Nice to see more and more quality made for web programming coming to online video. More on IAC’s efforts called partnering with City Lights here. With a lot of the initial players like Mania TV and Ripe Entertainment having shut down, and this IAC effort being part of a big media company, I think we’re one of the biggest independent ones out there.
That’s a good feeling.
Update: a lot more here, company will be called Notional. I have no idea what the programming will look like, but I like this. 2009 will mark the death of UGC as a viable ad-supported medium, but also the year when premium content comes to the forefront. Not to sound cocky, but I like to think WatchMojo.com has been at the forefront of this medium… and the more participants are in it, the better.
You have to wonder, this news, combined with 5Min’s Series B funding earlier this week marks a shot in the arm of online video, which, let’s face it, was starting to look suspect.
While 2008 finished off with companies doing their best to cling on to anything to avoid from being sucked into the maelstrom, I think - despite the continued stock market meltdown - that many companies are seeing some stabilization in their core business. In other words: yes, 2008 Q4 saw a rapid evaporation of booked business, but 2009 is not looking as dire as some expected.
Online Remains a Beacon of Growth
Let’s face it: online media remains a growth area regardless of the fact that growth targets have been reduced. If you are CBS, News Corp., GE’s NBC, Walt Disney, Viacom or Time Warner, you have to look at ways to spruce up your online assets and acquire new ones. If you are Yahoo!, Microsoft, Google, Amazon, Apple, Cisco, Comcast, or IAC, you are looking at online assets as more reasonably priced relative to the previous couple of years.
A couple of companies that remain wild cards are print-based media firms Conde Nast and Hearst, who unlike their newspaper brethren (Tribune, NYT, etc.) are not on the verge of banktrupcy, but whom might fare a similar fate if they don’t take action soon.
This, I believe, is what explains the latest report by JP Morgan analyst Imran Kahn, who (Via Paid Content) in a new report, says:
“Mergers and acquisitions among internet companies could grow significantly. Since most companies cannot look to the economy for growth (JP Morgan estimates GDP will decline 2.2 percent this), Kahn believes healthier internet companies will turn to acquisitions, and that they will target inexpensive smaller internet companies.
Small is Beautiful
I’ve mentioned for some time that microdeals are the wave of the future:
- companies just don’t have the financial wherewithal to go for grand slam deals, and
- integration becomes a nightmare.
Lowered Expectations
Where things get interesting for big media companies is that VCs have been blindsided by their own investors inability to meet capital requirements, so many will accept lesser exits… though truthfully, heavily-funded VC companies are going to get sidelined in the M&A song-and-dance because entrepreneurs might be more realistic whereas VCs will never be able to pull their investments “in the money” when they agreed to nosebleed valuations for some of these bubbly Web 2.0 fares (Digg, Slide, Facebook, Ning, etc.).
Kahn seems to agree:
“Kahn believes healthier internet companies will turn to acquisitions, and that they will target inexpensive smaller internet companies.”
Build vs. Buy
The other variable we’ve touched on Big Media’s Buy vs. Build dilemma for some time:
Large internet companies may re-consider the “build vs. buy” strategy—they’ve been moving recently toward the “build” side of that continuum, which resulted in only 45 acquisitions in 2008 versus 94 in 2007, according to Kahn. While he predicts large internet companies will still increase their R&D spending by 8 percent in 2009, that is much less than the 25 percent increase in 2008. As they spend less on innovation internally, large internet companies will probably be on the hunt for smaller companies.
Balance Sheet vs. Income Statement
This plays into the nuance between balance sheets and income statements. A company’s income statement captures the revenues and costs over a period. Right now: revenues are going down (or at best flat) whereas costs remain high. Yet companies do have cash on their balance sheet, which captures a firm’s assets and liabilities (and shareholder equity) at a given time. In other words, even if companies revenues go down, their cash remains idle. But if revenues are flat or going down, a company cannot justify adding to costs (and thus “building” in house) because this will push the company into a money-losing status, which in a tightening credit market might mean lights out if the company’s financing and credit facilities dry up.
As a result, while cash is king, too much cash on a balance sheet is inefficient.
“Finally, the large internet companies have stockpiled a ton of cash as they grew significantly the past several years, and they will be looking for ways to make a solid return on that money.”
