Revver is having problems, this after former eUniverse/Intermix founder Brad Greenspan bought the company for less than $5M… the company had raised $12.7M from VCs.
Disclosure 1: Revver is part of WatchMojo.com’s syndication network. From Day 1, it accounts for 0.32% of our total web streams. In case you are wondering, YouTube accounts for 45% of our total streams since Day 1. Our WatchMojo.com site accounts for 3% - which shows just how different web video publishing is to text content publishing online. But is that ever a separate post for another day.
Disclosure 2: Right before Greenspan bought the firm, I looked at acquiring Revver along with a well-known investor. I passed, when advisors told me that continuing to create original content (via WatchMojo.com) was smarter than branching off into distribution (and a relatively smaller one) via Revver.
Whether Revver survives or not, you know that there is an impending shakedown in the video aggregator space around the corner.
Side note, considering what FOX Broadcasting President Peter Liguori just said:
Liguori started with talking about the value of content, in this digital age: No matter how sexy distribution is made out to be, it is just pipes…it was what you put into the pipe that matter. Skin and sports has always driven the content business. It is the message that makes the medium, and creativity drives the bottom line.
Distributors desperately need the content we all produce to keep them in business. It is that simple, it is that hard.
… the decision not to make an offer was wise.
Anyway, Revver will go down in history as a case study in missed opportunities. Revver launched before YouTube, and came after iFilm. Before YouTube became a common term, people would rush to iFilm to find clips. Embedding was out of the question… mind you.
Revver came along and made two inter-related decisions:
1- offer content creators / owners the opportunity to generate revenue from their work.
2- charge advertisers via the Cost Per Click (CPC) model where they only paid if someone clicked on their ads.
You can argue that one of these was a strategic decision, the other a tactical one. Frankly, either one of those could be both strategic and tactical.
At first glance, #1 is the strategy, #2 is the tactic; though it can be argued that creating a performance based ad model was the strategy.
All to say: Revver failed strategically because the CPC model for video content is a deeply flawed one, for two main reasons:
a) As I’ve highlighted many times, with text content, a reader leans forward, keeps hand remains on the mouse, scrolling down a screen, about to click on the next page, a related link or an ad; with video, you press play, sit back and watch the video. The ad interaction is very different.
b) Moreover, the mere notion that advertising needs to represent a positive ROI from Day 1 is crazy man’s stance. Advertising will always be ROI negative. Even Google’s much vaunted Ad Sense program fails to deliver positive ROIs for most advertisers, it’s just that is is more measurable and measured.
Ultimately, had Revver gone with a CPM model initially (it since adopted one) then content owners would have obtained a more decent return on their videos… allowing the site to aggregate more - and better - content, which in turn would have made the site generate a bigger audience.
I have no insight into the future of Revver. I don’t even quite know what Brad Greenspan’s plans are for his company let alone Revver… but ultimately, it’s not enough to have the right strategy or tactics, you have to understand that strategies need to be reinforced with the right tactics, and each tactic in fact has to be planned and executed strategically.
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?
Over the past two years, not a week went by where you didn’t see a video platform raise money. The result was a mini-bubble: countless players all vied to compete with YouTube’s utter dominance in the space but largely failed to gain any traction. This week, Vidavee was dumped by investors for $6.6M after raising over $8M, some peg that figure at about $12M.
Well, this year it’s the mobile video platforms that are getting all of the attention, and frankly, I am not sure why. This is not a knock at any one single competitor in the space: I could not even tell you what makes one different from another.
What I do know is that this is not that big of a market, and the market isn’t all that lucrative, either. Let’s break down the market and see why:
1. Not Monetizable
All this social media hype and myth is based on the premise that it should all be underwritten by marketers’ advertising money, and frankly, I am not sure live video is all that monetizable. The quality is way too low and the risk factor is way too high. That mix is not something advertisers want. Thankfully, we’re not alone in our bleak view of this segment.
