comes to online meets offline office suites, it was sorely lacking, in particular due to Google’s encroachment onto Microsoft’s terrain against the backdrop of Yahoo!’s dead silence on the front. But, in one move, Yahoo! staked its claim to the party.
- Google acquires Postini for $625M
Google is trying to dethrone Microsoft’s grip on productivity suites while Microsoft is trying to encroach on online advertising. Google has bought Writely, launched a spreadsheet program and while these initiatives and acquisitions have gotten the vocal minority excited, they have failed to win the hearts and minds of corporate IT decision makers.
While we doubt one decision alone will make a change, the acquisition of Postini - makers of corporate email security tools and anti-spam software - could technically make a difference over time. Let’s face it, Gmail is indeed pretty cool, but corporations won’t be caught dead using it. Maybe by meshing Postini with Gmail, offices worldwide will stand up and take notice.
- Facebook acquires Parakey
In 2007, Facebook grew synonymous with hype. Anything the company touched, or sought to touch, quickly turned to gold. Mind you, the company’s torrid growth rate was nothing short of breath taking. But when Facebook announced that it had acq-hired Parakey, a yet-to-launch web operating system developed by Firefox co-founders Blake Ross and Joe Hewitt for an undisclosed price, people noticed because this meant that Facebook had MSFT in its cross hairs. Over time, MSFT made a $240M investment in Facebook, creating an alliance between the two firms, and suggesting that Google, and not Microsoft, was Facebook’s true nemesis.
See HipMojo.com’s post on the deal here.
- Cisco buys Webex for $3.2B
Webex was the first stock I bought, and the reason was simple: companies spend so much money on travel and phone calls are not always easy. Webex was a simple way to bridge the gap between people who needed to at least be on the same page when it came to sales calls and phone meetings etc. Webex who for the large part of the 21st centuy traded slightly above $1B in market cap ended up fetching quite a premium from Webex, selling for a whopping $3.2B.
See HipMojo.com’s post on the deal here.
PUBLISHING
- Answers.com acquires Lexico for $100M
Answers.com, whose parent GuruNet Corporation paid $57,000 for the URL moniker, turned around and paid $100M for the parent corporation of Dictionary.com and Thesarus.com, fitting for a company who bills its Answers.com site as the world’s largest Encyclodictionalmanacapedia.
Of course, Answers.com got far more than two sexy URLs, Lexico did decent revenue and earnings, too. But any way you dice it, the deal was rich, translating to:
- 35 times earnings
- 15 times revenues
- $9 per unique
See HipMojo.com’s post on the deal here.
- Discovery Holdings acquires How Stuff Works for $250M
How Stuff Works has been around for what seems to be forever. It raised $50M for expansion this year and many expected the company to be the one signing the checks, but by year’s end, the company’s interest in all things video led to its sale to Discovery Holdings for a whopping $250M.
See HipMojo.com’s post on the deal here and here.
- CBS acquires Wallstrip
On the one hand, as a fellow video producer at WatchMojo.com myself, I was happy to see Howard Lindzon’s Wallstrip exit successfully to CBS: it showed that one can create something of value in video content and, in all honesty, it created a floor price and a comparable… But, by the same token, I think Wallstrip sold too soon and for too little (nothing against CBS).
Ultimately, in the year when marketers spoke loudly against user generated content, it created a first example that professional made video could represent a valuable business if done right. If I dare say so, we’re now going to show just how much a video content creation and syndication business can scale and grow if you stick to your guns… but that’s for a separate post.
- Hearst acquires UGO for $100M
Men don’t read magazines. They’re watching less and less TV. Where are they? Apparently, online and playing video games. If that hypothesis and premise is true, then Hearst made a much needed investment to get into a video game publishing network targeting men, that of UGO. Incidentally, when Viacom and News Corp. vied for IGN Entertainment [disclaimer: my one-time employer after it bought the company where I was a partner], Hearst balked at the price tag, which hit $650M. But two years after that deal, the trend lines were clear: Hearst needed to get serious about reaching men online and the $100M acquisition of UGO was to serve as the spring board. UGO had raised $90M since its inception.
See HipMojo.com’s post on the deal here.
