Via StartupChatter: Jon Miller calls for an equivalent to TV’s 30-second ad spot.
Problem is: I’m not sure if we’re going to get it, at least not anytime soon.
After all, much the same way that the Web is radically changing the way things are done, I am not sure it’s reasonable to expect the “equivalent” or something from print, outdoors, radio or TV online.
You don’t see anyone looking for the Web’s answer to the CD, do you?
In fact, even more troubling is the fact that every time we think we’ve seen the second coming of the 30-second ad spot, it has fizzled. Let’s count the heir apparents that were not:
- The pre-roll? Nope. Let’s face it, this is the equivalent of the web’s pop-up and on the decline. Sure, traditional media firms are printing money thanks to pre-roll ads, but the danger is that they push away users and eventually shrink their audiences.
- The post-roll? That’s the pop-under… in other words, users are not as annoyed but marketers don’t think it’s worth a warm bucket of spit.
- The Picture-in-Picture? I suggested that… but not everyone digs that either?
- The Overlay? Video Egg made a clown of itself for boosting that… only to say that it represented tiny upside. I like this, but realize it’s not the equivalent of the 30-second ad… at all.
- The Companion ad is something I like and find valuable… after all, display banner ads in text content are worth jack because users scroll down and miss the ad quickly… but companion ads alongside video players are worth much more because they remain at eye-level… but try selling that to advertisers.
What else? I have a few ideas… but more and more, I think the big bet of ad-supported free video won’t be as interesting to content owners who distribute their content as licensing deals. The problem is only1% of content owners will be able to command licensing fees.
Yes, I know what you’re thinking, licensing fees limit your revenue upside… but I got news for you: 50% of $0 is pretty limiting, too. I am not saying most video distributors generate $0, but you get the idea.
I have explained why we’re all smitten by the ad share dream (think Google) and why media owners were burned enough (think MTV) to consider asking for a slice of the ad pie online… but given where online video advertising is ($1B in 2008 to grow to $7B by 2012), it’s way too premature to expect online video advertising to underwrite content production. Where this gets dicey is that UGC fails totally to deliver what marketers want… so one way or another, you need professionally-produced video content.
What does this mean? Otherwise really smart people like Jon Miller and Fred Wilson might be wrong in their vision, or at least, the timing thereof.
Here’s what Mr. Wilson said a couple of years ago in his 4 Rules of Media post:
1 - Microchunk it - Reduce the content to its simplest form.
2 - Free it - Put it out there without walls around it or strings on it.
3 - Syndicate it - Let anyone take it and run with it.
4 - Monetize it - Put the monetization and tracking systems into the microchunk.
I am of course referring to #4. That is true in theory but in practice, if anything, it’s premature…
Over time, there will be advertising-share kickers, too… but trust me when I say this, the paradox of video business models is quite ironic:
- traditional media companies that actually generate revenue don’t want to split any with third-party content owners, they will consider licensing video, whereby cutting a check and getting all of the upside.
- new media companies that tout the ad-share mantra don’t have two nickels to rub together so the revenue share terms are moot. It’s like trying to negotiate a carat size for a wedding ring for your favorite prostitute… the conversation is useless.
This is why media companies will eventually just buy content libraries… because content is not a net-zero game, unlike technology. Think about it: if I license software A, chances are I won’t need software B from A’s competitor. But if I watch one video, chances are I will watch more and more over time. When you start listening to music, generally speaking you don’t turn off your MP3 player after one song, do you?
Anyway… for this reason - and I say this very respectfully - I think Mr. Miller is wrong when he says:
“For Miller, video generalists are NOT winning propositions: Velocity Interactive considers targeted, “specialist” plays to be more certain investment opportunities.“
I won’t get into all of the ways… but on the front lines, the opposite is happening in countless ways and for numerous reasons… and Mr. Miller probably knows that too, all too well. But that’s for a separate post on a separate day.
I’ve been following funding in online video for some time. Check out a fairly complete list, here.
Yesterday, some were asking: has Web 2.0 investing peaked? Yes. Just ask the VCs themselves.
But I doubt it was ever significant. Were it not for Facebook’s massive $240M deal last year, investment in the space went down in 2007, with a 3% decrease.
