Regular readers have surely come across the short version of how my old company crushed old media stalwarts Maxim, GQ, Esquire, Playboy et al. and deeper-pocketed competitors such as TheMan ($17M of funding folks!) to become the #1 online magazine in the men’s lifestyle space:
It’s a three step process, are you ready?
1- We didn’t get buried by the weight of excess funding and irrational expectations;
2- We ran the company with an eye on costs and a desire to generate more and more revenues and thus be “profitable“ (pronounced “prŏf‘ĭ-tə-bəl” and is a derivative of the noun profit, profitable is an adjective that basically means “not being f*cked”);
3- Then when the [insert name of] bubble burst, we charged ahead while our peers had to scale back.
Well… the same thing is happening now with my new company WatchMojo.com. From NewTeeVee:
ManiaTV Lays Off 20, to Reduce Amount of Original Content
Layoffs are a common theme these days, mostly due to the current economic downturn. We’ve recently covered layoffs at Veoh, PermissionTV, Playboy, Heavy, Seesmic, and BitTorrent. Crackle, another site focused on original content, also lost most of its staff amid a move from Northern California to its Sony mothership in Culver City, Calif.
I am not sure I would put Heavy and Mania TV as our direct competitors… but seeing how we all produce original content, then I guess, to some extent, yes, we compete. The point is, both companies made cardinal mistake #1: believe your own PR, raise too much money, get cornered by VCs to cut just as the online video market takes off.
It is a shame, because in all fairness, back in 2004 when I was looking for new projects to pursue, it was the sight of Mania that led me into thinking that producing video content for the Web could work. I am actually rooting for them and hope that this bit of cost cutting will help them indeed reach profitability.
I’m trying to think who issues more press releases, and seemingly jumps from one “focus area” to another:
Glam Media or Heavy.com?
I could not even tell you what these companies stand for anymore… that’s I guess what happens when you raise gushing amounts of VC: Heavy’s raised some $25M and more, Glam about $100M. I stopped counting… but it’s a bit of a joke that your media partners, advertisers and users get confused by the barrage of hyperbole that crams my freaking inbox every day about the latest thing.
Sizzle over substance… I can’t wait for this wave of hype to crater and more way for something meaningful, again… which will of course give way for more crap and hype. But I digress.
According to eMarketer, the size of online advertising revenue is $1.35B in 2008.
Since launching WatchMojo.com in 2006, I’ve had some questions about that figure… so here goes:
Definition of Online Advertising Revenue is Unclear
I’d be interested to know what falls into the category: if it’s only video pre-rolls, post-rolls or mid-rolls, then we leave out companion display ads… which on a site like YouTube account for the vast majority of revenue. Moreover, accounting departments need to standardize this definition. Conclusion on this item, we need transparency and clarity in Accounting definitions and guidelines, I’d be curious to see if an eMarketer spokesperson can address this.
Rich Media vs. Video Ads
When I was running sales for a mid-sized publisher, I recall that rich media ads (Unicast, Eyeblaster, Eyewonder, etc.) were bundled in with video ads because many rich media ads contained video… is this still true? I am not sure. Why?
Because…
In-banner vs. In-stream
Video ads can be in-stream or in-banner. In the latter case, it would be a video ad in a 300×250 that is rich media, YHOO has loads of these; then there are in-stream video ads, which go before, during or after video content. MSNBC has oodles of these. This is a very important nuance.
Double counting for partnerships?
Say FOX Sports has a partnership with MSN, who books that revenue? This kind of stuff is fairly standard, think of all ad repping firms who collect and remit ad revenue… but in MSN’s case, for example, it also has a partnership with NBC Universal on MSNBC.com. It’s somewhat useful to know how that is all booked. Is it case by case or is there an accounting rule that is actually respected industry-wide?
Ad Networks
Say an ad network such as Tremor Media, Brightroll, Video Egg, Broadband Enterprises etc. place some of these ads, they need to be accounted somewhere. The questions is: where are they accounted? My take is that like it was with display ads’ networks, video networks will touch 15% of the video pie.
Here’s our breakdown:
Using the figure from eMarketer for total US online video advertising revenues at $1.35B, up from $750M in 2007, as a benchmark.
- Yahoo.com = $200M
Yahoo did over $7B in total sales… with over $5B coming from ad revenues. Yahoo! has a lot of video content along with plenty of rich media on its site. As the world’s largest property, I could easily see Yahoo! doing even $250M in video-derived ad revenue, but when you consider that video accounts for less than 5% of the online video advertising pie, then we will assign a 4% share to online video for Yahoo! total ad revenues.
- Viacom = $125M
I think Viacom generates a larger than normal share of its online advertising revenues from online video ads. Last year I noticed MTV.com running a good dosage of video ads when my wife was watching The Hills on their site (I swear she was watching it). I also think that between Nick.com, MTV.com, NeoPets.com, iFilm/Spike, Atom.com and Comedy Central.com, one reason why Viacom is making a big deal about piracy on YouTube is that it sees just how good the online video advertising business can be.
- AOL Time Warner = $120M
Time Warner’s sources of revenue from online video includes AOL.com, TMZ.com, CNN.com, Time.com and many other prominent places. In fact, while TW does have the cable assets, if AOL TWX had more video assets, I think it could generate $200M per year from video, easily.