In case you are wondering who is going to be taken out, here are some of Kahn’s picks:
As for which public companies are most likely to be acquired? Kahn evaluated them according to brand strength, product leadership, ease of integrating the smaller company into the larger company, and barriers to entry to determine that Omniture, the online analytics company, and MercadoLibre, the Latin American e-commerce company, are the most likely to be acquired. Shutterfly, The Knot, and Expedia were also attractive candidates, according to the report.
There are a few others I can think of… but we’ll leave that for a separate post.
I’ve been holding off writing a post (this is the closest thing to it) on why we’re not laying off anyone… but Barry Diller nails it:
The idea of a company that’s earning money, not losing money, that’s not, let’s say, ‘industrially endangered,’ to have just cutbacks so they can earn another $12 million or $20 million or $40 million in a year where no one’s counting is really a horrible act when you think about it on every level. First of all, it’s certainly not necessary. It’s doing it at the worst time. It’s throwing people out to a larger, what is inevitably a larger, unemployment heap for frankly no good reason.
Those who don’t learn from history are doomed to repeat it.
It’s clear that we didn’t learn from history in boom times. A lot of the excess and irrational behavior of the 1996-1999 era was repeated in the 2005-2007 period.
Let’s see if the media companies are going to repeat their mistakes in down times, too. Remember most companies went into their bunkers from 2001-2004 and this is why many traditional media firms are really in trouble: they scaled back instead of using the downturn then to ramp up in digital media.
In all fairness, by the looks of it, media companies are not yet slashing online video plans: Viacom and NBC both announced layoffs today but seem to have resisted from cutting in digital media and online video, according to NewTeeVee. Meanwhile, SAI is reporting that IAC is even contemplating acquisitions, which makes sense, given Barry Diller’s propensity to buy low… though the acquisitions he’s eyeing are in the search audience space, mind you, Diller is planning on selling/shutting down 236.com. And while I never like to see websites fail to take off, seeing companies like Bud.tv or 236.com shutter does give me a sense of deja vu when high-flying media darlings launched to much fanfare but then fizzled unceremoniously. Yes, TheMan.com, this Bud’s for you.
Conde Nast, however, seems to be cutting where it shouldn’t, according to PaidContent.
I won’t name extra names, but from my own wheelings and dealings, I’d say the jury is out, some companies are scaling back where they shouldn’t, but a few seem to have learned from their 2001-2004 era mistakes.
“I will say financial engineering is really not a way to create value for your shareholders or yourself or whoever your owners happen to be. Companies that buy or sell or spin off because they think the market doesn’t understand their multiple and so forth I think are really missing the point. I think at the end of the day, what really matters is running your company, building revenue, building cash flow, and ultimately that will create value and that value will be recognized. And spending your time getting lost in financial engineering is a real mistake.”
Who said this:
a) Steve Ballmer
b) Bill Gross
c) Henry Blodget
d) Steve Rattner
e) Warren Buffett
f) Barry Diller
g) Rupert Murdoch
h) John Malone
i) Sumner Redstone
Get the answer here or here. And see our proposal for a financial engineering deal that would triple a company’s market cap here. Mind you, that was not much of a financial engineering proposal as much as a major shift in strategy, but still.
I was talking to an executive at IAC and told him that to differentiate Ask.com and one of their other properties, IAC should better merge content with search.
Looks like MSFT beat them to it:
The memo, first obtained by Gigaom, details the company’s effort to build on MSN’s vision of delivering “relevant” and “social” content experiences, whatever that means. It is also merging, to some extent, the search and content teams, as “it’s imperative that we setup for blurring of the lines between Portal and Search to drive experiences that enable more seamless exploration of content across the search-browse continuum.”
One of Ask.com’s strong differentiation points is that parent company IAC has a lot of strong properties in the content space. Since these are all branded differently, users won’t think or care that it’s from the same parent, they should offer more direct links to pertinent content. Yes, this might reduce clicks to paid ads, but the goal should be to drive more search queries overall and improve relevance of results, first.
Why? A few reasons:
- Users in the real world are not represented by the vocal minority in Silicon Valley.
- Google’s uber neutral approach to content is a strength and a weakness and MSN is well served in exploiting all of the content across MSN properties.
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.
IAC is venturing into the How To space with the launch of Life333.com.
