The Misplaced Bet on UGC
Back in 2006, we’d get the occasional call from someone pitching us a turnkey solution to add User-Generated Content (UGC) videos to our WatchMojo.com property, which houses professionally produced videos we have created.
At the time, I thought it was an odd pitch, akin to adding a half liter of malt liquor over graciously aged scotch. Biased no doubt as the producer of these clips on WatchMojo.com, I tempered my prejudice and disdain for UGC and said, maybe, just maybe, UGC is the great next big thing, and advertisers will catch on.
Mind you, having served for 6 years as a VP of ad sales at a Fox Interactive Media-acquired property, it struck me as odd. The advertising ecosystem has long been a tiered on involving marketers, publishers and users. That was not to change in my opinion.
That part regarding advertising is key, for in this free, ad-supported ecosystem we’ve created online, no self-respecting consumer pays for anything; advertisers are supposed to foot the bill for both content and technology.
2008: The Flight to Quality
Fast forward to 2008, and things they have changed. For one, no one calls us with such offers, in fact, the calls are coming in asking for the right to license and syndicate our library of professionally produced, premium content.
While this is refreshing to hear for us, I do believe that it spells a potentially doomsday scenario for many of the aggregators of video content as well as suppliers of the broader video space, namely hosting companies and content delivery network (CDN) firms.
UGC’s Impact on Media, Publishing, Marketing and Advertising
Numerous companies raised a lot of money betting on UGC, expecting the so-called wisdom of the crowds to change the rules of engagement in media. Indeed, social media (of which UGC is a subset) has changed the dynamics of publishing, but advertising will remain largely immune as marketers won’t come near it. In fact, the only real impact UGC shall have on advertising is depress advertising rates as an influx of ad inventory floods the marketplace.However, a solid 5 years into the UGC video “revolution”, it’s clear that advertisers are not impressed. eMarketer just reduced the forecasts for social advertising: The company is projecting that by 2011, advertisers will spend $4.3B worldwide on social networks; it had previously guessed the number would be $4.7B. It also took down its US 2008 estimate to $1.4B from $1.8B. You won’t see that in any investor decks, I’ll tell you that.
This spells a lights-out scenario for many in the space, let’s consider the domino steps to explain why.
Today Chad Hurley, co-founder of YouTube, suggested that affiliate marketing (the low paying, low hanging fruit in the marketing ecosystem) might become a source of revenue for YouTube. This year, analysts have been throwing darts at the board trying to guesstimate YouTube’s earning power. As a professional content provider to YouTube, I can probably add my own two cents, but in this post, that makes no sense… and with an NDA in place, that would be folly. So as usual I will keep the comments to the market as a whole. To read our 2006-era estimate of YouTube’s earning power, potentially the first one conducted on YouTube, click here.
The point is: apart from YouTube’s massive, outlier $1.65B sale to Google, every single YouTube competitor in the social networking file sharing video segment has been throwing airballs and putting up donuts on the scoreboard that matters most: making money, either via income or via capital gain. It seems, in fact, that the only time money is even an issue or in the news is when one of these firms raises a ridiculously high financing amount. As I like to say, success should be measured by return on invested capital, and not invested capital.
Measured by the former, practically all of these firms are flamboyant flops. Measured by the latter, granted, they’re smashing successes.
What Should These Sites Have Done?
In essence, VCs have financed these UGC sites to spend money on hosting. Oftentimes, these hosting firms are engaged in price wars with other hosting firms (or CDN companies) that the same or other VCs have invested in. Then, these companies go public and they flop. Case in point: Limelight Networks, who has put up a disastrous return since its IPO. Limelight raised $130M from Goldman Sachs before its IPO.
Quality vs. Quantity: Are You Better Off?
Well, first off, remember that while social media/UGC is a numbers game where you hope to generate 1 billion impressions; and then sell those for $0.10 CPM. The math is simple: 1B impressions x $0.10 CPM equals $100,000.
With professional content, you can build a lucrative business on 10M impressions and then sell those for $10 CPM, which once again running the numbers yields a revenue of $100,000. This was further discussed in our Hulu vs. YouTube: Quality vs. Quantity post.