2. Extremely Niche
A lot of the valuations and rationale (using that loosely) is based on the burgeoning size of online video, but streaming oneself to the Web, and doing so live, is ridiculously small compared to the broader entertainment and informational space. In fact, some of the competitors concede that much, sort of.
3. Reach is Ridiculously Low
Why none of these companies stand a chance, frankly, is that any one who would be interested in such a service will be drawn to YouTube. If I want to stream my sorry ass online for the world to see, I won’t want to reach 10, 100, or 1,000… I will want to reach 1M people. Even YouTube cannot do that for me, let alone these wannabes.
Maybe one player will create value… but that will leave a lot of carcasses, too. However, at the valuations they are raising said money, they’re cornering themselves from the get-go by pouring money into the business before they have a business model down.
- This is the #1 financial reason why VC-backed companies fail: investing oodles of VC money before having a proven model.
- The #1 operational reason why VC-backed companies fail? They don’t have much advertising sales experience.
UStream.tv raised $11.1M Series A. Series A? You have to be kidding me! That is setting yourself up for a Series B down round… and all of that on top of a $2M angel round.
To note, this came on the heels of Qik getting $2M investment. Thanks to the greater fool theory, this $11.1M Series A will basically lead someone to step in and invest $30M into one of the many other clones:
You doubt that?
4. No Leverage in M&A Talks
Consider how Veoh, Video Egg, Metacafe, Daily Motion et al. all raised $20-40M with nary an exit in sight. Those sites all have created value, too… but their market is saturated and none of them really have any traction or leverage in any M&A talk. Let’s look at that table:
I don’t understand why investors would back a company when there is so much competition, but hey, maybe that’s why I am on this side of the table.
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.
Last week we lobbied bankers to pony up $500M so we could buy About.com. Shockingly, we did not get a credit memo. So this week, we’re asking for a bit less. Read on.
Revver’s Fate and The State of Online Video
It turns out that Revver’s potential sale to Brad Greenspan (who founded Intermix, then sued to try to block the sale of MySpace to News Corp., and since launched Vidilife.com and LiveVideo.com) fell through, according to CNET. Paid Content and Alley Insider are commenting on it, too. The touchy situation was Revver’s debt, which stands at $1M.
Sometimes, There’s Only a Few Buyers Than Can Reap Value
In today’s market, not everyone can assume debt, especially when there are many stronger, debt-free opportunities on the marketplace, all itching for an exit. But much like News Corp. was uniquely positioned to make an offer for Dow Jones, and Microsoft is uniquely positioned to acquire Yahoo!, I believe that the right company can integrate Revver and build on its assets to create something very valuable and compelling, in an efficient manner.
A Cluttered Landscape Amongst Video File Sharing Sites
For some time now, I’ve been saying that a lot of the video file sharing social networks would be shut down or forced to sell as a result of the over-investment in the space.
When I wrote “the fight for #3 is on” I mentioned that players like Veoh, Metacafe, Break and Daily Motion would be trying to chase YouTube and MySpace TV.
Consolidation to Come, But Are There Enough Chairs When the Music Stops?
Truth is, once Yahoo! Video, MSN Video and AOL Video decide to get serious about video, they will make the lives of independent players like Veoh, Metacafe, Break and Daily Motion very hard. Frankly, the main salvation for Veoh, Metacafe, Break, Daily Motion will be a sale to the likes of Yahoo! Video, MSN Video and AOL Video, or CBS, Viacom, NBC, etc. For the traditional media companies, it will be hard to have a change of heart and buy one of these sites, because many of these sites have thrived on “user generated content”, which is essentially a nice way of saying “user pirated content”.
