The Spotrunner saga remains allegations, for now, but this does raise two main points:
1- Investors are suffering from such Google envy if they really think that everything in the burgeoning advertising ecosystem can be reduced to an algorithm-driven marketplace. That will never happen with TV.
2- There needs to be a market for founders to slowly cash out shares… though if what WPP alleges is true, I don’t think the Spotrunners founders should have benefited from. I mean, revenues of $10M on $111M of funding? Come on.
Spotrunner launched on January 11 2006, WatchMojo.com launched January 23 2006.
The similarities end there.
Unlike Spotrunner, we never raised $110M in funding… which means we also didn’t [allegedly] get a chance to scam a bunch of investors, not that we would have, of course. It’s a shame to see a company like WPP invest in a startup, only to get ripped off. Talk about biting the hand that feeds.
This is straight out of a soap opera. Check out the Madoff-esque list of investors, read the comments on Business Insider, Paid Content, Venture Beat for more juicy details and allegations, and read the legalese below.
According to AdAge, via Paid Content, Spot Runner is being sued by WPP. Spotrunner is a self-serve TV ad platform.
The company’s investors include:
Since launching three years ago, Spot Runner has raised $111 million from number of investors, including UK media group Daily Mail (LSE: DMGT) and General Trust, Spanish-speaking media giant Grupo Televisa, hedge fund Legg Mason Capital Management, French luxury group Groupe Arnault/LVMH, who were the most recent. Original backers include Allen & Company, Battery Ventures, Capital Research and Management, CBS, Index Ventures, The Interpublic Group, Tudor Investment Corporation as well as WPP.
Adding insult to injury, Spot Runner has had 3 rounds of layoffs.
How does that $111M in funding break down? According to Crunch Base:
- Series A = $10M invested in January 2006
Battery Ventures
Comerica Bank
Index Ventures
- Series B = $40M invested in October 2006
Allen & Company
Battery Ventures
Capital Research and Management
CBS
Index Ventures
Tudor Investments
WPP
Lachlan Murdoch
Vivi Nevo
Interpublic Group
- Series C = $51M in May 2008
Daily Mail and General Trust
Grupo Televisa
Groupe Arnault/LVMH
Legg Mason
That list of investors is almost Madoff-esque, no?
Almost exactly a year ago, Mojo Supreme and WatchMojo.com were looking at relaunching on a new platform.
After a lot of soul searching and due diligence, we opted to build the content management system using Typo3, a powerful open-source system. We then considered many options for the video player. We looked at Brightcove, Maven and other such closed options… but ultimately we were torn between Video Egg and Blip.tv’s players.
I won’t get into all of the reasons and criteria I went through, but for a few reasons - one of which was nothing other than my gut feeling - I decided to opt for Blip.tv.
It was one of those feelings that to this day I cannot fully explain. Maybe it was based on my interactions with the folks over at Blip.tv… who knows. Of course, within hours of choosing to work with Blip.tv, I knew it was a very wise decision. We’ve worked with them since August 19th, 2007, when we relaunched. Incidentally, at the time, our property (WatchMojo.com) was generating as many streams as our syndication network. Today, our network does 95%+ of our total streams, so yes, in some ways, the property is less important in that sense… but make no mistake about it: our property remains a showroom or storefront… so when people pass by and check us out, we need to put our best face forward.
I could easily say that going with Blip.tv remains one of our better judgment calls. Blip.tv serves videos for many great content producers, but I think that the way we’ve integrated them in both the back end and front end is very unique.
Since I made that call, Video Egg has tried many things and after $32M in funding have decided to drop the video hosting unit to focus on the ad network strategy. Good for them. This post isn’t a knock at Video Egg - I’ve interviewed their CEO, know a couple of their investors - and am sure that we’ll work with them in one capacity or another… what this post is about is a reminder of two things:
- When you build your company, you will face many crossroads, sometimes your gut is the best source to find the answer. Why? Because your gut will consider all of the variables anyway, but it will also allow you to see that some companies don’t really have their heart in a product, service, or segment… and if and when they realize that and get out of the market, you will have to find a replacement, fast.
