Very interesting read on Tech Crunch by Ali Partovi on the search industry’s search for respectability in the late 1990s. In some ways, video is exactly where search was: big media companies are comfortable making a lot of money from both search and display (I wrote about this in my last Media Post article, comparing it to the innovator’s dilemma). Read this paragraph and replace search with video and it reads like a contemporary article:
In the days before Google, Yahoo was the dominant search company – they had the vast majority of all search query traffic and seemed completely invincible. The other top search drivers were Excite, Altavista, Netscape, MSN, and AOL. All, including Yahoo, were victims of what Graham calls “easy money.” Thanks to the dot-com bubble, it was so easy to make money selling banner ads (to VC-backed dot-com startups) that everybody was distracted from the real opportunity in search — even when it was presented to them plainly.
While the big guys were collectively ignoring search, a few startups were acutely aware of its strategic importance:
Anyway… where video is without a doubt very different from search is that even those who had initially invested about search stopped caring: Yahoo! let Google power its search, AltaVista became a portal, etc. In the video wars, it’s the opposite: everyone keeps investing money, regardless of whether they’re in Technology, Advertising, Distribution… meanwhile, overall, the one area that seems relatively under-invested appears to be Content. I touched on this in my article on Tech Crunch this past weekend on how you need to be #1 or #2 to compete in Technology, Advertising, Distribution - which is what we’re now seeing in search with Google and Microsoft.
Today, I would say video isn’t where search was in the late 1990s or even 2000-2001. With the industry generating over $1 billion in video ad sales last year and this year people expecting over 50% growth, I think we’re on the precipice of blowing up.
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WatchMojo NewsletterLast week Tech Crunch wrote an article talking about the increasing important of size and reach.
Today they published an article I wrote talking about the need to balance that with quality.
Updated list of companies by specialization.
Video companies tend to fall in the following buckets:
1. Editing Software and Compression Tools: Adobe, Apple, Avid, JumpCut, Sorensen, On2
2. Content Producers: DECA, DBG, DemandStudios/eHow, Eqal, Fora.tv, For Your Imagination, Funny or Die, Generate, Howcast, Katalyst Media, Machinima, Mania TV, Next New Networks, ON Networks, Revision3, StudioNow (AOL), VideoJug, WatchMojo.
3. Content Management System (CMS): blip.tv, Brightcove, Feedroom, Justin.tv, KIT Digital, Kyte, Livestream/Mogulus, Ooyala, Maven, Permission TV, Qik, uStream, VMIX.
4. Content Aggregation, File Hosting, Sharing and Distribution: 5Min, Break, DailyMotion, Hulu, Kaltura, Metacafe, Nabbr, Revver, Vimeo, YouTube.
5. Advertising Creation, Management and Networks: Adap.tv, Auditude, Brightroll, Broadband Enterprises, Freewheel, Jambo, Overlay.tv, Panache, Scanscout, Spotxchange, Tidal TV, Tremor Media, Video Egg, Yume.
6. Content Delivery Network (CDN): Akamai, BitGravity, Edgecast, Grid Networks, Limelight Networks, Panther Express.
7. Search, Discovery and Recovery: Blinkx, Cast TV, Clicker, Clipblast, Dabble, Everyzing, Google, Mefeedia, OVGuide, Pixsy, Truveo.
Who am I missing?
It must be some kind of tribal, Mortal-Kombat-esque kind of ritual:
Two executives clash with different personalities or converging strategies, and then the one who prevails in the battle emails out the remaining “team” to announce that the one who lost out is leaving for personal reasons.
Our colleague and long-time AOLer, Marty Moe, has decided to step down from his role leading our News & Information area. Marty, a nine-year veteran of the company, was one of the original champions of opening up AOL’s content and products to all users on the web at large as the company transitioned to an ad-supported media business.
More recently, Marty was a driving force behind helping AOL move away from aggregating third party content and moving toward the creation of high quality original content.
In talking with Marty, I know that he is eager to take on new challenges and also find more time to spend with his family. Marty is going to be transitioning with us through early October. In the meantime we will be looking for someone to fill his role.
Please join me in thanking Marty for his contributions to AOL and in wishing him the best of luck going forward.
Why did Blockbuster fail against Netflix?
Why did Barnes & Noble stumble while Amazon thrived?
Harvard Business School professor Clayton Christensen’s focus on innovation in commercial enterprises led to his first book, “The Innovator’s Dilemma,” which articulated his theory of disruptive technology. In the book, he argues that existing franchises are fundamentally frozen to adapt to new disruptive or emerging technologies because they’re getting rich from existing systems.
Whereas Christensen’s theories have been applied and analyzed in the context of technology firms, it’s clear that media — and specifically content — companies are also faced with this phenomenon.
From Tech Crunch:
With the flood, comes the feast. Advertising dollars are pouring into online video. Some of the largest online video ad networks are seeing revenue growth accelerating this quarter, and expect the fourth quarter to be even bigger. “Last year we grew 40%, this year we are growing 90%,” says Keith Richman, CEO of Break Media. He expects Break’s total revenues in the third quarter, which include more than just video advertising, to be well above $10 million for the first time.
