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Summary:

Online video funders from top VC firms sound off about why they are or aren’t investing in the finicky world of content development. Moderator: Michael Copeland, Fortune. Panelists: Tim Haley, Redpoint Ventures; Mike Hirshland, Polaris Venture Partners; Dennis Miller, Spark Capital; George Zachary, Charles River Ventures. […]

Online video funders from top VC firms sound off about why they are or aren’t investing in the finicky world of content development.

Moderator: Michael Copeland, Fortune.

Panelists: Tim Haley, Redpoint Ventures; Mike Hirshland, Polaris Venture Partners; Dennis Miller, Spark Capital; George Zachary, Charles River Ventures.

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“Can anybody make money of the content?” That is the main question Copeland poses to the panel of venture capitalists.

“I think most VC shops should stay out,” Miller explained. The mingling of Hollywood and Silicon Valley was not very well thought out, it was more a mix of new profits with glittery stars, he remarked of investments in the early 90s. Miller cited his acquisitions in the early 90s of various media properties (MGM’s Bond series, the Hannah-Barbara library, and others) that were productively spun into networks and value-added properties, but said that the money is made not from the content but from the infrastructures built around them that can then serve ads and provide metrics.

“It’s like the restaurant business: There’s always people in the seats but it doesn’t seem to make money,” Zachary lamented.

“I think this is a really treacherous category for VCs to play in,” Hirshland cautioned. Copeland prodded and tried to pinpoint what VCs look for in picking content to invest in. Hirshland stressed that properties that proved to have a model that could push content in a reliable and repeatable way.

Haley was much more optimistic about the prospects of profits from content, answering the main question of whether there is money to be made with an “adamant yes.” Haley said that user-generated successes like Wikipedia and MySpace prove that the online model can produce a large volume of reliable content. “How do we leverage content and business models to make a lot of money?” Haley asked. How do you use content to leverage huge user participation and then serve appropriate, effective ads? That is the key, he said.

Zachary pointed out the differences between investments in content production houses and social networks that facilitate the production of user or professional content. Investing in the network has very different risks from investing in the actual individuals producing content. This confusion, Zachary said, is one of the biggest traps investors who don’t know these separate industries are falling into.

“Does Funny or Die make sense to you?” Copeland asked. “The ‘die’ part does,” Miller deadpanned. “There is too much money in the market today chasing too few great deals. That’s why we’re seeing this silliness of these daily investment announcements,” Miller chided. “Private equity has probably put $5 billion of investments in the film industry that they will die with.”

Zachary was also hostile toward investment in Hollywood: “It’s an OPM business, meaning ‘other people’s money’ business.” Hirshland disagreed, saying that investments in content can be profitable when properly scaled. “I think that a small number of companies are going to make a lot of money in this business,” he continued.

Haley extolled the strengths of MySpace, which his Redpoint Ventures has invested in, saying that programming a network that puts in place the infrastructure to push out tons of content has huge potential. The content on MySpace is user-generated, but there is still lots of money to be made indirectly. “It’s digital media as middleware,” Zachary interjected.

“I don’t think there’s a lot of money to be made for investors in content,” Zachary said simply. “The way Fox is using MySpace as a distribution platform is wrong. I think that social networks that really connect with users are going to win.” Zachary said that the money will be made around the content, in merchandising. “I view content as middleware,” he reiterated.

Hirshland, assuming the title of devil’s advocate, disagrees saying that content ownership can yield profits. Control over the content is critical to getting advertising messages across, Hirshland explained.

Miller ripped into the social network’s primacy in the venture capitalist’s minds. “How do we build meaningless apps for [Facebook]?” he asked in jest. “If you’re investing in companies that are on the cover of Newsweek you’re never going to make money,” Miller said flatly. “You’re challenging my assumption?” Zachary asked, offering Miller a bet on whether content or networks will be the future. “I’m challenging everything you said,” Miller answered.

The panel was divided on whether investors can, should, or could invest and make money in content. Investments in Hollywood has been wildly unpredictable but do we know that content behaves the same way online? Haley cited successes with his Netflix investment which, with its Red Evelope Productions, works with filmmakers directly and purchases indie films for development and distribution.

“Don’t you think Hollywood is starting to mature with the way it deals with Wall Street?” an audience member asked. “Sadly I don’t,” Miller responded. “If the studio was such a great business they would not be offloading the cost of making those films. The net return on a film is 4 or 5 percent. The only reason the studios make those is because they own the entire food chain, including television distribution,” the ex-Sony exec explained.

“What would you tell the striking writers who want a piece of the online pie?” a Hollywood producer audience member asked. “Put your stuff online and keep writing. Find a way to be successful online and see where that goes,” Hirshland advised.

Copeland promised blood after the panel: “There’s going to be cage match between Dennis and George in the hallway.” Check the Mogulus stream to see if they catch this.

  1. [...] NTV Live Panel: Cash for Content? [...]

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  2. [...] NTV Live Panel: Cash for Content? [...]

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  3. Sounds like New Tee Vee Live is going really well, wish I could have been there.

    Just weighing in with some comments:

    “I think that social networks that really connect with users are going to win… I view content as middleware” -George Zachary

    I think he is bang on the money.

    My view is that social networks are already realising this. Bebo’s announcement of Open Media yesterday proves they are already moving in this direction.

    However, I disagree with Zachary’s assertion that “the money will be made around the content, in merchandising”.

    Yes, maybe in four or five years time but not just yet.

    We are still in the first phase of large scale video distribution online. There is more content yet to come from TV companies around the world (read: outside the US) and much of it will be provided free to the viewer.

    The social networks that effectively engage users around video content will see increased advertising sales as they ramp up user engagement.

    Companies that enable one stop large scale digital distribution for content owners online should also do well.

    There’s more here:
    http://tinyurl.com/ytggtu

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  4. Excellent post and I second the response above.

    I believe that the distributors/aggregators are going to be the biggest winners. Companies like Brightcove that allow any size content producer to monetize their content online provide a great platform (I use it).

    I also see where merchandise will be huge, and will happen in less than 4 years (witness the Zazzle/MySpace deal). Fans of bands will buy the stuff and the cumulative numbers will be great.

    If you control the distribution and promotion, you are in a great position. Owning the content as well only makes it even better, especially if you didn’t pay to produce the content.

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  5. [...] often ask whether VCs should fund content — in fact, we had a contentious panel on that topic at NewTeeVee Live. What about the reverse: talent agents placing bets on [...]

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  6. [...] capitalists nearly came to blows about whether it makes sense to invest in content at our NewTeeVee Live conference last fall. One of them was from Spark [...]

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  7. [...] an interesting dialog relayed by NewTeeVee last November, ex-Sony executive Dennis Miller argues with other investors about business models. [...]

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  8. [...] an interesting dialog relayed by NewTeeVee last November, ex-Sony executive Dennis Miller argues with other investors about business models. [...]

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