As a business person, I much rather take my chances building the business that needs to hit 10M impressions.
But, if you are a VC who invested $10M in a CDN or some infrastructure company, you get far more value by investing in a video file sharing site that can house tens of millions of videos and generate 1 billion streams, even if pound-for-pound, those streams are of lower value. This is especialy true if you’ve never sold a single ad deal, and don’t understand the ad business, as most VCs don’t. Of course, it does not help that VCs have a predisposed bias against content businesses, anyway.
As a result, the bulk of video aggregators essentially spend their VC funding on hosting, CDN, etc., and other non-differentiating costs instead of things that could get advertising money in the doors. Advertisers really don’t care where you house your clips and who your CDN provider is, they do however care about the quality of the content.
In other words, instead of footing CDN charges to host crappy UGC videos that are unmonetizable, these companies should have licensed professional content instead.
Chicken, Meet Egg.
As a content producer, I am biased. But the truth is, it’s the other way around. It is not the fact that I am in the content business that I am biased. I have a belief that advertisers seek professional content, so I am in the business of producing high-quality video content.
In the same vein, content owners are now turning their backs on speculative revenue share arrangements and demanding guaranteed money not because they did not initially believe in the idea of revenue sharing, but because the aggregators loaded up their sites with so much crap that they became unmonetizable.
However, had these aggregators taken a portion of their massive funding and licensed professional content and combined that with their burgeoning audiences, they would have been in a very strong position to profit from it.
But don’t take it from me, take a look at Hulu (for more on this, read Mark Cuban’s post). Admittedly, Hulu had a unique advantage what with being owned partially by News Corp. and NBC Universal. Hulu does not need to pay out for content because it leveraged NBC and News Corp.’s content to come out of the gates.
Hulu came to market 2 years after Google bought YouTube. It also came to market years after the YouTube clones had raised boatloads of cash. But when the dust settles, YouTube and MySpace TV will remain standing, along with Hulu. As per all of the others, I suspect one, maybe two will remain in business. The others might cease to operate not because their traffic is stalling, but because they will be perceived as largely untouchable and undesirable to advertisers. There are way too many low-quality UGC clips on those sites for advertisers to care to bother with. Consequently, advertisers will continue to seek a distance between professional and low-quality (or pirated) content. They’ll have no one to blame but themselves, because they got lazy and arrogant about the value of content.
For the record, WatchMojo.com syndicates content to YouTube, MySpace TV, Hulu, Veoh, Daily Motion, Revver, Metacafe. etc. etc. etc. and genuinely wants every single aggretator to succeed, because marginal distribution - while susceptible to diminishing returns, too - is always welcome.
In the end, sure, YouTube will have walked away with a $1.65B payday, but when you consider that since 2006 the online video has garnered $1B in VC investment, suddenly, you wonder if that’s anything to write home about.
Moore’s Law is Meaningless in an Environment Devoid of Revenues
Back in the day, YouTube’s hosting fees were said to be $1M per month (according to a piece by Dan Frommer in Forbes, he is now at SAI). Today it’s rumored to be $1M per day (according to Fortune’s Yi-Wyn Yen).
YouTube commands 75% market share, Veoh (placed #5) has 1%. In other words, Veoh, Daily Motion, Metacafe et al. are not spending $1M per month, let alone a day, but they are spending alot. Veoh has raised $80M in funding, Metacafe and Daily Motion are at $40M each. I presume the companies are now spending $5-10M per year on hosting fees to house User-Generated-Crap.
VCs are no longer indifferent. Initially, VCs were at best ambivalent about hosting costs because when the technologists who programmed these file sharing sites pitched their vision and business model, they presumed that it would replace the historically expensive cost of creating content. They were wrong.
Their business models relied on the wisdom of the masses and collective mojo to create content that advertisers would want. Why pay for content, was the idea, if content would be created on the cheap? That might very well go down as one of the biggest investment flops ever, when you consider the sum of money invested in UGC with no promise or hope of payoff in the near, mid or long term.
Don’t take it from me, take it from existing case studies:
- YouTube - despite a 75% market share - continues to wonder about monetization.
- Revver sold for $5M after raising $13M in VC.
