Venture Beat covers the rise of digital media funds focusing on content. Last year, I predicted that after funding video file sharing social networks and ad networks, venture capitalists would start to fund content companies. Investor and web entrepreneur Howard Lindzon disagreed, arguing content did not scale. Interestingly, Lindzon had invested in - then quickly flipped - Wallstrip, a maker of short videos related to the stock market.
Today, we published our stats for the first time: WatchMojo.com Streams 8M Videos in First Quarter on Strength of New Partnerships with MySpace, Hulu, Imeem.
For a content producer, I think that is pretty good… or at least, a pretty good start.
In fact, judging from the hardships of UGC firms to generate meaningful ad revenues, I think quantity matters less than quality anyway and you will see that reflected more and more in investment patterns. I covered this aplenty in the Content Plays Build Funding Momentum post.
The rationale was pretty simple:
- the web is a free, ad-supported place.
- as such, marketers need to underwrite the content.
- marketers have rejected UGC.
- online web video advertising will cross $1B in US spending in 2008 but that remains tiny compared to the projected $7.1B expected in 2012, let alone the existing $75B TV ad marketplace.
- premium content will always command a premium.
But, as I’ve frequently pointed out, most VCs are not necessarily media executives, let alone advertising types. As such, much of their investments in the video space have been largely misses. To date, apart from YouTube, not a single company has really been a home run, let alone a double. Video Egg was the most recent company to do an about-face on their business model.
Mind you, a few VCs understood this and they made investments in about 10 web video content companies, but relative to the sheer money gone in platforms and UGC plays, it’s been a small figure.
By the end of 2007, it was clear that the timing of my prediction was a bit premature. In fact, sitting at New Tee Vee’s conference, you thought VCs would be avoiding content at all costs. In fact, of the panel that Om Malik had assembled, it was looking bleak:
- Only Spark Capital’s Dennis Miller was bullish on content;
- Tim Haley of Redpoint Ventures was more interested in content platforms (if I hear the P word one more time, I’ll hurl… but I digress);
- Mike Hirshland of Polaris Venture Partners was interested in content so long as it had already gained traction;
- George Zachary of Charles River Ventures was so adamantly against it that many wondered WTF he was doing on that stage. I am not saying that he is wrong, many in the crowd however thought it was odd for him to be on that panel… but then again, maybe his dissent is why he was there in the first place.
Anyway, that has changed, or should I say, is changing: 2008 is starting to make my prediction look awfully correct.
The only nuance - and a major one at that - is that it is not VCs per se, or VCs alone, but rather, VC are joining the fray by aligning themselves with talent agencies and strategic investors.
Let’s look at some of the players:
1- Making a lot of noise, is Velocity Interactive Group. The fund was the result of a merger between ComVentures and Ross Levinsohn and Jon Miller. The former was the ex-CEO of AOL, while the latter ran News Corp.’s FOX Interactive Media for Rupert Murdoch. Velocity has invested in Generate and Next New Networks.
2- Joining Velocity in the $15M Next New Networks Series B round was Saban Capital, who is also getting in on the fun by launching a new media fund. Saban hired Craig Cooper, co-founder of Boost Mobile and formerly a VC with VantagePoint Venture Partners and Softbank Capital. Saban Capital is led by Haim Saban, who sold Saban Entertainment to Disney for $5.2 billion in 2001. The company was responsible for the Power Rangers series, among others.
3- CAA + Draper Fisher Jurvetson and its founder Tim Draper, who has always had a particular soft spot for entertainment-related projects. Brian Garrett and Rick Smith, former partners at Palomar Ventures, and Brett Brewer, former president of Intermix, are working with Michael Yanover, head of business development at CAA. Read more.
4- CAA is also working with Sequoia, who has funded Will Ferrell’s Funny or Die. The link between these parties is actually Kvamme’s son, who was a producer on the initial clip that spawned the company.
5- ICM + Qualcomm - rumored to be launching a digital media fund, too.
6- WMA + Accel + Venrock + AT&T = Mailroom Fund. Read more on Paid Content.
7- UTA recently incubated a digital video firm called 60Frames, involved in financing, ad sales and syndication of “professionally-produced” content.
8- Endeavor is a minority investor in a film financing company, Media Rights Capital, though it is in a slightly different light than the ones mentioned above. MRC is supposed to invest in other multiplatform projects in broadband and mobile as well.
9- Softbank and Korea Telecom partner on $40M fund. Read more on Paid Content.
10- As well, there are a couple of other funds that have approached us in the past month that I won’t include due to confidential and competitive reasons (mainly out of courtesy and common sense - sorry), but the point is, you will be seeing more and more such funds as the “backlog” of video advertising dollars looking to flow from TV to the Web adds up.
As these funds refine their offerings and get a sense of where they want to hone in on, I presume some of these funds will become laggards, while a few become winners. Much like the VC game, only one or at the very most, two will really become the golden standard of their sector.Who will that be? I don’t know. What I do know is that in Hollywood, they bet on stars. Strictly speaking, in Socal, the stars might very well be the ones in front of the cameras… but one reason why historically such funds have fared poorly is their lack of willingness to recognize that Hollywood’s formula does not always convert well to the Web.
Online, for media companies to succeed, they need to succeed in three areas:
1- Content: Content is king, yes, it’s a cliche, but indeed as new distribution opportunities open up, the value of content soars. Broadband content is explosive and the syndication opportunities are quite infinite.
2- Marketing: Unless people see your content, it’s worthless.
3- Sales: Investors are fickle… you cannot put your blind faith in investors’ backing you, so the sooner you can find ways to generate revenues, the better. Investors’ funding then becomes the cherry on top of the icing.
Those are the three pillars of any successful media company. So long as the investment profiles of the funds look out for projects that score high on those three areas, then I think they’ll be able to make money… lots of it.
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