- News Corp./Fox Interactive Media = $100M
This is seemingly bullish, but note a few things:
Fox Interactive Media did $900M in total revenues… with MySpace.com doing $750M alone. Of that, it’s worth noting that MySpace is #2 behind YouTube, with MySpace TV making a push to get lots of premium content… leveraging News Corp.’s sales team, to boot.
Moreover, between AmericanIdol.com and IGN Entertainment (which includes IGN.com, GameSpy.com, RottenTomatoes and my old stomping grounds AskMen.com), this is actually quite feasible.
(disclosure: WatchMojo.com is a content partner to MySpace TV)
- NBC Universal = $100M
When it is not hosting the Olympics, literally, I think NBC Universal does about $75M from online video, when you consider that NBC’s online portfolio includes its namesake assets including NBC.com, MSNBC.com and the recently launched NBCSports.com. However, bear in mind, NBC also owns iVillage and Healthology, both sites that use a decent amount of video, and thus, generate online video ads. I think one reason why eMarketer pumped up its estimate to $1.35B is precisely because of the Summer Games in Beijing, which should generate loads of revenues for NBC and parent GE, I would put the 2008 take to $100M.
- MSN.com = $100M
Depending on the accounting, MSN.com can be making anywhere from $100-250M… but seeing how NBC and Microsoft remain 50-50 partners in MSNBC.com, but Microsoft has reduced its stake in the television network to 18%, I suspect most of the accounting revenue falls to NBC, who then remits a cut to Microsoft’s MSN unit (I could be wrong on this). Anyway, between MSN.com and MSN’s video assets, I think MSN does $100M in annual revenues from video advertising.
- Disney = $100M.
Disney consists of ESPN.com, Disney.com and ABC.com. That is a lot of video inventory.
Moreover, Disney is actually quite the king of online media. Well, at least it was, before News Corp. and CBS spent $2B in 2 years to accelerate their efforts. But the bulk of Disney’s $1B+ digital sales come from ticket sales at its themed parks, as well as merchandising… however, you know online advertising figures prominently, and video advertising growing quickly.
I had done an analysis previously, with Disney’s range coming in at a monthly low of $1M to a high of $7M.
Is it right? Who knows… Do I look like Nostradamus? Unless you have a better idea, let’s assume the math makes sense… however, given a few factors, I now put Disney on the higher range, and give them an annual revenue from video advertising of $100M.
- Hulu = $75M
Using AlleyInsider’s range of $45-90M in revenues, we’ll peg Hulu’s revenues at $75M this year in revenues. Hulu is now a top 10 video site, according to both Nielsen and comScore.
Disclosure: Hulu is a distribution partner of WatchMojo.com, as well.
- Google/YouTube = $65M
The bulk of that $200M comes from display banners. The only part I would attribute to “video advertising” is the sum of revenues from promotional/commercial videos that YouTube runs off its main page. At an run rate of $65M per annum, that is $175,000 per day, times 365 days. It comes from Forbes’ analysis. I should state, all the way back in 2006, one month before Google bought YouTube, I said “YouTube should be making $15M per month, or $180M per annum”. No comment. Disclosure: WatchMojo.com is a content partner to YouTube.
- CBS = $60M
CBS made $24M from March Madness… mainly from banners etc., but some videos, too. And CBS has been growing very rapidly, of late, launching its syndication network. I am not sure if CBS was doing much more than $5M per month on video ads because its reach was largely on third party sites that consisted of the Syndication Network, and let’s face it, once you embed ads, no one embeds your content on third party sites…
So if CBS was doing more than $60M in online video advertising in 2008, then more props to Quincy Smith and his team.
CBS only recently cracked the Top 10 list of largest web properties, thanks to its acquisition of CNET, which takes us to:
- CNET = $40M
CNET probably does $40M in video advertising, which out of a revenue of $400M is 10% of its total. Considering that on your average site online video accounts for less than 5% but CNET was an early mover here, I think that sounds about right… and yes, I am guessing here.
- The clones (Metacafe, DailyMotion, Veoh, Break.com, Joost, etc.): $50M
I use the term clone affectionately, but I suspect that combining all of the players looking at becoming #3 in the online video distribution space would give you a figure north of $25M but less than $50M. Why? Too much UGC content holds them back…
To really avoid double counting, I am omitting all video networks, such as Brightroll, Yume, Tremor, Broadband, etc.
- Rest of Web: $220M
Doing the math means that the rest of the Web is fighting for just under a quarter of a billion dollars.
What do you think? Does this breakdown make sense? Who are we missing?
Last week I was going to comment that according to Compete.com’s stats, both Heavy.com and Mania TV have single digit market shares in the video landscape. If I was running those companies, it would present an interesting dilemma:
- do you focus on a destination strategy and pour more resources into developing your market share,
or
- do you embrace broad distribution and get your content everywhere else. On this point, worth noting that Heavy has evolved quite a bit from content creation to aggregation; while Mania TV moved away from original content to UGC, only to realize that was a bad move…
Both companies have raised $20-25M each in funding. Say the investors want 5-20x in an exit, who would pay $100M to $500M for either company? I don’t know.