- CBS acquires Max Preps for $43M
High school athletics is a hot sector. High school sports are a key part of local content and local advertising has always been a huge market, and one that is up for grabs, particularly as newspapers see ad dollars flow to the Web. More importantly, high schoolers don’t spend as much time watching TV (not suggesting that all high school sports fans are actually high schoolers, of course). Combine these trends and you see why CBS’ acquisition of Max Preps was a smart one. After the deal, Max Preps was rolled into CBS’ College Sports Television (CSTV) and its network of websites. It’s always very important to hook consumers early on, and there ain’t a better time frankly than before the college years.
- Yahoo! acquires Rivals.com for $100M
$100M for a sports site geared towards college sports seems like a lot, for sure, especially when the previous year, News Corp. bought Scout for $60M and CBS bought Max Preps for $43M.
But when you consider that said company has raised $75M in venture funding and run by CEO Shannon Terry who made the list of SBJ’s Top 20 in Online Sports, you know the deal’s final price will get high.
Ultimately, by making the deal, Yahoo! leveraged its massive audience to become a main player in sports, rivaling FOXSports.com, SI.com and ESPN.com. Mainly, by holding out and seeing CBS and News Corp. buy Max Preps and Scout respectively, Yahoo! not only saw a floor being created for Rivals.com but also had to pay a premium to ensure that the company not fall in another media company’s hands.
See HipMojo.com’s post on the deal here.
- News Corp. acquires Dow Jones for $5B
I know what you’re thinking, did he fire six shots or only five, “Dow Jones is not online. I mean, it’s flagship product, the Wall Street Journal is not even free!”
My friends, Wall Street Journal has the single most successful subscription business and gets 10m unique users per month. For decades, lest centuries, media moguls and tycoons have pushed the mantra of synergies. Rupert Murdoch in one single transaction:
- acquires one of the two assets he’s always fancied (WSJ, other being the Financial Times),
- he gets the best springboard for his new Fox Business Channel,
- acquires 10M uniques on WSJ.com, or 17M in all if you include Marketwatch and Barron’s,
- has the right, but not the obligation, to open up WSJ.com and make it into the most valuable place advertisers can reach the world’s wealthiest and most influential readers.
If you consider all of the variables, that’s one helluva deal.
SOCIAL MEDIA
- American Greetings acquires Webshots for $45M
Forget the fact that Webshots remains a strong brand that just a few years ago was bought by CNET for $70M, but Webshots is actually very complementary with American Greetings’ business. Photosharing has become a huge market, and while in CNET’s hands Webshots needed to be a leader in its space, under a company like American Greetings, it need not be. Moreover, while in the hands of CNET Webshots needed to generate sizable ad revenues (given how many pageviews it generates), in American Greetings’ hands, it need not. In other words, American Greetings is buying a large online property that is very strategic to its core business at a discount. That’s a great deal.
- CBS acquires Last.fm for $280M
Extra! Extra! Read all about it: CBS’ (and traditional media in general) core businesses are shrinking. CBS is the world’s largest TV company in terms of ratings, the largest outdoor company and second largest radio company. But like TV (and print), traditional radio is shrinking, so CBS made the prescient move to buy Last.fm. Similar to Pandora, Last.fm allows users to find new music based on their tastes and the overall community’s listening patterns. Was Last.fm the absolute best and biggest site out there? Probably not, but when you are CBS, you cannot pull a Bertelsmann and invest in a Napster-esque company that has burned more bridges than [won’t go there but insert anything you wish here].
See HipMojo.com’s post on the deal here.
- Cisco acquires Tribe
Cisco is no stranger to acquisitions, of course, but it usually acq-hires teams of engineers or technology. But by buying Tribe, one of the earlier social networking sites, did Cisco signal a shift away from Sun Microsystems’ mantra that “the network is the computer” to social networking is the Web? Perhaps, time will tell.
Ultimately, it’s a tacit admission that the web will become central to, well, everything.
See HipMojo.com’s post on the deal here.
- Nokia acquires Twango for $96.8M
Twango combines online storage with social networking, allowing users to organize and share photos, videos and other personal media.
Twango was founded in 2004 by former Microsoft employees and has around 10 employees. The deal is estimated to be just under $100 million, $96.8 to be precise. That’s right, it weighed in at $10M/employee. Twango is a small step in the seamless transferring of files from handsets to PCs. The fact that Nokia made the acquisition suggests that Finland’s most valuable company should not be seen as a telecommunications hardware company alone.