Revver’s A-List Backers
Alas, I never mentioned Revver in that list, because from my vantage point (a content producer who works with all of these distribution players), it was clear that Revver was smaller. More importantly, I wondered how much longer Revver - under its current incarnation would remain under operation. Ironically, Revver was one of the first file sharing social networks to focus on video. But oftentimes being first is a kiss of death (iFilm anyone?). Given that it had raised $12.7M in funding from top notch backers like Bessemer Venture Partners, Draper Fisher Jurvetson, Draper Richards, William R. Hearst, III, Comcast Interactive Capital and Turner Broadcasting, it would probably not live long enough to survive because investors usually cut off the lifeline once they realize the company won’t command a massive return and continues to lose money.
Stalling the Engines at Revver
It’s a shame, from my interactions with the team at Revver, I see that they’re all nice people. Today CNET reports that the headcount has been halved from what it was 18 months ago. I presume with the deal falling through, no one else would really be interested because the demand and supply dynamics in Revver’s existing market are very challenging. There are over 1,000 YouTube clones out there, many with less complex and convoluted capital structures than Revver.
Of course, 18 months ago, in mid-2006, YouTube was independent too, and were it not for the sale to Google, it could be YouTube who would be falling on hard times for no other reason that its bandwidth fees far outweigh its revenues.
YouTube + Google = Lights Out
Once YouTube got acquired by Google, I said the going got rougher for YouTube competitors, including Revver. Revver had some management changes at the top. And competitor Guba’s CEO even said many people would be exiting the space because YouTube had won the grand prize.
Revver’s days, I felt, were numbered. As a content producer, I continued to root for Revver by providing them with content. However, Revver today not only competes against YouTube, Daily Motion, Veoh, Break and what not, they also compete for content producers’ attention, because content goes where the distribution is.
Video Remains Embryonic
While the explosive popularity of video consumption ensure that costs remain high, the embryonic nature of online video predicts that revenues in 2008 will remain small. Yes, online video advertising expenditures will cross $1B in billings in 2008, but they remain to scale. By 2012, it is predicted to become a $7.1B market in the US alone, but right now, online video is where search was in 2001: a major segment of the online advertising ecosystem, desperately looking for a business model.
One of the reasons why the business model remains to be developed is
a) the large majority of content out there is user-generated and of low quality
b) a lot of the videos consumed belong to old media and are pirated online
These two variables give advertisers a source of hesitation. It’s a catch-22: you need better content to attract advertisers, but advertisers won’t spend online to give owners of content an incentive to shift content online.
Content is King
This dichotomy has created an opportunity, one that WatchMojo.com has exploited perfectly. Recognizing that UGC does not lure advertisers and that old media will be wary to cannibalize their revenues by shifting content online, we have built one of the largest libraries of original video content with nearly 5,000 1 to 3 minute assets representing hundreds of hours of content across the following categories: cars, fashion, health, video games, music, comedy skits, film, travel, etc.
As we continue to grow, it was inevitable that we consider one day acquiring one of these many file sharing networks. Because of Revver’s DNA as a platform serving a network of producers (and not a platform to simply upload any UGC), I think Revver represents a very unique opportunity for WatchMojo.com. In turn, few companies can make the case to spend anything near $300K to $500K plus the assumption of $1M of debt when over 1,000 “YouTube clones” exist out there.
Leverage Assets But Reposition Revver
For us, we would certainly not be interested in doubling up Revver’s efforts to fight YouTube, Veoh, MySpace TV, Daily Motion, Metacafe, Break, Yahoo! Video, MSN Video and AOL Video etc. After all, these companies are valuable and respected distribution partners of ours.
What we would do is use the Revver technology and leverage Revver’s network of loyal content producers to create the 21st century’s answer to a media company. This would be by no means n easy feat. But we are confident in our ability to salvage and reposition Revver’s assets in a way that would create a lot of value in the years to come.
Our strength is in storytelling and packaging. While gifted content producers have chosen to leave Revver for greener pastures, we think that WatchMojo.com can in fact create a hub for content producers all over the world to offer advertisers what they have been looking for - but not been able to find - in online video. Our expertise is in advertiser relations, we do not think that Google’s AdSense, for example, represents the holy grail for Revver or for WatchMojo.com.