Both companies seem to have been around forever (Heavy since the late 1990s) and Mania since 2003-ish so I presume the companies are now easily making way over $10M per year in revenues… but they also probably have high costs… so they very well might raise more money, too.
If that happens, then the case study that comes to mind is UGO: they ultimately sold for $100M but they’d raised $80M in funding. Their last institutional investor even managed to lock in a 5x liquidation preference.
Yesterday we learned that Heavy was spinning off its ad network business; and today the company announced layoffs.
Layoffs?
The problem with most of these online video companies is that they already have bloated costs. Heavy’s CEO says that revenues are growing 60% per annum, probably true. What he does not talk about is escalating costs: 5+ years into the venture, I am sure the company’s costs have grown, too.
Last week CBS VP of M&A Mike Marquez talked about looking for video assets. He stressed cash; either:
- how much cash can a firm make for us today
or
- how much cash can a firm make for us tomorrow.
The problem with most of these “legacy online video producers” is that their cost structures are mature, but their revenues are not… meaning they not only don’t gush out cash but they bleed it.
Note: technically, broadly, WatchMojo.com competes in this space.
Paid Content refers to a NYT article on CBS which calls for the company that Bill Paley built to make digital acquisitions, which begs the question: should they go for a big purchase or make small moves?
Of course, answering that question alone without addressing the backdrop to that question yields an incomplete picture.
CBS has hit some rough patches, according to Paid Content:
The parent company is under a mini-siege of sorts about
a) its performance,
b) Leslie Mooves’ salary,
c) Katie Couric’s disastrous tenure at the company,
d) layoffs (even on the digital side, as others are ramping up) and other issues (…)
e) CBS’s need for an acquisition is becoming apparent. Some CBS executives privately agree.
All right. I want to dive in and comment on e) but let’s run through this list quickly.
a) Its Performance
We’re not sure if they are referring to its financial performance or its stock’s, either way:
As per the NYT:
“Without the cushion of Viacom’s other properties, CBS has been more exposed to the struggles of the advertising market. In 2007, it earned $1.25 billion, down from $1.66 billion the year before. CBS stock closed at $21.40 on Friday, compared with $30.99 a year earlier.”
While no company or manager can control what happens to the stock price, I think big media will see a lot of revenue loss over the next few years. Print-centric media companies shrank, why would TV or radio-centric media companies be any different in the next wave of the Web’s growth?
After all, 1994-2003 saw text-based media explode online, 2003 is about audio/video-heavy media.
CBS is seeing this sooner and faster due to its exposure to TV and radio. However, they are strong in outdoors, the challenge there is the upside there won’t account for the downside in more traditional media.
So all hope signals point to online… which explains why:
“On Monday, the company’s interactive unit will officially open a fully staffed office in Menlo Park, Calif., in Silicon Valley, to stir innovation and content development.”
Ironically, the CBS Interactive brass gets the Web quite a bit, but it’s true that they have been overly cautious, too. Being cautious is a bad thing in booming times and a great thing in corrections. The problem for CBS is that the correction is coming offline and online continues to charge ahead… so indeed, CBS does need to make some bold moves. But what are those moves?
Last year, we suggested an outright merger with Yahoo! With MSFT’s $45B gamble, those bets are off (hmm… are they?).
b) Leslie Moonves’ Salary
Last week Henry Blodget wrote: “CBS CEO Moonves Gets 29% Raise, Just Reward For Job Well Done“.
Clicking through, I realized he was being sarcastic by pointing to the seemingly inverse relationship between Mr. Moonves salary and CBS’ performance. While I appreciate Henry’s position, the truth is that CEO pay is determined on a number of things, frankly.
It’s also about the demand and supply for talent. As the CEO of CBS, Mr. Moonves could probably command a much larger salary elsewhere, if CBS’s Board wants to pay him $100M because that is what it takes to retain him, I am not sure CBS or Moonves should be blamed. For the record, he did not make $100M but rather $37M. Is that a lot of money? Yes. But the company made well over a billion dollars in profit and $14B in revenues. Of course, I’m an executive so my perspective is going to be different than that of an analyst or journalist.
But my point is: running a shrinking business in a mature market is not something most executives would embrace, to lure the best (or retain them), guess what? It takes a generous compensation program.
c) Katie Couric
Don’t care personally, but indeed, this is becoming an albatross and if indeed she is that horrific (I don’t watch TV), it’s time to try something else. I recognize she might not be best suited for news, but surely there is plenty of things she can be doing for CBS in other capacties (infotainment, mainly).
d) Layoffs
Layoffs are always demoralizing, especially when a company is making over $14B in revenue and remains profitable. But what about a case - like this one - when the company is shrinking? This is a tough question.
My gut says Jack Welch’s “the lowest 10% should leave” is not a bad thing… so while I don’t want to dehumanize the layoff dynamics and their effect, I think it’s unfair to question the layoffs.
Of course, I do wonder why layoffs are taking place in online areas… which is what both Paid Content and NYT refer to. But just bear one thing in mind: many traditional media companies are not necessarily well structured in new media; divisions and structures are sometimes borne out of legacy organizational systems and sooner or later a correction or adjustment is called for. If this is the case, then I don’t think it’s fair to bash CBS on this point.
e) Acquisitions
The question remains: should CBS make one big hairy and ambition acquisition or should it buy a number of smallish companies and roll them up and/or foster their growth?