I try to be nice to big media companies but I can’t lie through my teeth, either. This smacks of lack of planning and thinking here folks.
The How To space is very, very crowded. Just look at some of the companies vying in this space:
This does not even include About.com, which is getting more and more into video (mind you, we have more videos than them… but who’s counting), but that’s the thing: IAC’s Life333.com is actually blending video with text… which is even more backwards because the text-based How To train has long left the station.
Second, the Life333.com domain name seems too close to comfort to Life33.com, which seems to be an Asian adult site (did anyone bother to type that in?)
Frankly, I think IAC looks bad here. The only thing I can think of is that this leak that they’re launching AsianPornSite.com - I mean Life333.com - is a negotiating play against one of the startups in the field… maybe IAC tried to buy one of them but the asking price was too high… so they countered with “really, we won’t buy, we’ll build”… an Asian Porn Site! Ok, scratch that last part.
But then again, not even taking the time to realize one missing number takes you to an Asian porn site makes me think that Mr. Diller should stick to buying and should leave the building to… well, gee, I guess few media companies are all that good at building startups… unless, of course, you’re into the Asian-porn kind of startup variety… and let’s face it: who isn’t?
The first wave of Web brands died during the Nuclear Winter of 2001-03: Excite, Lycos et al. were all fantastically strong brands and companies in the late 1990s, but they are all nowhere to be seen amongst the digital media elite. The main argument was that Excite and Lycos - purveyors of the first search engines - all fell in love with portaldom and turned their backs on search.
Search vs. Portaldom
Those who survived, it’s not a coincidence, are those who invested in search: Google, of course, being the leader. But also Yahoo! (it did invest to acquire Inktomi and Overture, albeit belatedly) and IAC, who plunked down $1.8B for Ask Jeeves.
But 2007-08 is ushering in an era where even some those survivors are not going to make it.
- Yahoo!? About to be swallowed by MSFT. It might not disappear, but its future remains uncertain.
- IAC: a mish-mash of brands, maybe, but with Jeeves the butler being kyboshed, it now looks like Ask.com will also be remade as a powered-by-Google search engine.
- Netscape (not a search engine but a browser and portal): AOL pulled the plug on that last year.
Google vs. Yahoo! - How Yahoo! Lost the Web
The Mercury News has a fantastic article on how Yahoo! lost to Google here. I have covered Yahoo!’s misguided decision to power its search with Google as a catastrophic and ultimately fatal move.
Is YouTube to MySpace what Google was to Yahoo!?
As I was writing this, I wondered, if video is indeed where search was in 2000-02 (depending on who you ask and what metric you use), then could Yahoo!’s decision to use Google akin to how MySpace helped grow YouTube by not blocking YouTube embeds on the massively large social networking site (disclosure: WatchMojo.com provides content to both YouTube and MySpace TV).
In all fairness, that’s an unfair question: MySpace is not really directly competitive to YouTube, they were then complementary services. Only since MySpace launched MySpace TV did it compete head on with YouTube. But YouTube has since Day 1 been as much as social networking as it has been about video. In fact, both MySpace and YouTube remain communities.
So in that context, while MySpace remains the largest social networking site in the world, YouTube’s lead as the largest video file sharing community continues to grow. Are these two companies diverging or converging? Is MySpace competing with Facebook (a social network) or YouTube (an entertainment community centered around video)? Oddly enough, if you ask Facebook, they would say they are competing with Google, and not MySpace.
I wonder, over time, will MySpace’s decision to not block YouTube embeds go down in history the way Yahoo!’s decision to help Google does today?
My guess: probably not: MySpace is part of News Corp. now so its future success is all-but-guaranteed. I also think that the strategy of the two companies is different enough for both of them to carve out significant pieces of the pie.
But the fact that Google owns YouTube and is partnered with MySpace by way of the massive $900M ad deal is not short in irony. How so?
Well, Google ended up owning YouTube. So not only did it trump Yahoo! but it also owns the company that poses a threat to Yahoo!’s supremacy in video advertising. YouTube generates 1 out of 3 streams online.
But moreover, in owning YouTube and powering ads on MySpace, Google is in fact the ad network most exposed to social media… What is really odd is that with email being the ultimate communications tool and My.Yahoo being the original launch page… this is really a market that Yahoo! should have owned.