In both cases, the companies bet on the wrong cost structure: hosting of crap over licensing of quality content. YouTube won, others did not. The”others” camp is far more numerous while YouTube remains the lone winner.
So, What’s Around the Corner
Ultimately, my gut says that many of these VCs who 3-5 years ago placed their chips on these horses will grow wary and tired of burning money while Google’s YouTube continues to galvanize market share. Before long, much like the fate reserved for Revver, VCs will cut off the lines of financing; they will have to sell for pennies on the dollar.
It’s not like this is new, either:
- GoFish has changed business models a few times as it looks for something to hang on to.
- Handheld Entertainment / ZVUE is now worth a whopping $6M, it’s changed its name a few times and paid an obscene $25-50M for eBaumsworld.com, something that left many scratching their heads.
But these have been off the radar. The more visible players are entering a period where they will have to raise $10M or more to maintain their lifestyle… I am not sure those content libraries are worth their weight. I am also not sure if an audience that has been conditioned to watch UGC will suddenly embrace professional content, either.
Once this happens, I expect to see a lot of the videos that are fueling the growth in CDN business take a further hit, too (as a whole, this is a bad market to invest too, as it has become a commodity).
Onto the Next Fad
Of course, this is all moot, because VCs are now chasing the next pipe dream: wireless, clean tech, space travel…
But there too expect a meltdown, and look no further than today’s news where Helio sold for a paltry $39M after raising $650M.
From a general entrepreneurial perspective, the lesson is simple: VCs talk a big game about being in it for the long haul, but their definition of the long haul is unique to their attention spans, which rivals that of a 2 year old’s. When you craft a business plan, build a company based on your gut and your understanding of the space. Generally speaking, you as the entrepreneur has the best understanding of the opportunity and market reality, and not your VCs or advisors.
From a video specific perspective: it’s on. Video is no longer about hype and its potential. With TV audiences now averaging a mature 50 years of age, newspapers declining faster than anyone could have predicted, the Web is the future of media and the future is now. A lot of money was placed on the wrong horse, a horse who is wobbly and in decline. The shakeout has started, it won’t hit overnight because some of these companies have money in the bank… but when VCs come knocking, you won’t know what hit you.
Related: Video
- The race for #3 in the online video space is on.
- Comedy video vertical sites getting cluttered.
Related: Social Media
- Connecting the Dots: Why Social Media Fails at Generating Revenue
- Why Social Media and Advertising = Fail
- Dark Cloud, Meet Social Media. Social Media, Meet Dark Cloud
- Social Media Hype Train Continues
- When Will Social Media Get It?
- Why Social Media and Beacon Are Doomed to Fail and What Facebook Should Do
- Social Media Growing Pains
Is it all negative? Nope. In fact, social networking might be better suited for e-Commerce, but the greed muscle clouds people’s judgment and makes them chase ad dollars, by far the more lucrative slice of the pie.
- Facebook, or MySpace’s, Multi-Billion Dollar Business?
- Are Affiliate Sales the Path to Facebook’s Billions?
- Memo to Facebook Sales Team
What do you think, is UGC going to experience a turnaround and experience a renaissance… or is it on its last breath?
I never understood why some companies like Handheld Entertainment and Go Fish were publicly traded. With easier access to capital comes the fact that your premature business gets nailed by shareholders, especially if your underlying premise - that distribution trumps content - is faulty.
[Disclaimer: both companies were or are distribution partners of WatchMojo.com]
GoFish is now worth $10.61M, ZVUE (formerly known as Handheld Entertainment) is worth $10.16M. Revver, never publicly traded but armed with $13M in VC money sold for less than $5M to Live Universe, Brad Greenspan’s company.
WatchMojo.com is worth more than those three companies combined, not because any stock ticker or term sheet says so, but because if value is ultimately derived by demand and supply, there’s no competition. It’s not even close. With every passing day, the value of content soars whereas distribution fizzles unless you are # 1 or # 2.
GoFish has changed models and is no longer a UGC platform, but rather, a kids’ ad network. Two years ago, UGC was in; last year, it was ad networks. Something tells me GoFish might very well prevail, but it’s hard to focus and execute when your stock price is out there for public consumption and rejection.