For the record, CBS has done both. In fact, it’s done everything including investments in Spotrunner, Joost and many others. In terms of acquisitions: Last.fm was a mid-sized / big one; Wallstrip was a small one.
What would you do if you were Quincy Smith and company? Buy? Merge? Sell?
ACQUISITIONS:
You know what, I admit a small acquisition won’t move the needle, but a major acquisition won’t either. Who would they have bought?
- Bebo? Is a company that marketers love really well-served by serving advertisers social networking inventory? Nope.
- Facebook? Too expensive to buy. Nothing to see, here (perhaps a merger? See below).
- Gawker Media? That might be an interesting addition. But I think Gawker Media founder Nick Denton wants to become CBS, and not sell to CBS. Anywa, Gawker Media lags in video, CBS needs to look ahead and not look back.
- Speaking of video, one company that might position it for future growth is Blip.tv, but Blip.tv does not own any content… so that is a risky move because CBS might buy a great video platform with amazing bells and whistles but then lose all of the content therein. [Disclaimer: Blip.tv is a partner of WatchMojo.com]. In the same broad category as Blip.tv are Brightcove and Video Egg. Bright Cove also does not own any content and is way too expensive, having raised $80M in funding. Video Egg ain’t cheap either, with $40M of funding in the tilt.
- Then there’s all of the YouTube/MySpaceTV competitors: Revver, Veoh, Metacafe, DailyMotion, Break, etc. Mind you, CBS invested in Joost… so what message would that send? As well, Revver was on the auction block and I presume CBS looked at it and then balked. Again, none of those companies own any content, CBS needs to be stronger in web content. That would be the hedge for CBS going forward, of course, it also needs better distribution. I see CBS works closely with Veoh… but is Veoh big enough as a distribution source? [Disclaimer: WatchMojo.com syndicates video to all of the sites listed here]
- Craigslist.org? Not sure Craig Newmark would sell, no matter how progressive Quincy’s team might be. This is Big Media after all… but Craigslist.org would not unleash CBS’ digital revenues.
- Glam Media? That would be a shot in the arm with regards to bolstering its female audience online… but here’s the problem: female audiences still watch TV… what CBS might be better suited for is getting access to a men’s audience. [Disclaimer: Glam Media is one of WatchMojo.com’s syndication partners, too]
- Digg? Not a fan of this one, frankly. Maybe a combo Revision3 / Digg? Even less of a fan of that. Revision 3 is way too niche: it’s too tech-oriented and relies on two hosts, largely. Given how Kevin Rose’s interest waned from Digg to Revision3, then to Pownce, I am not sure he’s buyable because he’s the main asset of Revision 3. [Disclaimer: if you look very broadly at all video content, then WatchMojo.com is more or less competitive to Revision 3, though I view them as rather complementary to our programming].
- Federated Media? Too tech-focused and they don’t own any of the content on the blogs they rep. Big media needs to own content to make it worth their while. Sorry, but that’s just the way media works.
- Gorilla Nation Media’s audience might be a better fit, but as an advertising representation firm, it faces the same challenges: You are buying a stack of contracts that at any point could be severed. Unless you own the underlying content, those contracts are not worth the paper they are printed on.
- Heavy.com? They have a men’s audience, for sure. But if CBS is to buy a destination, it needs to be an enormous destination, I am not sure Heavy.com would move the proverbial needle. In fact, in 2005, News Corp. bought IGN Entertainment, but IGN was doing over $70M in revenues on the strength of its Media Properties (IGN.com, RottenTomatoes.com, etc.), had a lot of technology (in-game advertising + digital distribution of movies, music and games). Moreover, IGN Entertainment was far and away the leader in terms of men’s 18-34 audiences.
However, if Fox Interactive Media has become a new media behemoth, it has more to do with MySpace’s burgenoning audience than with IGN’s properties. That being said: IGN Entertainment does give a lot of content and audiences that marketers look for. The challenge for IGN is that a major chunk of their inventory comes from their message boards, which are notoriously hard to sell and monetize.
This being said, when one looks at how instrumental MySpace and IGN’s acquisitions were, it’s fair to say that the ROI has hitherto been higher on the MySpace deal. I am surprised at this, I won’t lie. But this lesson would encourage CBS to look for a MySpace and not an IGN.
I am not that familiar with Heavy.com’s business, frankly, but I am not even sure if Heavy is an IGN.
- IAC is way too e-commerce oriented. Its search engine Ask.com does not really fit with CBS, either. So pass.
- There’s Meebo, but at $250M or more in value… I am not sure if CBS would even know what to do with it. And, who are we kidding: do marketers really even want to advertise in instant messaging communications? That one makes sense in theory but in practice? Not sure.
- There’s the barrage of search video tools: Blinkx, Pixcy, etc., but CBS remains a media company; it should be technology-centric, I think. What I mean by that is that its content should be compatible with all tech platforms to make it was widely available as possible.
- There are a number of ad networks: Tribal Fusion, Specific Media, Casale Media, Adconion etc. I think the obsession over ad networks will pass. Moreover, a lot of media companies will build and launch their own, which is a mistake as well. I am not sure if CBS should plunk down $100-$500M on an ad network. Advertising.com rescued AOL’s butt because AOL was transitioning from a walled garden to a normal website but the fact remains, that says more about how poorly AOL was doing than how great Advertising.com has done (for the record: it has done great).