The latest revenue and EBITDA multiples, according to Peachtree Media Advisors:
Revenue valuations for Consumer, Advertising and Search companies fell from 3.2x to 2.9x. E-commerce companies saw some of the biggest drops, with revenue multiples falling from 3.5x to 2.0x and EBITDA multiples down 36 percent from 29.9x to 19.1x.
However, according to public market valuations, E-commerce retains the highest mean EBITDA multiples as a category, followed by Online B-to-B Content (15.6x), Interactive Marketing Services (13.9x), Consumer Advertising & Search (12x) and Diversified Media—which includes media companies such as McGraw-Hill and Time Warner—at 6.4x.
More on absolute number of deals:
First Half Digital Media Deals, 2010 vs. 2009
Social networking, indexing, photo sharing
First half 2010: 29
First half 2009: 21
Blogging, user-generated content and rating
First half 2010: 24
First half 2009: 19
Publisher, aggregator, ad-supported, consumer
First half 2010: 46
First half 2009: 40
Video, online gaming
First half 2010: 40
First half 2009: 28
B2B
First half 2010: 17
First half 2009: 3
Ad Networks:
First half 2010: 15
First half 2009: 13
Lead gen, customer acquisition
First half 2010: 7
First half 2009: 8
Interactive marketing services
First half 2010: 26
First half 2009: 15
Mobile
First half 2010: 84
First half 2009: 39
Search
First half 2010: 5
First half 2009: 5
Ad serving, web analytics, CMS, ad exchange
First half 2010: 54
First half 2009: 32
Web and social media applications, enabling, CDB, IT
First half 2010: 138
First half 2009: 66
Transactions, auctions, e-commerce
First half 2010: 50
First half 2009: 30
Travel, rental, housing
First half 2010: 6
First half 2009: 4
Jobs, classified
First half 2010: 8
First half 2009: 5
Historically, comScore combined total video views (content and ads), giving a skewed count of video activity. When Nielsen issued their figures some time ago, I inquired with the two firms and comScore confirmed that their count was for all video views (content and ads).
Today I see smaller absolute figures coming out of comScore’s data, but nothing changes really:
YOUTUBE owns the video market.
- 80% of total viewers watch videos on YouTube
- 35% of all views come on YouTube.
These are massive figures that only reinforce and remind us all of YouTube’s dominance in video.
Disclosure: WatchMojo has a big content partnership with YouTube.
Hulu and Demand Media both filed for an IPO. Demand files a week ago, Hulu today. Both companies are content plays. However, the similarities end there.
The real question is: which is the better investment?
Hulu aggregates super premium and premium videos (disclosure: WatchMojo is a big provider of content to Hulu with multiple channels). But it doesn’t produce any content itself.
Demand Media is labeled a content farm (at best) and accused of many things, including killing journalism, though in all fairness, it does not produce any journalism whatsoever and focuses on what their CEO Richard Rosenblatt calls “service journalism” (how to’s, tips, etc). The company is focused on articles but moving increasingly into video production; in fact, its first video offerings included user-generated content it got after acquiring Expert Village. It has set up Demand Studios to ramp up video production.
When everything is said and done, I like Demand Media, I think it’s wise that they care so much about what people actually read and how valuable that is to advertisers. I won’t lie: I am curious and interested to see if the so-called content farm approach can successfully be applied to video content creation (my experience says it will be hard and result in an inconsistent product).
But the point remains, despite the fact that Demand Media operates in UGC/prosumer and premium content (instead of Hulu who only touches super premium and premium content), I wonder: does the fact that Demand Media owns content make it a better investment?
Frankly, neither company is profitable:
But despite its status as a big player in online video, Hulu currently makes little in the way of profit. In May, it reported taking in more than $100 million in revenue last year, though it added that it was on track to make that amount again by the middle of this year.
Hulu is direct about that. Demand Media got roasted by the press last week. Any way you dice it: it was a rough week for Demand Media after announcing their plans for an IPO.
All to say, if you follow digital media, content and/or video, this will be a very interesting storyline to see how each one fares.
One of the best magic tricks WatchMojo performed in its 4-5 year history is simultaneously open up distribution to hit 160M all-time views, but also create scarcity and demand for our content in obtaining multiple licensing deals. This is something that you will see more companies worry about in order to create more value for their content and inventory:
Steve Smith, from MediaPost:
Two or three years ago the online reflex defaulter was to hyper-distribution. Embed and proliferate. Get that video out as far as the sharing tools could bring you. In the coming phase of the market everyone is going to be more reserved in their distribution strategy as media companies partner up and a lot of vested interest stat colliding.
(…)
As media companies conglomerate and joint-venture up, the power clearly lies with those who own the content and manage to verticalize their power to get a piece of distribution too. How and where video shows up online, and who owns the ad space, will be the contested territory for some time to come.