- News Corp.’s Fox Interactive Media/MySpace acquires Photobucket for $250M
Photobucket’s acquisition by MySpace makes the list mainly because the storyline behind it was pretty soap opera-ish. Photobucket builds business - according to MySpace and FIM executives - a la YouTube by leveraging MySpace’s audience and community, then adds insult to injury by trying to run ads in their slides.
Then Photobucket’s M&A advisors Lehman Bros. whisper their asking price: $300-400M. A lot of people scratch their heads. Of course, fearing a repeat of YouTube, where a company grew thanks to MySpace but sold to someone else, News Corp. blows a gasket and its MySpace site blocks Photobucket.
Suddenly, value of widget-driven businesses and Photobucket in particular plummets. Back channel diplomacy ensues, coup de theatre follows in the shape, form and fashion of a $250M buyout by News Corp.
In fact, the rumor of an impending deal broke out in early May, and the deal was formally announced on May 30th.
See HipMojo.com’s post on the deal here.
- Hi-Media acquires Fotolog for $90M
When European online marketing juggernaut Hi-Media announced its acquisition of Fotolog, eyebrows were raised. On the WTF? side of the argument were those who said: “using Fotolog’s forecasted 2007 revenue of$2.3M, a net-of-transaction fee sale of $90M implies a pretty rich 39 prices-to-earnings ratio. That’s rich. But, the counter-argument was that Hi-Media was acquiring a community of image-crazed users for 1/3 of what News Corp. paid for Photobucket; yes, call it the reverse fool theory. With $15M in financing, a $90M payout was part of the lure, turned out that the institutional shareholders of Fotolog decided to hold on to their stock holdings of Hi-Media. It should be noted, that just before the acquisition, Fotolog had signed a $75M advertising deal with Google, over 36 months, or roughly $2M per month.
See HipMojo.com’s post on the deal here.
- MSNBC.com buys NewsVine
What does this mean for Digg? We don’t know, but last year, the leader in social bookmarking and news, Digg, supposedly asked for $150M from News Corp. Rupert Murdoch balked, launched MySpace News. I’m not sure how well MySpace News is doing, I suspect Digg is doing quite well, but the fact remains, I doubt Digg will get $150M (then again, a sucker is born every second) because Stumble Upon’s $75M price tag and NewsVine’s price tag imply a lower value for Digg.
Of course, this is a post on NewsVine, not Digg. I can’t understand really the logic and prevailing wisdom to sell NewsVine, a company who had raised less than $2M in financing and who was riding high as America is about to enter an election season and NewsVine’s core focus seems to be political… but, I digress. On MSNBC.com’s part, this marked the NBC/MSFT joint venture’s first acquisition, ever.
E-COMMERCE
- Hearst acquires Kaboodle for $40M
Hearst bought a handful of companies this year: UGO for $100M, which was pricey but not very expensive for a company that raised $90M of funding since inception. But given Hearst’s traditional business focus in magazine, the deal for Kaboodle is intriguing because it allows fashion and retail advertisers - two of Hearst’s main clients - to tippy-toe online and connect branding with purchasing. If Hearst can pull this off, the combination can become powerful, and valuable. Will they? Big old media doesn’t have the best track record, admittedly, so time will tell.
See HipMojo.com’s post on the deal here.
- eBay acquires Stubhub for $310M
eBay = auctions, Stubhub = scalping. It didn’t take the MBAs very long to see fits. Speaking of graduate degrees, founders Jeff Fluhr and Eric Baker owned roughly 35% of the company and with $15M in funding over the years, they managed to build a controversial but successful company that did $100M in sales and $10M in EBITDA. The company’s backers included Allen & Co, Blue Water Capital, Pequot Ventures and Staenberg Venture Partners.