Valueclick is publicly traded, but expensive.
If it was interested in ad networks, it might as well skip over display ad-based ones and dive into video networks such as Tremor Media or Broadband Enterprises. Again, I am not sure being in the ad network business is the best capital allocation move.
- It could - much like how NYT invested $29.5M in Wordpress - make a bid for Six Apart (makers of Movable Type) or even Wordpress. But, again, I am not convinced it makes sense for a media company to own a platform without the underlying content. News Corp. buying MySpace made sense because the content on those sites become News Corp. property, or at the very least, MySpace gets a license to profit from it…
- Slide? At the company’s last $500M pre-money valuation, I think CBS would gain street cred in one block on SF by buying Slide but see Wall Street punish it. Hey, just being honest here folks: that is one expensive widget company with moutain-fulls of unsellable inventory!
- There’s TheStreet.com, though I am not sure if it’s big enough or whether CBS really wants to get that deep into finance and investments. Bear in mind Wallstrip was all about investing… so this would be a doubling down on one category. Moreover, at a market cap of $250M, it would eat a lot of money the company could spend elsewhere.
- CNET remains very tech-oriented but it has embraced a lot of lifestyle properties, too. In fact, CNET would be a good fit with 100M uniques, $400M in revenues etc. In fact, trading at $1.2B, it’s not that expensive. CNET would give CBS some web DNA and CBS would open up swarms of traditional advertisers to CNET. This could be the best move yet: unlike most other options, CNET owns a lot of content. It also owns a lot of URLs such as TV.com that with CBS’ help could come to life.
Updated: Oh, wow, they listened to me: it’s official.
MERGERS
- CBS could in fact merge with Yahoo! I wrote about this and frankly, this remains an option.
- It could merge with Facebook; won’t happen. At a market cap of $14B technically Facebook is worth roughly the same as CBS. This would be a bizzarro world deal where Facebook trades in growth for CBS’ $14B in revenue… but this one is so loopy.
- As crazy as it sounds, it could undo the merger with Viacom; won’t happen.
SALE
What about a sale to News Corp.? News Corp. owns FOX, it would love to own CBS. But for this to happen, it would mean Sumner Redstone and my old boss Rupert Murdoch would have to come to terms; won’t happen.
Incidentally, last Friday, GE lost 12% of its value, or $40B. It could have bought two CBS’s. By buying CBS, GE’s NBC Universal would own two of the three main networks, making this an impossibility.
That same obstacle is present in a sale to Disney, who owns ABC.
CONCLUSION
As you run down the list… you realize that all CBS is actually a great media company that just needs some tweaking. Yes, indeed: “Nobody likes negative growth, from the guy who shines shoes to the C.E.O. Everybody feels the pain” the truth is no one wants to blow something up either.
My two recommendations for CBS:
- Buy CNET for $1.5B - $2B (that would be a 25% to 66% premium), which would take its digital revenues from “$200M” to $600M. Combining CNET with Last.fm would also yield a lot of upside in digital music and video tie-in’s. But even then: for a company with $14B in annual revenues, does $600M mean much? Many analysts only give credit to a media company’s stock if digital revenues account for 10% of total sales. Even News Corp. or Disney do not claim that.
CNET remains one of biggest acquisition targets that represent meaningful revenue opportunities, and even that won’t move the needle. So what other options are there?
OR
- Merge with Yahoo!
Actually, there’s also one more option:
GO PRIVATE?
One way that no one will care about a) Performance or b) Les Moonves salary is if it were not publicly traded. Moreover, Wall Street is being unreasonable: yes the company is shrinking, but it will take time for digital revenues to grow, anyway. However, if someone came along and took CBS out at $20B, I think a lot of shareholders would buy that (or I guess, sell for that).
It then allows CBS to d) clean house if they so choose to (and will have to). Kate Couric becomes moot in the grand scheme of things… but most importantly, it will allow CBS to roll up a number of smaller web properties, content producers and tech applications to bolster its overall portfolio. In 4 years - when video advertising will be $7.1B in the US (up from $1B) and all online advertising will be nearly $100B in annual expenditure - it can then be go public again…
This might very well be the best course of action. The question remains: does private equity have the stomach for a $20B debt purchase? With $16B in annual revenues… I think so.
All righty, that was a great use of 40 minutes of my time. Back to work.
Despite the tough financial climate, the week ushered a sizable investment in content producer Next New Networks (N3).
Blue-chip investor Goldman Sachs and media-oriented Velocity Interactive Group (VIG) led a $15M Series B investment round in N3. VIG is the fund that was created by way of a merger between ComVentures and Jon Miller and Ross Levinsohn’s new endeavor. Miller was actually a member of N3’s board.
After the investment, Goldman and VIG join Spark Capital, Saban Media Group and Bob Pittman (formerly of AOL and MTV) as investors. That’s as blue chip of an investment group as you can get for any media company. Spark Capital is a champion of media and content investment, something that is hitherto very rare amongst VCs, who prefer technology opportunities.
