Don More, Partner
Cheap Entertainment Will Go A Long Way In 2009
Even in the 1930s, amidst the worst economic disaster in modern history, Americans still went to the movies in droves. The escapism and entertainment that the theater provided was well worth the price of five cents admission. Back then a trip to the movies gave movie-goers about four hours’ worth of entertainment: cartoons, news, a B-feature, and then the featured film.
But movies in this day and age are not the bargain they once were. Here in New York City, one ticket to Watchmen on Friday evening cost $14 (plus $10 for popcorn and soda). For that you get lambasted by 15 minutes of eardrum-shattering commercials before the previews even begin for your two-hour feature. While the movie experience technology-wise is certainly better today (witness introduction of next-gen 3D in Monsters vs. Aliens), today’s film industry has to contend with high-quality home-based alternatives, from cable to Blu-ray – and increasingly, internet video.
So it is not surprising that, despite depressing news headlines, Netflix’s stock rose 24% over the past year, fueled by 13% growth in 2008 revenues over 2007, and 26% growth in paid subscribers. By contrast, Blockbuster, which was late to the rentals-by-mail party, saw its stock decline 77% over the past year. Netflix, with the introduction of its so-far immensely popular streaming movie service, is poised to further benefit from the recession as consumers tighten their budgets and look for low-cost forms of entertainment – the digital streaming service is free with any Netflix unlimited plan.
The (free) website Hulu is also experiencing notable success. Hulu, a joint venture of NBC and News Corp, allows users to stream popular television programming owned by the networks such as The Daily Show with Jon Stewart, Heroes, and The Office. In February alone, Hulu gained 10 million new users, according to comScore, making it the fourth largest U.S. video site.
Streaming digital video is where viewing entertainment is going. Broadband costs are decreasing and improving technology is making increased demand for professionally-produced video content a more palatable business venture for startups. Content brings viewers, which in turn brings ad revenues – eMarketer predicts that US online video advertising spending will grow 49% in 2009.
So far in 2009, several companies that provide video content or enable its distribution or monetization have recently received venture investment; they include the following:
- Visible Measures, a company that tracks the behavior of online video-watchers, raised $10 million in Series C funding in March.
- GoViral, a Denmark-based company that distributes branded video content, has raised $8.8 million (€6.5 million) from Kennet Partners in March.
- Tremor Media, an online video ad network, raised $18 million in Series C funding in a round led by Meritech Capital Partners in February.
- RipCode, a provider of a digital video distribution infrastructure solutions, secured $12.5 million in additional financing led by Granite Ventures in January.
We expect that companies catering to the production, distribution, or monetization of digital video content will be attractive M&A targets in the coming year. A good example of this activity would be Harmonic’s acquisition of Scopus Video Networks, an Israeli digital video networking solutions provider, which was completed in March 2009.
Based on this activity, it appears likely that internet-based entertainment revenue share will grow rapidly over the next few years. Now if they can only figure out a way to stream popcorn online…