We also think that over time, content producers will be looking for homes where they may remain creative and be rewarded for it.
Soul Searching for Debtors
Of course, this begs the question: if I had millions in the bank, would Revver be the best place to park the money? Well, that depends on its network of producers, demographic of its users, technology, and its employees’ desire to tweak the business plan to build something of value and unique enough to stand the test of time.
If all of those things fall in place, then we are confident to be able to strike a fair and reasonable deal with the company’s Board of Directors that would leave all stakeholders happy with the resolution.
So, while this post started off as a pontification on Revver’s fate and the state of online advertising, inadvertently, it has become an open letter to Revver’s stakeholders, all of them.
If the rumors are true that there’s an amount of debt to be serviced, then clearly, the power is in the hands of the lenders.
I know who the shareholders are, but I wonder who the debtors are. I presume they’re reading this, so the ball’s in your court. If you want to chat, you know where to find me (ash@mojosupreme.com).
Apparently, traditional media’s love and hate relationship with YouTube took an interesting turn tonight: NBC canceled its channel on YouTube.
I won’t comment on that directly since WatchMojo.com is a content provider on YouTube and enough people are already commenting on the unconfirmed news, but I’ve been meaning to look at the interesting dynamic between traditional media companies and web video startups, and this is one more chess move in the big game that’s really only starting.
When you realize that Web Video is a $150B market cap opportunity by 2011, but not for traditional media and What The Math Suggests Old Media Should Do with Web Video (invest, not acquire), it’s not a surprise to see media companies wanting to be in control of their destiny.
NewTeeVee has a fantastic overview of media companies’ investments in web video startups, which I will shamelessly copy, paste, update (they forgot CBS’ stake in Spotrunner, for one, amongst a few others). I’ll also add some color.
Does it help or hurt companies when they get an investment by media companies?
Like most fine questions, answer is: It depends.
Why Strategic Money Helps
When it comes to strategic investments, one school of thought is that it encourages VCs to invest because they see a clear connection between investment and exit. From an operational perspective, clearly, getting a media company to invest in you will help in terms of validation, sales and marketing. Right Media said that they got a lot more calls for business after Yahoo! bought 20% for $45M. In their case, it also helped prop up the value of the company, subsequently selling the remaining 80% for $680M. Of course, what helped Right Media mainly was the market environment that saw 24/7 RealMedia, aQuantive and Doubleclick get acquired for high multiples.
Why Strategic Money Hurts
Now, the flip side on selling a stake to media companies: The other school of thought suggests that this also closes potential upside in any negotiations: if (say for example) NBC owns a strategic stake, that is great in many ways, but they might ask for a First Right of Refusal (FROR) in any M&A talks, meaning that it’s their right but not their obligation to match any offer and buy you.
The problem with this scenario is not in theory but in practice, because a would-be buyer, say CBS for example, would not even consider looking at buying you because it means they have to spend time and money on due diligence and then the holder of the FROR can walk in, match the offer and win.
Worse off, there’s nothing that forces the holder of the right to initiate talks. They have the option to do so, but not the obligation. It’s also not like you have the conceptual equivalent of a pull option, which is the right to sell. So while I myself love the allure and operational upside of getting a media company to back you, I also understand why some investors that I talk to don’t share that optimism and bullishness.
So technically, while some amongst the “smart money” might love strategic money, as an entrepreneur, I’d be wary (in all candor, I’d also consider it and reach out for it because the benefits are long and clear, too).
How to Structure a Strategic Investment by a Media Company?
When I was at the Tech Crunch 40 conference, Jason Calacanis (who raised money from News Corp. for his Mahalo project) suggested that the optimal way is to have an institutional investor (such as a VC) set the terms and have other strategic investors tag along, instead of have the media company set the terms. I think that is probably the wisest way to go, though one might not always have the luxury, of course.