N3 - which CEO Herb Scannell described to me as Weblogs Inc. in video format (I asked him once if that would be a fair description, I am not sure if he introduces it as such) - has a range of properties which, when combined, have generated over 100M streams throughout 2007.
While the naysayers are quick to point out that this is a small number relative to TV reach, as a video producer ourselves at WatchMojo.com with a sizable library, I can attest to the fact that this is a very impressive number of streams over a yearly period. In the spirit of giving credit where it’s due, it should be noted, that Revision 3 has also crossed that threshold, too. So hats off to both companies. Broadly speaking, WatchMojo.com is similar to those companies insofar that we all create original content but we’re all very different. Ultimately, we all line up on the same side of the line of scrimmage in the sense that we all strive to convince marketers that online video is more than UGC or pirated content alone.
N3 has a fantastic pedigree of founders, executives and their investment DNA just got bolstered considerably.
Goldman Sachs, for example, invested $130M in Limelight… sheltered them for some time against the Akamai litigation. While the company’s post IPO life has indeed been challenging, it was a successful case study in how quickly Goldman could take a company to the public capital markets. This is no small consideration in light of the fact that the same markets are currently embroiled in the sub-prime mess. Of course, to paraphrase Mr. Miller, very few companies are actual IPO candidates… and it could be argued that N3 (or Revision 3) are no-brainer acquisition opportunities.
In fact, Revision3, too, has an all-star lineup of founders, execs and investors (it is founded by Digg’s Kevin Rose and Jay Adelson). They have raised $9M since launch, notably from Greylock.
Admittedly, my jaw drops a bit when I compare how much money I’ve invested in WatchMojo.com to build the library and get the traction we have… but I won’t lie: if you can raise that much money, hey, more power to you.
Many were waiting for the N3 funding news to materialize, in fact. I presume the tough climate added to the cycle time. But to raise $15M is impressive regardless of how long it takes.
Incidentally, last week I noted that Velocity Interactive Group was building a new media focused, online video-centric fund, and judging by their investment, their next investment would likely be in content.
It will be interesting to see what some of their next moves will be. If you take a step back and envision the “keiretsu” that they are building, I can imagine a few missing elements that they will be looking at filling - or reinforcing - in order to add velocity and momentum in the months to come
As a content producer ourselves, I did not specify that content would be the next piece, but knowing that Jon Miller was on their board, it was easy to see the pieces fall in place with content and Next New Networks being the “void” they were looking to fill.
Heavy Hitters
The $15M Series B pushes up NNN’s total funding to $23M, just over what Mania TV has raised ($22.7M), but still a bit less than what Heavy.com ($25M) and Ripe TV ($32M) have raised in the video content space.
Mania TV just raised an additional sum last week. This is a trend that will continue. While some, like Paid Content’s Rafat Ali, question the model altogether, and others, including Mr. Scannell or Blip’s co-founder and CEO Mike Hudack remain unsure of the model that will prevail, it is a given that online advertising will continue to grow, and that professional content will draw the bulk of video advertising.
Any way you dice it: to quote CBS Interactive CMO Patrick Keane: online video is where search was in 2002, and considering that in December 2007, there were more video streams than search queries, the best is yet to come, and investors are just starting to place bets.
In fact, while the numbers seem large, this is still far less than what the platform and aggregators have raised (see a list of funding by video company breakdown here), and it does reinforce what we outlined last year: VCs will focus more and more on content investments as advertisers reject UGC and demand premium content.
Technically, Wallstrip founder (whom CBS bought, incidentally) and TubeMogul investor Howard Lindzon was right in arguing that I was wrong on that point last year, but I think I was wrong in the timing. That did not happen in 2007… but 2008 seems to suggest that it is happening as we speak.
Believe it or not, there are more and more digital media funds being set up every day.
That this is happening against the backdrop of a financial meltdown is even more impressive.
Here’s the rundown of funding in the video space
Mania TV adds $5M to their $17M in funding, bringing the total to $22M. Ripe TV remains “king of the hill” funding-wise with $32M… followed by Heavy.com’s $25M but I am not sure if they really fall in video creators anymore…
These amounts are just a “tad” more than the money we’ve invested in WatchMojo.com, of course. I reiterate that you are better off not being funded up the wazoo until you know what your business model will look like and it actually pans out. I’m not alone in thinking that, take it from a pro like Fred Wilson: the following is the most accurate thing I’ve ever read about why VC-backed firms fail (our commentary here and here).
Last year I predicted that VCs would finally get it right and start to fund content companies. Howard Lindzon rightfully (at the time) said I was wrong. I think my timing was off. It did not really happen in 2007 but it is certainly happening in 2008.
Mind you, some VCs have been funding content creators for some time now which is why some companies are behind the proverbial the 8-ball, playing catch-up and trying to align their business realities with the prospects and theory that led their initial funding rounds.
Regardless, you are seeing an acceleration of all of this in 2008, though it’s not always VCs alone; as talent agencies (ICM, CAA, WMA) and media heavyweights (Jon Miller, Ross Levinsohn, Terry Semel, etc.) and strategic investors (AT&T, etc.) are all getting in the act.