SEARCH, NAVIGATION & DIRECTORIES
- R.H. Donnelly acquires Business.com for $345M
When word got out that Business.com might be selling for over $300M, the natural reaction was to think “the bubble is back”. After all, just a few years ago, founders Sky Dayton and Jake Winebaum acquired the URL for $7.5M from Marc Ostrovsky. At the time, even I thought “will they ever generate $7.5M in revenues off the site, over the course of its lifetime”? Of course, when Dayton and Winebaum bought the URL, Google had yet to create the keyword ecosystem that today underwrites much of online advertising. While critics maintained that by 2007, Business.com was little more than a directory of resold Google text ads, R.H. Donnelly saw salvation for their shrinking print directories and agreed to acquire the firm for $345M.
See HipMojo.com’s posts on the deal before it happened here and afterwards here.
- eBay acquires Stumble Upon for $75M
Stumble Upon’s 2.3 million users and 5 million daily recommendations caught the attention of AOL, Google and eBay, and ultimately, after valuations ranged from $40-75M for a few months, eBay walked away the winner. When the rumor popped up and few understood the logic, though technically, like eBay’s Skype acquisition, the prevailing wisdom of the leading auction community to acquire a leader in “stumbling navigation” makes sense. Of course, that’s what was said about Skype too, and this year eBay wrote down a chunk of that acquisition, even though the fit was even stronger there. Stumble Upon raised less than $2M, which means that founders Garrett Camp, Geoff Smith, Justin LaFrance and Eric Boyd walked away with a nice payday each. Lesson for entrepreneurs: success did not come over night, the site was founded in 2000!
See HipMojo.com’s post on the deal here and here.
- Microsoft acquires Medstory
For all of the talk about vertical search engines being the next great thing, very few case studies proved to be profitable exits. Then came along Medstory and the battle for health information, which led Microsoft to acquire vertical search player Medstory as Google, Yahoo! and Microsoft all vied for search market share and to become the gateway to users’ health information online.
COMMUNICATIONS, WIRELESS VOICE SERVICES
- Google acquires Grand Central for $45M
Let’s face it, financially, Google remains a on-trick pony with 99.9% of its revenues coming from paid search ads and the two related products: Ad Sense and Ad Words. But Google’s product assortment has grown very attractive, from GMail, to Maps, Google Earth, YouTube and soon Doubleclick, Google is certainly laying down the foundation to become a diversified new media and technology company. In that vein, the acquisition of Grand Central to arm users with one number on any platform is consistent with Google’s global and multi-platform ambitions. In fact, at $45M, the deal was cheap and provided good value to Mountain View.
- Microsoft acquires TellMe for $800M
TellMe is “a leading provider of voice services for everyday life, including nationwide directory assistance, enterprise customer service and voice-enabled mobile search.” If the price tag weren’t so darn high, it would surely be higher on this list. Regardless, this catapults MSFT into voice services and voice-enabled mobile search, which a few short years from now will actually help it quite a bit against the #1 and #2 in search, Google and Yahoo!, respectively. While $800M is a large price, if it can execute on that alone, the deal can be a enormous coup for Redmond.
MOBILE AD NETWORKS
- AOL acquires Third Screen Media
Indeed, to quote the Wall Street Journal’s Kara Swisher, new CEO Randy Falco has been busy torching AOL’s Dulles, Virginia’s HQ, but while he’s been doing that, he’s also been making some bets on the next growth area: wireless. In 2007, AOL bought Third Screen Media, a mobile advertising network and ad-serving management platform provider. Will this be a repeat of Advertising.com’s $435M which today drives most of AOL’s top line? Who knows. I doubt it, wireless is way too embryonic, today. But one day, when cars fly and everyone has a pony, wireless entertainment and mobile advertising shall inherit the earth. Time will tell if Randy Falco will be ruling the fiefdom when that happens.
- Nokia acquires Enpocket
In the emerging mobile content and advertising market, Nokia hopes to expand its footprint beyond hardware. To achieve its goal the handset manufacturer agreed to acquire Enpocket to build its advertising platform.
Though Nokia has a content and advertising presence in Europe, its wanted to expand there and elsewhere, including the U.S., through internal development and acquisition. The Enpocket acquisition follows Nokia’s buy of social media sharing service Twango, as well as internal moves toward content publishing.
Enpocket has customers in the US, Asia, and Europe, including Vodafone, Telefonica, British Telecom, and Sprint. It delivers advertising across a variety of mobile formats, including SMS, MMS, mobile Internet, and video. Its customers include both carriers and the companies with which they do business, most notably Pepsico.