What About Derivatives in Lieu of Equity?
Of course, some times a media company does not actually invest cash, but they strike a business deal and want to get some skin in the game. In this case, you can look at derivatives, such as warrants.
We’ve seen this happen before, too. Google did that when AOL and Yahoo! used Google to power their search engine and did not actually invest any money.
I’m not recommending any entrepreneurs to pitch warrants in lieu of equity in exchange for a cash investment… I’m pretty sure if you have NBC, CBS, News Corp., Walt Disney’s ABC, etc. sitting in front of you and showing interest to invest cold hard cash and you suggest warrants, they’d spit in your face and pile-drive you into the boardroom.
I’m just saying that in those rare events when it’s a business development partnership, an entrepreneur should consider warrants, as Google did, to get the larger media company interested in seeing you grow, cause the potential capital gain is a nice incentive and bonus.
Investments Made by Media Companies in Web Video Related Startups
Anyway, here are some investments by media company courtesy of NewTeeVee, with a bunch more I’ve added. I’ll continue to update this and if I missed anyone email me at ash@mojosupreme.com.
- Brightcove: video-publishing tool provider
- BroadLogic: video processing chips (with Comcast Interactive Capital)
- Ripe Digital Entertainment: on-demand TV network for young men
- ScanScout: contextually relevant video ads
- Veoh Networks: online video platform
- Visible World: video advertising for TV and broadband (with Comcast Interactive Capital)
Comcast Interactive Capital (CMCSA)
- BlackArrow: video advertising platform for cable
- BroadLogic: video processing chips (with Time Warner Investments)
- Revver: video-sharing with revenue sharing for all creators
- RGB Networks: video networking systems
- Visible World: video advertising for TV and broadband (with Time Warner Investments)
- Vitrue: white-label video sites and advertising services
Peacock Equity (GE)
- Firebrand: commercials as content portal (launching next week)
- Adify: contextual video ads.
- NBC also has an investment in Worldwide Biggies, a digital studio.
Hearst Interactive Media (HTV)
- Brightcove: video-publishing tool provider
- Sling Media: place-shifting hardware devices (sold to EchoStar)
- The NewsMarket: news video archive
- Worldwide Biggies: digital studio
Steamboat Ventures (Wall Disney’s VC Arm)
- Move Networks: streaming television platform
- 56.com: Chinese video-sharing site
- CTS Media: Chinese video advertising
- Netmovie: Chinese VOD
- UUSee: Chinese Internet TV platform
Yes, I noticed the obsession over China.
Bertelsmann Digital Media Investments
- UITV: Chinese Internet TV site
- Joost
- Spotrunner
- Stake in male-oriented video-sharing site Break.com.
- Brightcove: video-publishing tool provider
Yes, everyone owns Brightcove.
That’s just the investments, if you consider acquisitions, the list would be longer, and that’s something I’ll start working on.
You might notice the notable absentee is News Corp., and I don’t think it’s a coincidence.
Yes, they own 5% warrants in ROO, with the option to buy 5% more, but that was given to them… When News Corp. makes investments, they’re not small, they’re in large entities, see for yourself.
As I said, this is not a coincidence. When I was attending another conference, Paid Content’s EconSM shindig, I was in the audience when Mike Lang, Executive Vice President Business Development & Strategy at Fox said that News Corp. wasn’t interested “in leasing companies, he was looking at buying companies” and if I were News Corp., I’d share that outlook, frankly…
Not all media companies have that outlook, of course: it is interesting that CBS’ Quincy Smith and Michael Marquez have decided to take CBS Interactive in a different direction by mainly investing in - and not buying - young new media companies.
Time will tell which decision yields the best results.
Related on HipMojo.com:
- What Old Media Should Do with Web Video: The Math
- Web Video is a $150B market cap opportunity by 2011, but not for traditional media.