In fact, Mania TV was one of the first video content producers out there. They emailed me at my old gig looking for a biz dev opportunity and I was intrigued with the idea of producing video for the Web. This was in 2005: broadband users weren’t as prevalent as they are now, hosting costs were much higher. Most importantly, hyper-distribution was in its infancy. What is hyper-syndication:
- The Democratization of Content and the Commoditization of Distribution
- The Commoditization of Distribution and Scalability of Content
Ultimately, I’d love nothing more than seeing Ripe, Heavy and Mania TV have monster exits, but at those funding levels already - and with video advertising still in an embryonic stage (to grow from $1B in 2008 to $7.1B in next four years) - I fear that some of these companies will have a hard time finding buyers right now… especialy in the context of 2008 being the year of micro deals with new media firms.
Obviously that’s where the additional funding comes in: to take them to an exit. Invariably, some of these companies funds (be it from financing or operations) will also be spent on acquisitions: the IGN method of consolidating a space and then exiting at a much higher range (in IGN’s case, $650M to News Corp.).
Interestingly, Mania TV was one of the original sources of inspiration for WatchMojo.com in the context of made-for-web video programming (sans Dave Navarro et al., of course). In all honesty, last year I lost faith in them when they jumped on the UGC bandwa-bong but thankfully, they came to their senses and went back to their roots with original programming.
Anyway, combined with Generate’s $6M round, we’re updating our video funding table, below:
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.
Break.com - one of the many sites vying for #3 in the video file sharing social network space - just decided to veer into new territory by taking on Heavy.com, a broadband media company, by launching an ad network targeting men 18-34.
TechCrunch reports that CEO is expecting rates of $10-30 CPM. Break.com has a sales force of 15, expect all of the players in the space (Metacafe, DailyMotion, Veoh etc.) to ramp up sales teams as online video advertising crosses $1B in expenditures in 2008 - and potentially surpass search ads by 2018.
The challenge for many of these sites has been to handpick advertiser-friendly content on their sites, which is pretty slim in some cases (disclosure: WatchMojo.com is a content provider of such safe content on many of these sites - more on this here) so the concept of launching an ad network is not only in vogue (AOL’s Platform A, Yahoo!’s acquisition of Right Media and Blue Lithium, etc.) but a requirement to remain viable and not get drowned by the Google/YouTube and News Corp./MySpace tidal wave.
Over the past 2 weeks, women-oriented network Glam.com has recruited senior executives from successful media companies Conde Nast and Fox Interactive Media, this on the heels of hires from new media outfits Doubleclick and MySpace.
They include:
- VP of international strategy Ralph Hirt, a DoubleClick vet
- Former MySpace sales exec Karin Mark
- John Trimble, formerly SVP of ad sales at News Corp.’s Fox Interactive Media division (NWS) who will oversee “advertising sales for new audiences and markets,”
- Print veteran Joe Lagani, the former publishing VP at Conde Nast’s House & Garden will help Glam.com branch out beyond its core fashion business and move into or expand the following verticals: Living, wellness, fitness, diet, health, and entertainment.
Network vs. Property
Invariably, that will come by way of both buying and building. Earlier this year, the company announced plans to raise a ton of money, which raised a lot of eyebrows. The point of contention from many, frankly, was that Glam.com is not a property (such as iVillage) but rather, a network. That’s not a big deal in of itself, but it becomes one because Glam.com’s management likes to stress that the firm is larger than iVillage, the largest women’s property/destination.
Impressive Ramp-up
Regardless, Glam CEO Samir Arora has to his credit managed to scale Glam.com. His background is even more impressive. If he is to be blamed for building a network, I can think of CEOs who are responsible for greater sins.
But, for purposes of illustration, it is worth noting that back in December 2004, comScore’s Total US Home & Work panel gave iVillage 16.9M unique users. iVillage got acquired by NBC in 2006 for $600M.
By the looks of it, Glam.com launched on September 19, 2005. So the company is 2 years old.
iVillage’s Missed Opportunity
Naturally, once a company gets acquired, it loses some of the hunger and drive. So while iVillage could have gone out and roll up smaller sites and blogs and sold advertising on those to extend its reach, it did not see any reason to do so.
For one, it was working on integrating itself within NBC.
Secondly, why sell ads on third-party sites with weaker brands and share revenue when you have more than enough inventory (much of which goes unsold) on iVillage.
An Ad Rep Firm vs. An Ad Network
In other words, Arora saw an opportunity, one that many others have noticed, too. But if we are to get granular, then Glam.com is less of a network and more of an ad repping firm. From my vantage point, it does not look like Glam.com actually buys the underlying sites, though it runs ads.
But the fact remains: Glam.com’s growth has been impressive: This week, comScore’s 2007 September figures were unveiled, and Glam is clearly ahead: Glam.com has 22M uniques vs. 18M for iVillage. There’s also Sugar Publishing, a company with a business model closer to Glam.com’s than iVillage’s.
Strike While Iron is Hot
It’s not surprising then that Arora is trying to capitalize on this traction to raise even more money.
Frankly, when Glam.com raised a massive $18.5M round, I was surprised, because the women’s market - because of its lucrative size - is very competitive. The company has raised about $30 million in three rounds, and investors include Tim Draper, who backed Skype and Hotmail. Glam Media might not be a classic textbook example of viral marketing, but as the numbers above show, the strategy of aggregating traffic from a myriad of blogs and reselling the advertising to branded marketers seems to be working.