In some ways, this deal was in the same vein as Microsoft’s acquisition of European mobile ad firm ScreenTonic with the intention of integrating its capabilities into adCenter: “We want to deliver a platform that helps advertisers buy across all digital mediums,” said Joe Doran, GM of Microsoft’s digital advertising solutions. “As we build out the breadth of our platform, we are continuing to invest against that vision.”
- Nokia acquires Navteq for $8.1 Billion
Nokia is the world’s largest manufacturer of cell phones. Nokia owns this market, basically, and any acquisition it makes is bound to have ripple effects. NAVTEQ is a leading provider of comprehensive digital map information for automotive navigation systems, mobile navigation devices, Internet-based mapping applications, and government and business solutions. NAVTEQ also owns Traffic.com, a web and interactive service that provides traffic information and content to consumers. The Chicago-based company was founded in 1985, generated 2006 revenues of $582 million and has approximately 3,000 employees located in 168 offices in 30 countries. Incidentally, “Internet and wireless” make up only 5% of Navteq’s revenues, compared with 25% from mobile devices and a whopping 62% from in-dash navigation systems.
Translation? Lots of upside in Web and mobile revenues and the creation of a very powerful wireless and local ad network, perhaps?
AD NETWORKS
- AOL acquires Tacoda for $275M
One of the bigger and hyped phenomenon (fairly or unfairly) of web advertising remains is behavioral targeting (BT). Rightfully, to better optimize inventory and users, and to make the promise of web advertising a reality, BT has a role to play. But AOL’s acquisition of BT also demonstrated BT’s inherent limitations: few sites want to partner with BT firms, they want to own the data and underlying IP. Will it be an Advertising.com type of payoff? Time will tell, but Tacoda within AOL is worth far more than outside, in that sense, this deal made sense…
See HipMojo.com’s post on the deal here.
- Google acquires Feedburner for $100M
Google paid $100M for a company with $10M in revenue. Regardless of the financial merits of the deal, the fact is that had Google sought to emulate Feedburner (even had Feedburner not existed), the media companies that partner with Feedburner would not have allowed Google to access such private and valuable data. In other words, Google bought something that was worth many times more to Mountain View as in a year where it had become more and more enemy than friend.
See HipMojo.com’s post on the deal here, Google Buys Feedburner and Encroaches on Organic Ad Results.
- Yahoo! acquires Blue Lithium for $300M
Blue Lithium’s focus on introducing large, sexy brands to the virtues of advertising networks is legendary. Before more and more larg, Fortune 500-type marketers embraced running online ads - let alone using ad networks - Blue Lithium stood out of the clutter with a product and service that appealed to both sides of the online advertising ecosystem. Once upon a time, Blue Lithium’s management even talked of its advantages and strengths over online ad champion Google, but then lo and behold, Yahoo! acquires Blue Lithium for $300M to maximize the monetization of its ad inventory and to bolster its online advertising network both outside Yahoo!’s burgeoning media properties.
Given that the next wave of growth in online advertising will be display / banner ads (after video) and that will come from Fortune 500 marketers, this is a move that can pay off considerable dividends to Yahoo!
See HipMojo.com’s post on the deal here and here.
- Google acquires Doubleclick for $3.1B
Technically, this deal has yet to go through. But we added it onto this list because it shows that Google is completing its arsenal of web tools. Starting off with search, then video (YouTube), then email/newsletter (Feedburner) and now display/banners (Doubleclick), Google has the potential to circle the loop of online advertising.
We’ve covered this deal ad nauseum, so we’ll simply link back and leave you with this quote from one of our posts:
“When a lot of people said Google just hit a home run in online advertising by buying DCLK, they were wrong because saying DCLK is an online advertising play is akin to saying MSFT is strong with ad agencies because ad agencies use powerpoint in their client pitches. DCLK sold all of its media assets to L90/MaxOnline when ad rates were low and no one really paid CPM rates, and got into software only”
But, that notwithstanding, Google buying Doubleclick is a key deal because it bolsters Google’s online advertising software suite, which in itself helps it attack MSFT on many more fronts.
See HipMojo.com’s post on the deal here:
- Google Buys Doubleclick for $3.1 Billion; Blocks MSFT Acquisition
- Questions in Wake of DCLK/GOOG Deal; MSFT/YHOO Repercussions?