When Guba’s CEO resigned, he said that YouTube had won the game in online video… we said that the times would get harder for second tier sites because Google would not be able to make YouTube even stronger. VC activity in the space slowed down, as exits became less obvious. Today we’re seeing the fragmentation of online video file sharing services: Veoh is moving into one area and Sony becomes the latest to carve a niche:
Sony is trying to edge into Internet videos with a Web site to be introduced today called Crackle that will feature short segments by aspiring filmmakers, many of whom Sony paid for their productions.
Crackle is the latest incarnation of Grouper, a Web site that began as a way for people to share music, photos and videos with friends. It transformed itself into a YouTube clone and was bought last August by Sony Pictures Entertainment for $65 million. At the time, Sony said Grouper would be focused mainly on user-created video, which it hoped would spur the use of its home video equipment.
But this approach had little traction in the market. There was a lot of competition, especially from Google’s YouTube, which has become the center of user-created videos. Moreover, Sony found that advertisers did not find user video very appealing.
So it decided that higher-quality videos would enable it to stand out in the market and attract advertisers as well. “We have been moving away from YouTvand toward higher-quality content,” said Josh Feltzer, the founder of Grouper who is now co-president of Crackle, “by rewarding the aspiring producer versus the person who wants to share a video of a wedding or of someone jumping off a roof.”
We wish Sony well, but having paid $65M for Grouper which is a rounding error for the Japanese-based giant, Sony has a lot of wiggle room. The writing on the wall for smaller, privately held assets is less rosy: Revver too sought to be a place for aspiring filmmakers, even offering to share in the ad revenue it generated.
We’re not sure how much traction Revver had, as manifested by the management shakedown late in 2006, and since YouTube has begun paying its content owners too, I doubt many content owners will find a need to be on Revver, Crackle, etc., because market leaders tend to offer more upside to content owners alone than the sum of laggards do in aggregate. Of course, YouTube does not ask for exclusivity, so there is nothing stopping a content owner to allow both Revver, Crackle and YouTube to host their videos in exchange for content.
But as we can see, the time to invest in platforms and infrastructure is long over, for sure the contest continues, but to win, you need content. That’s the next great area of focus… we at WatchMojo.com sort of saw this coming a year ago and that is why we invested aggressively in building a library of high quality, low cost video clips. We syndicate our content across a plethora of distrubution points… but over time, as we too have to manage our resources, it’s natural to think that the only file sharing sites that will get content are those who yield solid returns: be it in audience or in revenue. Branding doesn’t pay the bills, of course, but it does build brand equity which over time is required to generate advertising revenue on our site. So if you follow that rationale, ultimately the file sharing sites that will be relevant will be those who can generate ad revenue for their content partners.
For services like Grouper/Crackle and YouTube, that are now part of a larger entitry, this gives them an edge in that devoid of such revenues, they can survive and thrive to some extent.
But, I do anticipate a further shakedown for independent and privately held file sharing sites that need to start showing their investors a glimpse of a path to profitablity, let alone an exit strategy.
Have you noticed how 2007 has changed the euphoric mood at video sharing websites? Sure, YouTube’s paid off big time with a $1.6B sale to Google, but as we suggested, it is going to get a lot rougher and tougher for the rest of the field to gain any traction.
Last week, Viacom and CBS told YouTube off, here is our rationale as to why Google/YouTube is not acting like a good corporate citizen.
Yesterday we found out that Veoh is not even large enough to merit the big studios’ attention.
Today we read that Revver is trying to find a niche and MSFT was considering buying it after it struggled to develop a sustainable business model, but passed. Maybe this reality has something to do with it:
When it came to convincing large entertainment companies to sign up, most of them flat out rejected Revver’s offer, according to a source close to the company. Studio executives told Revver that they weren’t interested in any plan that compensated amateurs on the same scale with professional filmmakers.