Do We Hear $200M?
As such, Arora has enlisted the services of venerable M&A bank Allen & Co., and has supposedly been hitting the street trying to raise a whopping $200M. Here’s the prospectus (it’s “confidential” but we’re not the first ones to post it if the folks at Allen & Co. and/or Glam.com would want us to remove it, feel free to email us at ash@mojosupreme.com).
Anyway, all to say, the initial reaction then was negative, but the recent string of hires suggests one of two things:
a) the money is starting to line up
b) the Street was looking for the company to beef up its management team, if it was looking to raise that much money, or
c) both.
But a devil’s advocate would argue that Glam did not hire Allen & Co. for fundraising purposes, but rather, for M&A consulting and the leaked $200M round was a way to get would-be acquirers to act quickly. After all, a company like Hearst or Conde Nast would be an obvious buyer.
Let’s Call Time Out on the Bullshit and Get Candid Here
I for one have started to move from cynic to believer with regards to their reach because the traffic numbers are indeed impressive, I know how hard it is to roll up sites. But, that being said, as a former sales executive myself, I think Glam.com’s sales projections and targets are very ambitious, the document calls for revenues to rise from $20M in 2007 to $150M in 2008… If anyone can back such lofty forecasts, maye it’s Arora, though the recent string of hires suggests he won’t be alone.
But the bottom line is that as an ad repping firm, Glam.com will lose $0.50 on each dollar (on average). So the multiples Glam.com will command might be less than what a Property such as iVillage could command (before it was acquired, that is). But since M&A multiples have gone up considerably since 2006, I don’t doubt that Glam.com could fetch an attractive valuation.
Men vs. Women
Besides being a former sales executive, I’ve worked in men’s publishing, and one thing that becomes crystal clear is when you target men or women, you stand the chance of owning the market but you grow frustrated to be aiming for half the total online advertising pie. That’s why Mojo Supreme and WatchMojo.com have categories, channels and content that gear to both genders, with tools in place to reach either… that was a lesson I learned and a mistake I did not want to repeat.
But I understand that investors don’t like to hear that, in publishing, they want more focus: pick a gender, stick to it.
Key Metric: Revenue Per Marketer Relationship (RPMR).
This is where with all due respect, investors are wrong. To create the most valuable business in media and publishing, you need to maximize your Revenue per Marketer Relationship (RPMR).
Yes, I just made the term up, but what it is is important for anyone who wants to work in media and publishing. Sales people spend a lot of time and money building relationships with media planners and buyers at both marketers and agencies.
There’s a lot of turnover on both sides, but ultimately, if an ad agency reps VISA, for example, they won’t rep Master Card, too. They will however rep British Airways and Coke (for example). So you not only need content that caters to these brands’ target psychodemographics, but you also need to target both genders to get as many ad deals from said agency. It’s a very simple concept that is obvious when you have actually sold any advertising, but something that seems foreign if you sit behind a desk and read business plans all day. But I digress.
The point is, for all of their swaggers, both Heavy.com and Glam.com will only be capitalizing on half the action. And that action translates to a $600M buyout for iVillage (leader in women’s space) and $650M exit for IGN (my former employer and leader in men’s space). Do you think it’s a coincidence that the figures are essentially similar?
Of course not. But, those are outlier cases and not the norm. UGO, for example, a site with a similar strategy and audience as Heavy.com sold for $100M to Hearst after ten years of operation and $90M in invested capital!
A Marriage Made in Heaven
So if my pontifications hold water: at what point does Glam.com seek to offer a men’s strategy and solution?
Starting that from scratch while trying to scale the women’s network does not seem like a plausible thing to do, it would be tantamount to hubris. Of course, the company could acquire such entities, but I doubt investors would welcome the shift in strategy and focus and sign off on too many acquisitions that won’t fit with the main strategy.
But suppose management, the Board and its investors would consider a merger of sorts. A merger is just as challenging if not more, but in some ways it’s less risky than acquisitions, which I know sounds counter-intuitive (another post, another day).
If it did, one company that comes to mind is Heavy.com.
Heavy.com has raised a lot of money - over $25M, if not more - and its investors are looking for a home run in the form of a buyout by someone from News Corp. or Viacom. UGO was recently acquired by Hearst for $100M, but UGO’s been around for a decade and it too, like Glam.com, employs a network strategy of repping other, smaller sites too. In fact, Heavy.com did the same thing earlier this year, though I’d be curious to see how that is going.
The point is: because both Heavy.com and Glam.com adopt a strategy of one part property and one part network, the mix could be complementary, and if each unit is left alone to operate on its segment, then the cross selling opportunities to advertisers would yield higher revenue per marketer relationship.
We’re Gonna Need a Bigger Boardroom
So should Heavy.com and Glam.com consider a merger of sorts?
We know Glam.com’s financials and audience, we don’t know Heavy.com’s… but even if the M&A specialists could make the numbers add up, something tells me that there isn’t a boardroom large enough for Glam.com’s Arora and Heavy.com’s co-CEO Simon Assaad to co-exist. Yes, we mean that in the nicest way possible, but the fact remains, like oil and vinegar, some things probably just wouldn’t mix.
All to say, it will be very interesting to see how this story ends.
PLAY