- Two Variables in DCLK/GOOG Deal: Dart for Publishers/Advertisers; All Cash Deal
- Why GOOG’s DCLK Makes Little Sense (To Me)
- DCLK Winners: Hellman & Friedman; Losers? DCLK’s Shareholders?
- aQuantive Under Spotlight
- Yahoo! acquires Right Media for $750M
Technically, Yahoo! paid $45M for 20% of Right Media first, then less than a year later, it paid $680M for the 80% it did not own. Right Media was unique in that it worked with other ad networks to allow publishers to create an auction process for a publisher’s long tail inventory. On a property like Yahoo! alone, with billions upon billions of remnant, unsold ad inventory, such a platform can be worth billions each year.
And, as Yahoo! develops its network online (away from Yahoo!-owned sites), Yahoo! liked what it saw enough to justify pushing up the price of the asset four times in less than a year.
See HipMojo.com’s post on the deal here.
- WPP acquires 24/7 Realmedia for $649M
WPP is one of the largest agencies in the world, a marketing behemoth with huge ambitions in digital advertising. It got one step closer to that when it bought 24/7 Realmedia, getting an advertising network, an email newsletter business, search marketing tools and much more. With its extensive advertiser relationships, WPP is sure to get enough bang out of its $649M bucks.
See HipMojo.com’s post on the deal here.
- Microsoft acquires aQuantive for $6 Billion
Microsoft generates very little from advertising. In the future, all advertising will be planned, bought and managed on digital platforms. And digital advertising will be larger than all offline advertising. Furthermore, targeted/tracked (web) advertising will command a considerable premium to non-targeted and untracked advertising. As such, for MSFT to win aQuantive - the crown jewel in the sector - it had to pay a commanding premium.
Like it or not, the market determines how much an asset is worth, which in turn is a function of demand and supply. aQuantive had a range of suitors, and the company that wanted it most ended up paying for it. MSFT’s acquisition of aQuantive can be a game-changer for MSFT if it does not botch it up.
See HipMojo.com’s post on the deal here.
- Time Warner acquires Quigo for $340M
Quigo, which signed a deal with Time Warner’s magazine division, Time Inc, and has more than 500 publisher relationships, is an Internet ad-targeting company that lets advertisers buy sponsored listings, much like Google’s AdSense, based on keywords or subjects.
AOL in September restructured its advertising business, consolidating ad network Advertising.com; Tacoda, which targets users based on their habits; wireless ad network Third Screen Media; video ads company Lightningcast; and ADTECH, a global ad-serving company, into one division.
What did you think of the list? Corrections, suggestions, comments etc., add to comments or email me at ash@mojosupreme.com.
Raise your hand if you’re a TV executive. Great, thanks. I see many of you are.
Now raise your hand if you’ve got a clue what to do regarding the Web. Hey, where did everyone go?
Media Malaise Reported in Mainstream Media
NYTimes has an interesting piece about how media firms are starting to take risks by acting like VCs:
NBC and another division of General Electric announced a $250 million investment fund last spring. There are venture investments from the Warner Music Group, the Hearst Corporation, Reed Elsevier, Comcast, The New York Times Company, Universal Music, Reuters, ABC and Disney and Sports Illustrated.
Apart from acting like VCs and investing in tech and new media startups, media companies have been taking greater and greater risks with acquisitions, too, in the process of driving up asset prices.
Some recent deals, such as the one where Hearst buys UGO for $100M, is just one example. As consumers ebb away from offline media to online, traditional media companies are starting to take bigger risks.
This week, Discovery Networks plunked down $250M for Atlanta-based How Stuff Works.
Let me say right off the bat that I absolutely love Discovery’s programming. In fact, when we at WatchMojo.com produce video segments such as the Wonders of the World (Ancient, Modern, Natural) or the feature on the planets and our solar system, you can smell the inspiration from light years away.
Let me also repeat that I like HSW and respect everyone there, even having met a few of the folks in person. I’m extremely happy for them and their big payday.
But it must be said, the deal is odd in that Discovery wants to funnel their hundreds of hours of programming from TV to the web via HSW. I see a few problems with that.