Which takes us to point two for this blog post:
- If you are using Video Egg and got the following letter look at the glass as half-full. Check out blip.tv and tell then Ash from WatchMojo.com referred you to them (hmm… no, this isn’t an affiliate marketing schtick). This little episode just might prove to be a blessing in disguise.
Here’s the full letter, which I came across on SAI:
Hope this email finds you well.
Our business is changing, and I wanted to send you a personal note to let you know.
On May 31, 2008, we will be shutting down the VideoEgg Publisher and Player service. As such, we will be sending a termination notice to you early next week.
As you know, over the past twelve months, VideoEgg has become a leading video advertising network. We have decided to focus on video and rich media monetization technologies, and therefore are no longer investing in the video platform side of the business. We are trying to consolidate our relationships with profitable large partners and continue our focus on creating higher value ad solutions for brand advertisers.
Please be assured that, until May 31, 2008, all videos uploaded to our servers using the VideoEgg Publisher will be available for playback on your site.
Pursuant to our contract with you, we will provide you with access to your uploaded videos for the next 90 days. If you wish to work with us to allow you to access your videos, please email us at partners@videoegg.com, and we will assign an engineer to work with your team to provide you with access.
Check out WatchMojo.com to see more… or enjoy the following video for some nice eye candy:
And now check out Blip.tv.
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.
If you find it odd that both Comcast and a consortium of four newspapers today launched plans for ad networks, it’s worth re-reading a couple of quotes from David Moore, CEO of 24/7 Realmedia, whom WPP picked up for $649M last year.
From an SAI interview:
SAI: Assuming we’re facing an ad slowdown, what’s going to happen to online ad rates?
Moore: The fact of the matter is the Internet has been either dramatically underpriced or offline media is dramatically overpriced. Right now a reader of the Wall Street Journal might be worth a dollar, but for someone reading the online Journal you get a nickel. That’s 20 to 1 offline versus online pricing. You need 20 online readers to replace one offline reader. So when you talk about pricing overall I think the web is dramatically underpriced already.
SAI: Haven’t ad networks played a role in holding down online CPMs?
Moore: I dont think its the networks that are doing it. I haven’t spoken to anybody who thinks media fragmentation is going to stop. I think we are dramatically underpriced compared to offline. The amount of money newpapers and magazines have been getting per thousand is outrageous. Newpapers and magazines are still getting roughly 30% of all advertising expenditures–yet if you look at their share of media usage, they’ve got between 7% and 9%. Thats why they’re having so much trouble.
It’s worth noting that at $649M, 24/7 Realmedia will probably be a steal over time. WPP’s $59B in annual billings is 10-20% of the total advertising pie, and as more of that goes online, they need something cohesive to manage it all, especially the search part, which accounts for 40% of the online pie.
Either way, if Moore is right, then you understand why I think online ads will take over TV sooner than later.
Video Egg is one of the many companies that has raised oodles of money: by last count, it had closed a Series D round raising money from WPP. I had looked into Video Egg’s platform last year and balked on them for the simple reason that they were not set up to accept 16×9 video content. I am sure they do now, but it was too late for me, as we were relaunching on August 19 2007 and we publish in 16×9 (instead of 4×3).
Anyway, instead of focusing on that - and a plethora of other things that content producers wanted - Video Egg took a few bizarre turns, doubling up on user-generated content (Video Egg powers a lot of social networking sites that run video content that most advertisers are not interested in) and then diving deep down into social media by billing itself as a Facebook ad network.
I gagged, but did not say anything. Others were not as kind.
Today Video Egg bragged about generating a whopping $1.5M over the past five months, as Mashable points out, that is a pittance relative to News Corp.’s Fox Interactive Media, who powered on MySpace’s awesome growth will do some $800M in revenue this year (disclaimer: WatchMojo.com is a content provider on MySpace TV).
What does this all suggest? Don’t jump of freaking bandwagons!
The Facebook bandwagon has been on turbo and it’s not surprising to see so many companies position themselves for it, but despite Video Egg’s best efforts, the effort only generated $1.5M. Had they focused more on the real deal (ie. video) they would have done better.
Surprising to see big-talking VCs take their eye off the ball and focus on the low hanging fruit that is social networks’ real estate… the real money is in video advertising on professionally produced video content for the Web. But don’t take it from me, check out the stats.