As we hear that Yahoo! will enable videos on Flickr, I cannot help but think how badly Yahoo! story has ended (or, I guess, will end). Why the Flickr story is relevant here, frankly, is that Flickr + del.icio.us (another unit of Yahoo!) = YouTube. See more on that here.
With a few bounces going the other way, Yahoo! could have been Google + MySpace + Facebook + YouTube, but instead, it will be a subsidiary of Microsoft sometime in 2008.
History has a very funny way of unfolding, doesn’t it?
Disclaimer: Long - albeit lighter - on Yahoo!
SAI speculates about Hulu’s impending launch. Considering the company’s pedigree, corporate backing, deep funding, people’s expertise and content programming, it’s not surprising to see Fortune be so bullish about its launch, “whenever that might be”.
Paid Content this morning pointed to a report by Bear Stearns, projecting YouTube’s revenue:
Bear Stearns estimates that YouTube earned $31 million in 2007 and will get $90 million in 2008; it expects revenues to grow to $277 million by 2012, with the primary driver of the growth being the banner ads. On a breakdown for 2012, it expects $165 million from premium/prime inventory (banners etc), $6 million from remnant, and $21 million from video/streaming ads.
We know it earned $15M in all of 2006, the year Google acquired it. What’s correct about BS’ report is that the perception that all video ads will come from pre, post or mid-rolls is plain false. A lot of the inventory that is actually sold on video sites stem from display/banner ads. Before Google bought it, I pegged YouTube’s potential revenue at $15M per month… but YouTube was more concerned with staying up and running, than monetizing its inventory.
Of course, YouTube’s challenge is trying to secure rights to the content on the site and create more sellable areas for advertisers. Considering that a mere 36 months the site didn’t exist, that is akin to changing a jet engine at 30,000 feet.
In Google’s hands, YouTube is looking for a revenue model that works without alienating users. But as the biggest site in the segment in the hands of the strongest web company, YouTube’s revenues will grow over time, no doubt.
But expecting YouTube to unleash pre-rolls might lead onlookers to the dead-ends. While I fully expect video ads to soar even above the expected $7.1B Forrester is pegging the segment to yield by 2012, I think the line between what is display/banner and what is video per se will be very hard to differentiate.
Anyway, dicing this up, as percentage of all video ads, you get (we’ll simply double the US video market ad size to get global size):
- 2006: $15M / $800M = 1.875%
- 2007: $31M / $1.5B = 2.06%
- 2008: $90M / $3B = 3%
- 2009: $277M / $15B = 5.54%
Clearly, YouTube is going to get more and more share of the online video pie, but as you can see, even though YouTube commands 50% market share with 33% of all streams (as of December 2007, anyway), it won’t see a proportional share of revenues. We at WatchMojo.com will certainly play our part to help YouTube get as much as it can, by virtue of being a content provider (and as of yesterday, at least, ranked 50th largest - check it out here).
Mind you, we’re somewhat agnostic to any one distribution point, as we are also quite proud to power MySpace TV, too. On News Corp.’s massively large social networking site, our channels include:
Auto | Business & Tech | Comedy | Fashion | Lifestyle | Sports | Travel | Video Games
All to say, as Hulu inches closer and closer to launch, all eyes will turn to it. Oh, did we notice that WatchMojo.com’s also partnered with Hulu, too?
I won’t comment on the site’s launch - frankly, I don’t have a clue, though if I did, I probably would not say much since it’s not my place - but we certainly look forward to helping Hulu out too, in any shape, form or fashion that we can. The day we joined their deck was a proud day for us…
There are hundreds of challengers in the video aggregation/distribution space, not all of them will survive or succeed, but so far, I echo a lot of the things in the Fortune piece: I am impressed with Hulu from top to bottom. But then again, I am a content guy and even if the site’s bells and whistles wasn’t as impressive as it is, I’d feel the same way… but it is true that the folks there have put a lot of thought and pulled off a great user experience: NBC and News Corp. must be proud… and the companies that have signed on as distributors will be as well. As a content producer, I am honored that our content will stand shoulder to shoulder with TV programming.
While all of these great sites are creating amazing distribution opportunities, there’s never been a better time to be in the content creation and production space… 2008 is the year that the tide begins to turn (away from the UGC mindset) and by 2012: it shall be king.
PLAY