First, that sounds great in theory but that’s awfully akin to shoving ten pounds of meat in a one-pound bag. HSW, despite its great brand and content, has 5-10M uniques (US/global) only. To pop up in the Top 10 or 20, if not 50 sites, you need many more uniques than that… to move the needle, Discovery needed a bigger play, in fact.
I spent some time looking at Discovery Communications financial statements, it’s a $7.75 Billion market cap company, did $688 Million in revenue in 2006, flat from 2005, when it did a tad more at $694 Million. You don’t need a math degree to realize that flat revenues are not welcome and unless the company changes course it will suffer the same fate as print companies: a shrinking business, as users move online. But was paying $250M for one content company that is text-based the best thing to do?
Yes, would argue the M&A folks.
“We’re way behind in new media and digital,” says CEO David Zaslav, who has shaken up Discovery since taking over in January. “I don’t think we win just by building vertically.”
It helps that HSW’s search engine optimization is strong, the theory, then, is that as users land on HSW, they will now see video from Discovery, which the merged entity can sell ads against and make that $694M go up, right?
Video Ads vs. TV Ads
Well, that’s the game plan, but while TV ads account for a $75B market in the US alone, web video ads did $439M last year, will do $750M this year, and are pegged to do $3.1B in 2010 and $4.3B in 2011, with worldwide video revenue online crossing $10B by 2011…
As you can see, the entire online video market did less last year that Discovery booked in all, and will do slightly more this year. Video ads online will only take off in the next 18 months, but it’s started already. But this begs the question: how much will go to Discovery/HSW, time will tell. Clearly, the planners within Discovery felt that at present time, without HSW, the answer to that question would have been pretty darn close to nil. With HSW, the argument is, it should be something, hopefully something material.
But when you consider that YouTube - the largest video site in the world, far and away - only did $15M in 2006, or 3.4% (out of $439M in all last year), you have to wonder if plunking down $250M for a site with 5 to 10M uniques is money well spent (comScore shows HowStuffWorks with 3.9 million unique U.S. visitors in September, up 74 percent from a year ago, and with 18 million page views, up 40 percent).
Of course, it should be added that Discovery’s digital team is now led by former NBC executive David Zaslav, so the notion of remaining in full control of their content and distribution channels is expected, but it’s not the trend online.
Property vs. Network
YouTube’s explosive success (we ranked it the most explosive startup ever) was largely due in part to embedding video. Of course, when you don’t own the rights to the video, you don’t care where it lands. But if you own the content, surely you care where it ends up, so you want to be in control of the player and the advertising revenue attached to it, once the market for web video ads crystalizes.
Viacom Kills TV Business?
That’s why, I guess, it’s not a surprise that this week another media company did something interesting: Viacom decided to put the archive of Jon Stewart’s Daily Show, online, on their own site. From Paid Content:
As to why this made sense: “People should be reacting to ‘The Daily Show’ on its own site…God bless them doing it everywhere else, but this should be the epicenter of it,” said Erik Flannigan, EVP of digital media at MTV Networks, in a THR story.
The site will be ad-supported: LAT says designers have been experimenting with ads that appear for two or three seconds at the start of a clip, recede, then emerge briefly from a corner of the picture like a network-TV promo while the video continues playing.
Of course, not all strategies will pan out: either folks will go directly to Dailyshow’s website or to aggregators like YouTube, right? Well, that’s exactly what Rich Greenfield, the analyst with Pali Research wrote on his blog
“While there may always be a place for content aggregators, we believe the ease of going directly to content-focused sites such as The Daily Show and the ease of a Google search for content makes it hard to understand the value of the entertainment or television sections of AOL.com, Yahoo.com or MSN.com.
I work with content aggregators, we use them as additional distribution outlets, so naturally we wish them success… but you don’t need to be a genius to see which ones will remain relevant and which ones will flop. I can see, day in, day out, how many people watch our videos on each network. With 2,500 videos (4,000 if you count everything we’ve filmed but yet to publish), I have a unique dashboard on how each video aggregator is doing and growing, and Pali’s Greenfield is not wrong.