ZVUE went on a shopping spree and financed itself via private investments in public equities (PIPEs), which is always a dangerous tool. Maybe that is why the company’s stock is languishing. I thought of buying some shares but there remains downside risk, even though the stock has fallen from $7 to $0.40.
Not a day goes by where you don’t hear about a new roll up fund. Today Austin Ventures launched one, backing former Razorfish CEO Jeffrey Dachis.
For the past few months, I’ve talked to two investment groups about doing a video rollup and the names of such companies always come up as would-be targets. I’m not sure the upside is there, even at distressed prices.
Last year Ross Levinsohn and Jon Miller contemplated doing the roll-up, but the numbers did not add up, partially because online video is very nascent. So Messers Levinsohn and Miller instead merged with ComVentures and began to invest in online video startups.
This year, when Revver was on the auction block, I considered making a run for it, but I could see that there were and would be dozens more of such companies for sale as the market weeded out the second tier aggregation/distribution sites.
The temptation was there, but ultimately I stuck to my guns: I much rather own content instead of distribution. This is counter-intuitive to the Valley mindset but not to big media. Distribution is great, but it’s not exclusive or defensible per se in online media.
Even in traditional media, look at what is happening to ABC, CBS or NBC (even FOX). They lost market share to HBO, MTV, ESPN etc.
Then enter new media where everything is a click away.
Especially online, distribution is a commodity, and ZVUE and GoFish were commodities to shareholders. The public market is more correct in recognizing that than private investors, many of whom who suffer from herd mentality and are a bit, shall we say, behind the times.
Consider recent history:
Lycos, Excite et al. all had massive distribution at one point, now they’re distant runner-ups. Even Yahoo! is seeing erosion in market share to the new wave of distribution outlets, namely vertical publishers and massive social networking sites.
So instead of owning distribution, we at WatchMojo.com instead partner with them: YouTube, Hulu, MySpace TV, Veoh, etc., why compete with these massively funded strong brands when we can tap into their networks and build our business on their platforms?
I think with time and experience, even private investors get this: this morning Web 2.0 uber investor Fred Wilson conceded content might be a better bet than aggregation. That sure sounds like something I’ve been saying for some time. I doubt Fred is giving content businesses a consideration, I surmise nothing will change that… however, online, where everything is a click away, you cannot build defensible positions in distribution or aggregation, but you can with content.
Daily Motion is escalating the battle for #3 in their space (after YouTube and MySpace TV).
Online video advertising is growing, quickly.
Online video advertising is where search advertising was in 2000-01: a major part of the web ecosystem desperately looking for a business model.
Unlike search - where traditional media companies failed to invest and even new media companies gave up in favor of portaldom - a lot of companies are vying for online video supremacy. My read on it is that we will never have a Google of video. That’s right, even YouTube - incidentally owned by Google - won’t command the kind of revenue within its segment that Google does. The reason for that is lack of competition and monetization ability. On the former, YouTube has a lot of competition in the monetization race.
Either way, looking at the stats, the numbers are impressive:
An estimate of the US online video ad market for 2009 - set in 2004: $657 million | Source.
An estimate of the US online video ad market for 2009 - set in 2005: $1.5 billion | Source.
An estimate of the US online video ad market for 2010 - set in 2006: $2.3 billion | Source.
An estimate of the US online video ad market for 2010 - set in late 2006: $3 billion | Source.
An estimate of the US online video ad market for 2011 - set in 2007: $4.3 billion | Source.
An estimate of the Worldwide online video ad market for 2011 - set in 2007: $10 billion | Source.
An estimate of the US online video ad market for 2012 - set in late 2007: $7.1 billion | Source.
An estimate of the US online video ad market for 2012 - set in early 2008: $6.6 billion (all broadband at $12.2B) | Source.
It’s thus not surprising to see the sheer volume of money that is being invested in the space, here is an incomplete snapshot:
Judging from that, investors better be patient because only YouTube has exited, handsomely, to the tune of $1,650,000,000 (that’s $1.65B, in case you’re wondering). I’d like to remind everyone that more money does not equal more return, but I digress.