I do not really spend much time covering Web 2.0 funding, because it’s usually small, angel-ish rounds and frankly, I do not see much exits in the space. Admittedly, someone should throw a flag on that statement and say “Ash, what is a Web 2.0 investment?” - generally, this is what I mean:
What we refer to as Web 2.0 projects were never companies, they were applications and features. VCs do not really get excited when there is little requirement of capital AND little exit returns. But, don’t take it from a schlep like me, take it from an actual VC: see Paul Kedrosky in this Wallstrip interview. Mind you, it should be stated that other successful VCs, like Fred Wilson, have made tidy fortunes from Web 2.0 investments. But, I do not really see Feedburner, for example, as a typical Web 2.0 investment because there was some meat on the bone there.
But my point has to do in general with the following. VCs look for meaningful exits, be it IPOs or M&A. But what if one of the leading architects of the biggest Web 2.0 acquisition says the ship has sailed?
What on earth am I referring to, check this out:
Continuing the discussion of the ever-evolving internet, Jon Miller, the former chairman and CEO of AOL, explained that the progress of the internet can be divided into three ages: the early to mid-90s marked an era of communication, the rise of instant messaging. The early part of this decade saw the rise of search while now, with the dominance of social networking sites like MySpace, Facebook and Twitter, is the age of convergent content communication, a blend of the previous eras.
Continues Ross Levinsohn, who was president of Fox Interactive when when News Corp. acquired MySpace, jumped in to talk about virtual worlds and their relevance to the younger generation of internet users, but emphasized the importance of looking beyond, looking for what comes next, instead of jumping on the social media bandwagon now. He stressed that he “would not be investing in another social media site, just as [he] would not invest in a YouTube competitor, just as [he] wouldn’t invest in another portal… it’s idiotic.”
Why this is interesting and why it speaks volumes is because Ross Levinsohn is the executive who got Rupert Murdoch to spend $580M on Intermix, MySpace’s parent.
For the guy who sent the entire Web 2.0 crowd into a frenzy to say the opportunity has passed, you start to understand why VCs realize that Web 2.0 ain’t worth getting excited about, either. But then again, was it ever?
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
When former AOL CEO Jon Miller hooked up with former FOX Interactive Media CEO Ross Levinsohn, rumor had it that they would partner with a private equity firm, spend billions and roll-up media companies.
Frankly, in their hands, I’m not sure that would have been a bad idea, but with billions of dollars invested, the kind of return investors would have expected in absolute dollar amounts would have left very little room for errors. So the two men went back to the drawing board, shuffled their cards and came out with a slightly different strategy: the two would partner with a VC, invest smaller sums and set up a fund with holdings in independent companies.
It’s only been a couple of months, but giving credit where it’s due, they are on their way to build a Western-based, new media-centric, loosely based and informal keiretsu, so to speak.
According to Venture Beat:
Although there’s no formal agreements between Velocity’s portfolio companies, here’s how they are positioned to work together. First, Generate [a company Velocity just invested in] creates the content and cuts deals with advertisers.
Then, Broadband Enterprises [whom Velocity invested $10M in last month], a company that distributes videos and video advertising to many other partners, helps Generate to distribute its content across the web, mobile devices and TV networks. Meanwhile, widget company Mixercast offers a way for Generate to get its content to spread virally among social network users, as they add and share widgets that feature its artists’ works.
Broadband Enterprises, for example, competes with Tremor Media (and many others). Most of the tech platforms and ad networks actually do not “lock clients” in. I think (though I am biased) the only way you win is if you own the content. By leveraging content as the glue that holds the various pieces of their growing empire together, Velocity can add a lot of velocity to their strategy if they keep adding content and funnel it through the pipes (in this analogy, the pipes being Mixercast, Broadband, etc.)
I love to criticize financiers’ hubris; lord knows sometimes smart people stumble because they try to shove 5 pounds of meat in a 2-pound bag… but this approach is actually starting to look pretty smart. Online video’s storyline is being written as we speak and the kind of connections and vision they are bringing to the landscape is refreshing and unique.
Most VCs have hitherto focused on tech platforms and ad networks, Velocity seems to be bullish on video content, as their investment in Generate manifests. Mind you, if the former CEO of WB was working on a project, I am sure most archetypical VCs would listen, too.