“The marketplace told Revver, ‘If you think we’re going to offer our premium content on the same basis with videos shot at a frat party, you’re out of your mind,’” said the source
Hollywood wanted different compensation levels for professionals and amateurs. It never happened and less than a year later, Revver’s plan to pursue partnerships with the studios has been mothballed, according to multiple sources.
Hmm… this graph is starting to make more and more sense now, isn’t it?
User generated accounts for the bulk of traffic online, but let’s face it, it’s not very realistic to monetize it, and until video goes from hype to substance, the TV producers won’t flock online (and when they do, they will muck it, anyway)… what does this all mean for the Revver/Guba/GoFish/Veoh/[insert anyone else here] crowd: it’s going to start sucking when you are paying a lot in hosting and bandwidth fees and all you have to show for it is a video of two girls kissing at a frat party… then again, that ain’t too bad, now is it?
Until now, we thought that YouTube - the big cahuna in the room - would be able to shelter itself as a result of both having the audience and the content, but Google/YouTube are taking an arrogant stance in talks with the media companies and I think over time YouTube will lose more battles than it will win…
Whether or not this means “opportunity” for Joost or someone else, I don’t know. I doubt Joost is going about it the perfect way… Ultimately, this space is wide open and it seems that when the scale tips, it has a lot to do with one’s mistake or lack of execution rather that another entity’s action.
Certainly is an interesting time and place in online video. Content is king… technology - and to some extent audience/distribution - is being commoditized. If you doubt me, read MSN’s Entertainment head honcho Rob Bennett’s quotes: “we have twelve times the audience YouTube has” (…) “we tried to see if we could integrate Revver’s technology into MSN’s Soapbox.” Trust me, that is not “wow, this is so unique that we absolutely need the IT,” it’s “ok, we could duplicate that in a couple of weeks…”
Content, try duplicating an archive of thousands of video clips. I hate to say it, but Sumner Redstone is right on this one, the consumer does not care about distribution, they care about content.
On a very related note, pardon my bias, but check out WatchMojo.com’s 4,000+ original video clips here.
Word on the street is that two of Revver’s co-founders have left the company.
Steven Starr will remain CEO, but co-founders Ian Clarke and Oliver Luckett and other members of the staff will depart (though apparently some will have consulting roles).
In a sign of the times, they are being replaced by offline/traditional media folk:
It appears that the company is gearing up for a change in direction, because it has also brought in new executives from the media, marketing, and advertising worlds. In an official statement to AdAge, Revver maintained the “personnel changes are intended to advance the company’s infrastructure and bolster its marketing and advertising efforts in 2007.”
I do not know the two blokes who are leaving, and I sure do not want to say anything about those who are arriving. I wish that Ian Clarke and Oliver Luckett are off to greener pastures and hope that this was not a result of VCs pushing them out. After all:
Revver has raised about $13 million from Comcast Interactive Capital, Turner Broadcasting, Draper Fisher Jurvetson, Bessemer Venture Partners, Draper Richards, and William Randolph Hearst III.
You thought Hearst Numero Uno was a tough sell? All I know is this:
- for all of the hype that permeates online video, it’s a bloody hard business to operate in.
- after YouTube was bought out by Google, everyone else who got funded by VCs in the file sharing space died a little, and many will die in 2007.
Or, rather merge, if egos allow. These firms have a lot of money secured but burn plenty each month, problem: little revenue.
Remember a long ago time when this happened? Hmm… ask Prince.
The problem is that online video is a young business, online advertising will make it a $3B industry in 2010 but as of now it’s still small. And, you can’t trust projections anyway. Any company that has $13M in financing (incidentally, the same amount YouTube got from Sequoia) will have financial backers that expect large payouts, soon.
Problem for those VCs who followed Sequoia’s YouTube investment, Sequoia had secured YouTube’s exit before Chad Hurley, Jawed Karim and Steve Chen even got the first check. Sequoia would ensure that it would hedge its holdings in Google and that it would get its YouTube money back by making one buy the other. Yes, we’re conspiracy theory lovers.