It’s worth noting, too, that YouTube raised less money than everyone else in its peer group but I highly doubt anyone in that group will be worth more, ever, than YouTube.
I am personally hoping that WatchMojo.com pulls the same feat in its peer group. I won’t say “jokes aside” because I am not exactly kidding, admitting that yes, indeed, we’ve raised - and spent - less than $5M to build our content and distribution, which is actually bigger than some of our peers. You might notice that I do not call the players in our group competitors because we are the bastard children of the broader video space: everyone is betting heavily on platforms and user-generated content and our category is definitely going against the grain.
Lastly, I think most of these players are pricing themselves out of exits:
- IPOs will be very hard: yes online advertising is growing quickly but I suspect traditional media (that owns rights to the content) will garner a big share of the online video ad pie. In this context, hitting $100M in revenues or more becomes very challenging, especially with the low-quality content most of these sites are trying to monetize.
- M&A becomes nearly impossible because you need to sell for more than you have raised, and judging by Revver’s fate (who raised $12.7M and sold for less than $5M) that becomes quite hard.
It’s a good thing I am no low-expectations mofo… just because we have not raised boatloads of cash (yet anyway) does not mean we’re not gunning for a big payday one day, but realizing that such a day might not materialize tomorrow, I respectfully think a lot of the companies in the broader video space and our content creation space in particular have dug too deep of a hole for themselves.
To each their own.
This is a work in progress, I am adding CMS platforms (Brightcove, Maven, etc.) and CDNs (Limelight, Akamai, etc.) as we speak. If you have more companies and funding amounts, or if I made a typo, leave the correction in the comments or email me at ash@mojosupreme.com.
Irony of ironies: Bolt.com, a site that started off as a content producer, got YouTube envy, became a file sharing site, finally shut down when GoFish changed its mind on buying the troubled company (GoFish is a syndication partner of WatchMojo.com).
This one is odd… I was talking to some colleagues today, telling them how it was in our interest to see all of the leading video destination websites succeed: YouTube, Revver, Veoh, GoFish, Joost, etc. We partner with them, so their growth and health translates to our health and grow. But I do think that you will see a fallout and many more cases like Bolt.com, and when that happens, it won’t be due to company mismanagement but rather, the background of how most of these file sharing sites came to be.
Sit back, and let’s pontificate. The second wave of content and aggregation online (2000-2004) saw a lot of so-called link dumps aggregate content and link out to the underlying content. The most successful of these was no doubt College Humor, who sold out to InterActive Corp. for a price tag of $20M by selling 51% of the company to Barry Diller.
Mind you, its CollegeHumor.com was a success, but that came at the expense of not growing CampusHook.com (a precursor to Facebook) and Vimeo (a precursor to YouTube), so admittedly, you can’t really blame others for giving up on original content for the file sharing and social networking route.
Either way, College Humor started off as a link dump, linking out to other sites hosting the content, but ultimately it a) created its own content and b) started to host some content, too.
a) was a matter of common sense to secure premium advertisers and charge higher ad dollars, b) was a reaction to falling hosting and bandwidth fees. It was also a business: if they hosted the content, even if it was not theirs, user time spent on the site would increase, as would the frequency of pageviews to uniques. Link dumps, after all, were notorious for getting 1 pageview to 1 unique user (the 1:1 dilemma), combined with low CPM rates, this meant that most sites needed volume to make meaningful revenues. And, since they did not own content or host any of it, they would not really create value for their owners.
Some time in 2004 that all changed. I’m guessing here, but I’d say that all of the webmasters and programmers who would otherwise code such link dumps (Dave’s Daily, etc) all of a sudden began to notice that higher broadband penetration and cheap bandwidth led to more and more people consuming video. At the time, there was little professional content, so most of these sites began to offer user-generated content.
Having learned from the 1:1 dilemma and realizing that hosting and bandwidth was much cheaper, many of the link dump coders turned to coding video file sharing sites where you could upload your favorite user generated videos and share them. By hosting the content, the site’s no longer had to worry about the 1:1 issue and expanded their content base. Initially, the fact that they did not own the content was probably not a major issue because the site’s volume of video content translates to more pageviews, and thus, more revenue.