The problem is, I’m not sure if Viacom’s desire to retain full control of the content makes sense. Alternatively, CBS has taken the opposite strategy, by striking non-exclusive deals with everyone and anyone. Its reach has soared as more eyeballs have access to their content, but time will tell if the strategy pans out when ad dollars really shift to video advertisement online. Will CBS’ strategy prove to be the better one, I don’t know… we shall see.
What about the 800-pound Gorilla, Google?
Of course, in a certainly unrelated move, Google introduced a content ID protection tool at around the same time they start running ads alongside content.
But, I’m sure that is just a massive coincidence, right?
Who Will Win the Online Video Ad Sweepstakes?
Google commanded 40% of US ad dollars in the first six months of 2007, it paid out over $1B in Q2 alone to publisher partners, sure, but the point is at the starting point, Google has the lead.
It also owns YouTube, the biggest ecosystem of web video content and eyeballs in the world. So while I think media companies have fantastic franchises, assets, and upside, I also fear that they’ve been suckered into a game of who can most aggressively leverage the Web, which for a media company that relies on a $75B US TV ad market, means that their businesses are going to shrink quickly as consumers and ad dollars flow to the Web.
Of course, traditional media companies will never fully use the Web as a distribution outlet, they’ll use it as a promotional outlet because the ad market is tiny online while it will remain considerable on TV. As such, the notion of giving users a bit but not all will help the shift of dollars to the Web, but ultimately, in this context, moves by Viacom and Discovery really only accelerate their businesses becoming smaller.
After all, as I’ve written frequently, US advertising (total) is a $250B market, only $17B was spent online… but marketing remains uber-ineffective… as marketers wise up and shift more money online, I think that the total pie might not really grow all that much… at least not in the US, in some offshore markets, but that’s a separate post for a separate day.
HSW is one of my favorite sites, I rarely check it now because I’m so busy with managing WatchMojo.com but it’s a fine example of skipping the UGC hype and sticking to creating high-quality content. By way of disclaimer, I should admit that in the past, I’ve worked with HSW in various capacities.
That being said, HSW is a classic textbook example of new media done right:
Founded by Marshall Brain early on, the company went through the dot com bubble and survived, eventually being acquired by WebMD’s founder Jeff Arnold’s investment arm: Convex Group. The company has raised $75M - separate from a $50M investment for its international joint venture, which today PaidContent mentioned was excluded from today’s grand slam sale to Discovery Networks for $250M - before its sale today.
$250M. Wow. Hats off to the entire HSW and Convex team.
A few thoughts:
“Synergy”
- Discovery has plenty of video in the offline world, but online, they’ve stalled, so by marrying their premium video to HSW’s online mojo, then 1+1 could in fact yield 3, if not more. Time will tell if this deal is as successful in practice as the theory suggests… I think once traditional media companies see just how much smaller the online video ad market is to the TV space ($750M vs. $75B), and they see the accelerated path of offline ad dollars to the Web, I really do wonder if they’ll stick to their guns and shrink their businesses in favor of online opportunities.
Buy, Don’t Build
- But, that being said, it does show that you need to acquire and not build if you want to be taken seriously: it would have taken HSW ages to build up a sizable video library… and conversely, it would have taken (and has taken) Discovery quite some time to ramp up online.
Think Big
From a management and growth perspective, here is the main thing all entrepreneurs need to realize.
When I worked at the midsized online publisher from 2000-2005, we were roughly the same size - of not larger - than HSW. Sure, they were far more informational (we were entertainment-oriented) but they decided to stick to their guns, raise $75M and go deep, way deep.
The main principals at my company did not have the stamina to bide their time, so they accepted a purchase offer in 2005 that increasingly looks cheap (this isn’t a hindsight is 20/20 kind of comment, even back then, we got one inquiry from a VC firm but the principals could not be bothered, they accepted the only offer they got).
Point is, Arnold to his credit has thought big over and over and over again. Even before WebMD, he turned a $25K investment into millions, then with WebMD he built the quintessential successful web 1.0 startup which now is a $3B market cap company… and by identifying properties like HSW for his Convex Group, he just proved that third time is indeed the charm.
The lesson for entrepreneurs is simple: once you start an enterprise, don’t become a low expectation you-know-what once you see the light at the end of the tunnel, as one successful entrepreneur (About.com’s Scott Kurnit) told me, don’t just aim for the fence, “knock the cover off the ball!
PLAY