If indeed Video Egg’s Facebook-play is a mere sliver of their whole business (which I suspect it is) then they need to get over the flavor du jour strategy and drive that point home, otherwise, Video Egg’s competitors will eat their lunch.
Either way, Video Egg is backed by some of the smartest money out there, and the management team is pretty smart too, but am I the only one who is thinking of Bolt.com? Bolt.com was a media company leading a strong vertical, then it suffered from YouTube envy (ie. got greedy) and dived into user-generated content. Problem was Bolt.com got sued, sold to GoFish, that went nowhere (cause GoFish lost 90% of its value) and today Bolt.com is a mere flash in the pan.
Video Egg probably won’t fare so bad, and in fact, should do well… but they should recognize what the real opportunity is and drop the Facebook envy.
In an apparent jab at Sir Martin Sorrell and WPP, France-based Publicis Chairman Maurice Levy referred to his company’s partnership with Google:
“Google is not a short-term friend and a long-term enemy. It’s a real partner,” Levy said.
Google would exchange its technological know-how for Publicis’s analytical and media planning expertise.
Sir Sorrell has demonstrated a desire to position WPP as a leading new media force. Last year he acquired 24/7 RealMedia for $649M. That not only gave WPP an edge in the ad networking business, but also in search marketing, which is Google’s bread and butter.
Google, on its end, is being coy by saying that it is not targeting advertisers directly, but rather, trying to cooperate with ad agencies who historically have been and will remain gatekeepers to the $300B US marketing ecosystem, of which only $25B is spent online in the US, and of which Google commands roughly 40%.
Publicis, on the other hand, has not shown the inclination to dive deep into complimentary digital assets (despite the Digitas acquisition which was a digital ad agency), as WPP has. In addition to the 247 RealMedia acquisition, WPP has invested in Spotrunner (a 3% stake) as well as VideoEgg (in its Series D round).
It is unclear right now which strategy will pan out over time. With all due respect to Publicis, I think WPP is taking the better approach because over time all media will be procured online… and if ad agencies want to own and protect their marketing terrain, then owning seems smarter than partnering. However, Publicis deserves kudos for the more diplomatic stance, for WPP’s Sorrell might regret picking a fight with Google in a digital ring.
Time will tell, of course.
Related:
- Tech Meets Media: MSFT buys aQuantive; 247RealMedia scooped up by WPP
- Is WPP Over-Exposing Itself to UGC?
- Google vs. Major Ad Agencies
- WPP eyes Nurun: Quebecor Media vs. Quebecor World: A sign of things to come?
As global advertising powerhouse WPP continues to shift operations to the digital side of things, Sir Martin Sorrell is targeting Montreal-based ad agency Nurun. I’ve worked with Nurun in the past and it has an impressive client list and made a name with notable marketers.
Nurun is actually owned partially by Quebecor Media, whose sisted company Quebecor World is about to be eating away by a major private equity investor or a competitor as plans for a $400M credit facility fell through at the last second.
The credit markets are changing before our eyes, that is for sure, but that is a short-term change as a result of loose credit excess last year.
What is undergoing a more significant shift is the media world: it’s going digital, and Quebecor’s troubling times over at its printing unit - while digital thrives - speak volumes.
In other words, WPP is willing to pay more for Nurun’s shares under any terms Quebecor Media wishes… but Quebecor World cannot give itself away (proverbially speaking).
Quebecor World was once the world’s largest commercial printer, printing magazines like Fortune and many others.
Disclaimer: Quebecor Media’s Canoe.ca is one of WatchMojo.com’s 100 or so distribution partners. I forgot to add this initially…
Food for thought:
From Paidcontent.org:
“We have a $15 billion market cap. If I take Publicis Groupe, which is roughly half that, and IPG which is a third of that, its a combined $50 billion market cap. And all those companies’ revenues put together is $33 billion. In comparison, Google’s revenues are two-thirds of the top four ad holding companies and its market cap is more than four times those same companies.”
To get a sense of the power the Big Four wield, check out this post on how the major ad agencies command nearly 60% market share:
That being said, if you could invest in a basket/portfolio of the Big Four vs. Google, what would you invest in? I don’t doubt the revenues of the Big Four being so robust, but what about costs, growth, profits?
PLAY