At some point, I suspect, VCs took notice and began to pour a lot of money into these firms. Sure, the koolaid drinking stories are very different, but in my experience, I think this is how many of today’s major file sharing video sites emerged.
Some sites probably wanted to avoid the inevitable hosting of copyrighted material, but over time, some saw with shock and awe YouTube’s breathtaking rise and subsequent sale for $1.65B and turned a blind eye. In fact, as one site would try to clean up its act, users would pick up and move to the next one. That is, some would argue, how some of our more successful syndication partners have grown so quickly, I am told.
The problem, of course, is that so long as most of the content on these sites remains of the UGC and copyright violating nature, then all these sites will see are considerable hosting fees and sagging revenues. In other words, sure, the number of pageviews for sale soared, but the CPMs - I think - will trail so long as the quality and copyright issue is not addressed.
Of the 30-100 file sharing sites that have been financed, some will change and morph over time and probably become pretty successful, but I suspect that a good handful or dozen will eventually get the rug pulled from underneath them from their investors who get tired of funding losses, with no path to profitability in sight.
When I see Bolt.com shutting down, I can’t help but think it’s a case of greed, frankly. Bolt.com could have been a very successful content producer in the 13-18 space, but instead, it got greedy and shuttered that business to become a me-too version of YouTube. While YouTube sold to Google and can shelter itself with Google’s battalion of lawyers, Bolt.com became the first casualty of the record labels and film studios wrath.
With jurisprudence under its belt and a poster boy to flaunt, expect a lot more of these cases to take place in the next 1 to 3 years.
As I alluded to in a previous post on Handheld Entertainment’s $17.5M acqusition of eBaum’s World, GoFish made it official today: the deal for Bolt.com is off. Bolt.com was a promising content producer once upon a time, but then envy and greed, I presume got to its head and it veered off into UGC (read: copyright violated content). Universal Music came knocking, sued for $30M and somehow, GoFish decided to buy it.
GoFish is one of the many distribution partners in WatchMojo.com’s web syndication network…
Today, it announced that the deal is off, the PR reads:
GoFish Terminates Plan to Acquire Bolt Media
GoFish Corporation (OTCBB:GOFH), the leading Internet Video Network showcasing original, Made-for-Internet (’MFI’) programming, today announced it has terminated the company’s agreement to acquire Bolt, Inc. (aka Bolt Media).
SAN FRANCISCO (BusinessWire EON) August 2, 2007 — On February 12, 2007, GoFish announced its intention to acquire Bolt Media, subject to certain closing conditions. One of these conditions was that Bolt Media finalize a definitive settlement to the outstanding copyright infringement lawsuit filed against it by UMG Recordings Inc. and settle comparable potential claims from other record labels and music publishers, subject to financial parameters acceptable to GoFish. Bolt Media was ultimately unable to reach a definitive settlement within these agreed upon parameters.
As the overhanging lawsuits against Bolt represent too much of a liability for GoFish at this stage of the company’s growth, GoFish’s board of directors and its management have decided not to proceed with the merger.
No termination or other fee will be payable in connection with the deal’s cancellation.
“After concerted efforts to reach a viable economic settlement with the music industry, we concluded that Bolt’s potential liabilities would be too difficult for GoFish to absorb at this time. While we have determined that this merger no longer makes strategic sense for GoFish, we will continue to weigh business opportunities based on their ability to deliver meaningful returns for our shareholders,” commented Tabreez Verjee, president of GoFish.
“GoFish remains firmly focused on delivering the most compelling, original video content on the Internet,” says Michael Downing, CEO of GoFish. “As part of our strategy to expand the GoFish Network, we continue to explore revenue generating opportunities through partnerships, mergers and acquisitions.”
There’s at least two sides to this story, if in fact “GoFish remains firmly focused on delivering the most compelling, original video content on the Internet,” then Bolt.com had no business being a part of that strategy, but in all fairness, despite my wishes to see GoFish succeed, Michael Arrington yesterday did make the point that once GoFish’s market cap fell from $100M to $15M (what it is today), forking over $30M for a liability without much upside, the Board could no longer honor its fiduciary duty and vote for this deal.