Other VCs followed like sheep. And when Google bought YouTube, Google became #1 in search and video. See a problem?
The other YouTube clones now trade at discounts, not at premiums. And, VCs won’t write more checks for 99.9% of the YouTube clones. If they did, Metacafe would not be selling to… whoever, it would raise more money. And that might have even been PR to get people excited.
As such, we respectfully disagree with Mashable’s Pete Cashmore when he states:
their value has almost certainly increased following YouTube’s acquisition.
Why, because of the “greater fool theory?”
While Mr. Cashmore is right to state that Revver could have added more content, the truth is that YouTube won the game by cheating and ripping off content. It’s that simple. I love YouTube and admire the founders and all, but I also liked Napster but knew it was not exactly right and legit.
Where we somewhat disagree is the conventional wisdom surrounding the aura of Web 2.0 community features, Cashmore continues:
in particular, they could have added comments to help build a community around the clips.
Well, we’re not sure if in 1, 3 or 10 years people will look back at the entire “comment” madness and think it was cool. Go to YouTube and listen to, for example, Thin Lizzy’s version of Whiskey in the Jar vs. Metallica’s version of Whiskey in the Jar. Every single comment is on how Metallica sux or Thin Lizzy is weak. 80% of comments are, frankly, useless and devoid of value. Don’t take it from me, this was why Robert Scoble said he does not use Digg because “You go to Digg and get a hundred comments showing how juvenile some of the commentors are.” All right, that one is a paraphrase. Here is what he said:
The comments there are a good example of why I don’t get much value from Digg. Too much noise and very little knowledge.
But, in our blurry Web 2.0 drunken stage, we think Comments are cool, way cool. Yeah so was that stupid sock.
The concept of commenting is great. Its practice is awful. The sense of community is essential, but so is content, and Revver failed to get content. It also failed thus far with Commerce. The third C in the Content, Commerce and Community trifecta of online success. We do however think that the new management that got parachuted today will help.
Back to this move: Revver and other such companies have been funded with ease when YouTube was growing fast and a sought-after takeover target. But I do not think many VCs will want to fund them further. Will online video burst the bubble? Maybe.
Rather, file sharing sites will pop. And content owners like WatchMojo.com will probably pull content from most of the file sharing sites. Just last month Current TV pulled its content from Yahoo! video. Our videos have been seen 1M times on YouTube, Google Video etc., but guess what, branding does not pay the bills. All I know is that our bills are nowhere near where the file sharing sites’ are, yet we have a clear path to revenues and profits. When you publish content, it’s as easy as 1, 2, 3.
When you offer a platform for others to share content, you get press and one out of a million makes a billion, but by and large you also set yourself up for a massive burn rate.
If this was not the case, why the sudden exit of Revver’s two co-founders.
I am biased: I produce video, I produce the content. User generated or amateur video will only take you so far. After a while, the people who are attributing all of that content feel like they are being exploited.
As NewTeeVee mentions, Revver plays up the “we pay producers” angle but few actually make any money. That’s not a good thing for PR, or for business… According to Ad Age:
A quick check with a popular content provider who regularly posts videos with Revver said it was difficult to make too much money from Revver and that a producer would generally need to distribute videos somewhere else to really make it pay. A quick check on Revver over the last month reveals ads for Palm’s Treo, Warner Bros., Turner’s GameTap site and a site called Videomaker.com.
If the guys who were pushed out from, I mean “left Revver voluntarily” are reading this, please drop me a line. It’s not you, it’s them. If you doubt me, the news came from Edelman while CEO Starr was on vacation. According to Ad Age:
Mr. Starr is on vacation and was unavailable to talk about the changes but the company released a statement through its public relations firm, Edelman, explaining that the “personnel changes are intended to advance the company’s infrastructure and bolster its marketing and advertising efforts in 2007…
Wow! ‘Nuff said. Back to work. We actually have to create content and sell ads. Gee, think of that!
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