I was not familiar with Generate, frankly, but they seem to share our bullishness for professional, high quality video content, via our own efforts on WatchMojo.com.
It is certainly too early to judge Miller and Levinsohn’s track record as investors, but as outsiders to the financing game with extensive media backgrounds, they seem to have the inside lane in a lot of interesting players in the video segment.
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…
Another storyline, of course, is that both Miller and Levinsohn are determined to prove something, if to no one else but themselves. While either man could have accepted a CEO job at countless companies, it’s interesting that they’ve adopted a portfolio approach to diversify their risk away from any one company.
If they pull off their game plan, they could make the existing highlights of their resumes look pretty pale compared to what they have in store as online video continues to become a bigger and bigger piece of the online advertising landscape.
If you thought financing rounds were raising eyebrows, here’s a prediction, it’s about to get a lot more interesting, and competitive, starting… now. Part of the reason why is that exits are about to get more competitive.
Tech Crunch points to a press release that $15 billion hedge fund General Atlantic is backing Jon Miller - former CEO of Time Warner’s AOL - and Ross Levinsohn - former CEO of News Corp.’s Fox Interactive Media’s roll-up fund. We’d heard a lot about these roll-up funds, and now we’re seeing that move from concept to reality. The challenge, now, is the execution.
Michael Arrington raises a good point: the fund will be competing with Demand Media, what makes that interesting, is that Levinsohn and Demand Media Chairman and CEO Richard Rosenblatt teamed up on Intermix Media’s sale to FOX: the Intermix board brought in Richard Rosenblatt to replace founder Brad Greenspan… and eventually, FIM’s CEO Levinsohn got News Corp. head honcho Rupert Murdoch to sign the big check $580M to Rosenblatt and other Intermix shareholders.
Of course, Intermix’s Myspace was the crown jewel, but the MySpace guys only got $5M in the sale, and Greenspan to this day thinks he and other shareholders were short-changed. Afterwards, Levinsohn basically told Greenspan off, read more on Valleywag’s post, called “Fox interactive head: Brad Greenspan is a loser“.
Not to be outdone, Brad Greenspan, founder of Intermix, has since started LiveVideo.com and been busy buying up assets, he bought video search (Flurl.com) and probably, safe to say, hates both men (Levinsohn and Rosenblatt). He also tried to derail Murdoch’s planned acquisition of Dow Jones, which was beyond ballsy, and ineffective. Expect to see Murdoch try to derail at least some of Greenspan’s plans in the future.
Back to this new fund, by the sounds of the press release, Miller and Levinsohn are:
“to Serve as Advisors to General Atlantic’s Media and Consumer Sector,” but I think by next week you will see news that the gentlemen are launching a new fund and leveraging GA’s far-flung assets and know-how.
According to Anton Levy, Managing Director and head of GA’s Media & Consumer sector, said, “We are excited to be bringing Jon and Ross on board to work with our media and consumer team as we continue to partner with the leading companies in this high growth sector.”
Paid Content adds:
The new fund is called Velocity Investment Group, and among the companies we have heard it is looking at is online video distribution firm Broadband Enterprises. The two have also been talking to numerous other companies, at least a dozen of them according to our sources. The focus initially is platform/distribution companies.
Also, the two have been talking to various investors for while, and among them were Texas Pacific Group. The fund came very close to doing a deal with Warburg Pincus, but Warburg was putting in too many restrictive clauses which the two didn’t agree to, and General Atlantic came in at the last second, our sources tell us.
What’s more noteworthy, in fact, is that to some extent, Levinsohn got shown the exit door by News Corp. and AOL sheepishly fired Miller and replaced him with NBC’s Randy Falco. Guess who this fund will also be competing with?
Media companies like NBC and News Corp.
I am not sure if I should be saying this, but this week I held talks with a couple of media firms who wanted to buy us. Both fantastic businesses, but on my way back, I could not help but think that it was too early to sell and that the demand vs. supply mechanism was in our favor and we should hold out. I might very well never cross any of these men (well, Mr. Levinsohn certainly knows about WatchMojo.com, but I digress), but you are just starting to see the flow of things towards digital, mark my words.
I love this business.
PLAY