The future for these high traffic destinations could be very bright… if they just listen to me. I’m joking in the last sentence there, I think so anyway.
I was wondering what was up with the influx of signups from goFish members, then I realized why:
Nice. Where does that go?
Booyah.
Check the link yourself. Or see it for yourself on WatchMojo.com.
I’ll comment on the “context is king” trend this weekend (FashionMojo.com vs. WatchMojo.com etc.).
When GoFish bought Bolt for $30M in a stock deal to help Bolt pay for its settlement with Universal Music, I could not help but take notice. Bolt, after all, had been around for some time, generated $7M in annual revenue and had migrated its business model from a publisher of content for teens to a user generated platform for video.
I had no real idea what GoFish was, but seeing them buy Bolt, I took a deeper look. GoFish was publicly traded, worth $100M in market value, and judging by its site, had decent traffic. Decent traffic, it turned out, was a unique user base of 9M, which made it the largest publicly traded company in the video sharing landscape.
A lightbulb went on: unlike venture funded file sharing platforms, GoFish would inevitably turn to monetizing its content, but so long as its content was mainly user generated video, it would not prove successful. This is by no means a knock against GoFish, our distribution partner now, but rather, a fact that advertisers are reluctant to advertise alongside user generated content.
I have pointed to this graph quite a bit and I think it is more and more accurate, as the market evolves and galvanizes:
Once we established contact, we realized that GoFish was seemingly well aware of this and had started to sign partnerships with a number of content producers, notably mainly online-only content producers. In other words, while YouTube was arrogantly trying to dictate the terms and rules of engagement to old media content owners, GoFish was reaching out to content owners to leverage their content through added distribution and share in the proceeds.
For the record, we will also be doing a deal with YouTube inevitably, who does not like the site? But YouTube, like Google, needs a dose of humble pie. I love and respect both Google and YouTube, but come on people, is something like this normal?
It’s a shame, but YouTube has been slow, not just with us, with everyone in the space, and despite being a part of Google, there’s nothing that guarantees that long term, they will remain atop the video space.
They don’t own the content, obviously, so there’s nothing all that defensible about the position, if you really think about it. I do think that the market for new, second-tier file sharing video sites is done and oversaturated, but amongst the companies atop the broad landscape, a lot can change over the next few years. Imagine if slowly but surely, a company like GoFish were to sign 1000 deals with content producers and all you found alternatively on YouTube was the stereotypical user generated clips and notices saying that “this video has been taken down,” where would you go?
Where would you go indeed! I have always maintained my desire and goal to make WatchMojo.com the best TV station on the Web. But like any content producer, added distribution is welcome. You can read more about the partnership here.
To us, the logic is pretty obvious:
We rather keep videos on WatchMojo.com “clean,” ie. no prerolls, and no ads within the video, but on distribution/syndication partner sites like GoFish, it’s a nice hybrid model: we get added distribution, branding, free marketing and we can monetize it through their 9M US uniques and 17M global uniques.
GoFish gets content they would not otherwise get. We have 4,000 videos on our site, we get 200,000+ unique users on our site, we have started to monetize the traffic via good old fashion display banners etc.
When we put our videos on YouTube, it’s only a promotional tool, so we will put a couple of hundred clips. Last year our videos generated 1M streams on WatchMojo.com, but on Google Video and YouTube Video alone, they generated 2M video streams. Now imagine if we had 1000s of videos, and not 100s… we could have generated 3, 4 or 5M streams easily.
If we had a revenue deal in place with YouTube, which we are getting closer to having, we’d have an incentive to do so. GoFish seems to be taking the lead in striking deals, and that is good for the company.
Of course, if I had a market cap of $100M and a trailing 12-month P/S of 2,850, I’d be looking for ways to monetize the traffic as well… the Bolt acquisition was shrewd, as it put the network’s traffic at 9M in the US and 17M globally, and deals like ours will help GoFish monetize the traffic at a faster clip than the market will expect them to. And in investing, it’s always about being ahead of the market’s expectations… so GoFish gets a lot of credit for realizing that.
I’ll keep you informed of the GoFish deal and link the channels as they go live, and I’ll also unveil new partnerships as we complete and announce them.
PLAY
