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
While many people seem to suggest that the slowing economy will affect funding, it is certainly surprising to see players enter competitive and uncertain spaces with new, large funding rounds.
Examples:
- TidalTV raised $15M, it’s essentially a similar business to Joost and Hulu. Joost has raised $45; Hulu has raised $100M. Disclosure: WatchMojo.com provides content to both Joost and Hulu, along with 100s of other large destinations.
- Panther Express raises $16M. Last time I checked, CDNs were being commoditized. Limelight Networks debuted at $20/share in its much ballyhooed IPO, but it’s now at $7… “up” from its 52-week low because every day a new rumor pops up about a potential acquisition (last week MSFT, this week Level 3).
Anyway, more power to these companies and their backers. Online video streams surpassed search queries, so at the macro level, the market is steamrolling… but does that mean that we need more competitors at the micro level?
Time will tell.
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.
From Dan Rayburn’s blog:
So with all that being said, below is what the going rate is for streaming media delivery. These figures are based on actual contracts and RFPs I have seen in the market and comes from customers telling me on a weekly basis what they are paying. Since last quarters pricing, which I detailed here, the biggest change is at the 50TB+ per month commitment. Anything below 50TB+ has pretty much been level all year. Only above 50TB+ and really at 100TB+ is where the price has dropped from last quarter.
Read the rest.
Being a fairly large producer of video content over at WatchMojo.com, I’ve come to appreciate the need and desire to serve videos in a crips, quick and reliable fashion. Having viewers from Bombay to Boston, having a global grid that can serve videos is not an option, it’s a must.
Relying on a host is just not optimal, usually, and so enter CDNs, or content delivery networks.
Last year when CDNs began to capture both private and public investors’ attention, you knew the good times were back. But CDNs were commoditized the first time around for a reason. Should you invest in something that is, in fact, a commodity?
The leader in the space, of course, is Akamai. Akamai has had some competition of late from Limelight Networks, backed by $130M in financing from Goldman Sachs. Akamai managed to woo then startups MySpace and YouTube and rode their growth to an IPO. The stock’s performance has been clouded by legal liabilities stemming from a lawsuit from Akamai, which has proven to be a legal bully against startups. After the most recent slide, I bought a few shares… I’m not sure if I’m a long term investor in Limelight, frankly, because every day that goes by, I see more and more downward pressure on CDN pricing power. It should be noted, that just because there is pricing power on a stock does not mean the overall macro, fundamentals of a company or industry are bad. Limelight, for example, is seeing massive revenue growth, and if the lawsuit cloud disappears, then you can see the stock pop a few dollars.
But before you dive into the stock, note that there are upstarts crowding the space: former Doubleclick founder and managers launched Panther Express… who some say is doing to Limelight what Limelight did to Akamai: undercutting prices and winning over clients.
Today, a new player enters the space: Edgecast. According to James Segil, co-founder and president of the company: “We give the bandwidth to customers at cost and plan to make the profit on the services, such as reporting tools,” Segil says. “More important, we improve their performance, give them more features, offer dedicated edge space, and more - all while reducing their costs as much as 50 percent.”
Customers like IMAX Corp., one of a dozen businesses in entertainment and media, are not complaining and have signed up for EdgeCast to deliver streaming and downloadable video to their websites. Segil says he and partners pulled together enough private capital to launch the network globally, rather than regionally, “to compete better against Akamai and Limelight.”
Read more on NewTeeVee. Also, worth checking out this post on 10 P2P players in the CDN space.
Related:
- Why Limelight Networks Shot Up 27% Friday
- Akamai vs. Limelight Networks - Start Your Engines
- Grid Networks Tackles CDN market with P2P Solution
- Akamai and Level3 - Who will win?
Disclosure: I own shares in Limelight, my former boss Mark Jung sits on Limelight’s board but I have absolutely no insight into the company by way of that relationship.
Last Friday I wondered what was up with the 27% spike in Limelight Networks’ stock price (disclaimer: long LLNW).
I thought it was an institutional investor piling on some shares, since the company’s stock debuted at about $18, zoomed up to nearly $22, but had fallen back down to $15 before the 27% spike.
Today Paid Content reports on a Light Reading post that in preliminary hearings, a court sided with Limelight (and against arch competitor Akamai), thus explaining why the stock shot up on Friday: ”The court said that Akamai was trying to patent the process, not the technology and rejected the claim.”
As a result of the ruling, shares in Limelight rose $4.21 (27.04%) to $19.78 on the day, after touching an all-time low of $15.13 earlier in the trading session.
Rafat Ali added: “The case is complex, so if someone else understands the ruling better, let us know.”
I have yet to read the 29-page report, but will sometime this week if I have time. But the premise might not be that complex if you apply it to something simpler.
First off, I’m not a lawyer (again). Second, I’m not about to say that you cannot patent a process. I’m sure you can. I guess it depends on what the process is. From what I know about CDNs, I am not sure what CDNs do is patentable. I’ve not given it that much thought… but then again, I’m no brainiac from MIT.
But, if you take a step back and consider that a patent is intellectual property that is not fundamentally different than copyright, then you can say that “while published works are copyright”, the process by which you print a document is not. This is probably simplifying it too much, but it does apply to the Akamai vs. Limelight Networks a bit. The judge, I would presume, probably feels that the process whereby (using the same example)
a) ink gets applied to paper to form words and sentences and then
b) gets printed on a sheet of paper,
b) gets bound and printed
does not constitute a copyrightable asset. I’m no electric engineer (or whomever does what LLNW and AKAM do) but that makes sense.
If you look at this in a different form of IP, say trade secrets, you can apply the same rationale: Take Coca-Cola versus Pepsi, or McDonald’s versus Burger King. Surely if McDonald’s uses a certain type of meat, or develops a super duper oven etc., or decides to have 3 people working side-by-side to assemble the world’s greatest burger, these are trade secrets that a McDonald’s employee might not be allowed to use at BK if they were to leave from one to another, but if BK too wanted to change its process of putting the patty on the bread, etc., ie. apply the same process, I’m not sure there is anything non-kosher.
Now, leaving food and beverages and returning to, well, whatever it is that Limelight produces: if the folks over at Limelight Networks were hiring former employees of Akamai and these people were violating any competition or confidentiality agreements, then a court could try to prevent these people from working at LLNW, but even then, it would not be able to shut down the Arizona-based company altogether.
According to a GigaOm post when it was filed, “Court documents show that, the lawsuit was filed in the US District Court in the State of Massachusetts in late June 2006. MIT and Akamai allege that Limelight is infringing on Patent # 6,108,703 and patent # 6,553,413. Both patents were issued to MIT and are licensed exclusively to Akamai.”
So, what processes are patentable, well, I’m not sure if that’s even a word, let alone the question I ask… but for now, all I’ll say is this: The risk with lawsuits, as I’ve written here before, is that you can blow your false sense of security by over-extending your legal right…
Anyway, I’m not a lawyer to take this all with a grain of salt, but the venerable readers of this blog might trust my interpretation of legalese and its translation into English… but we won’t go there.
Note to Limelight: I’ll send over my bill for legal advice first thing tomorrow morning…
Disclaimer: I’m not a lawyer, I just think that I am. And, I own shares in LLNW.
What’s up with that massive spike? After eight down sessions, Limelight Networks shoots up dramatically?
Anyone got a clue as to why?
Disclaimer: Long LLNW.
PLAY
