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Summary:

Running a video startup isn’t a cakewalk. Despite its rising impact on the media business in particular and the population in general, the sector has few exit trophies on its shelf. Turning profits remains a distant dream and even investors are reluctant to open their check books any further. No surprise we are seeing some chief executives move on from their current gigs. Continue Reading.

Three online video startup CEOs stepped down last week. The departures were for different reasons, but when you hear about them in the span of a few hours, as I did on Friday, they glom together. Herb Scannell of Next New Networks said his company would be better served by someone more web-oriented; Mollie Spilman deferred to her co-founder to lead Tidal TV; and Bill Joll of On2 didn’t give a reason, though it’s worth noting that his company recently had to restate earnings due to “falsified” sales accounts (the three are pictured in that order). And they’re not the only ones: Founding CEOs Josh Felser of Sony-owned Grouper (now Crackle) and Tim Tuttle of AOL-owned Truveo are also members of the recently-departed online video start-up CEO club.

Meanwhile, investors are calling for disciplined spending by online video companies (huh? where were you when those checkbooks were opened? VCs spent $461 million on this space in 2007 alone) and video views were down slightly in April (though I don’t doubt that at least that metric will rise overall).

Running a video startup isn’t a cakewalk. Despite its rising impact on the media business in particular and the population in general, the sector has few exit trophies on its shelf (YouTube, Grouper, Maven Networks, thePlatform, Wallstrip, Jumpcut, Truveo, Atom Films…the list isn’t much longer than that). And once a company is bought, the slog for revenue is hardly over.

According to our sources, YouTube will make $70 million to $90 million this year; a friendlier estimate from Forbes is $200 million. And that’s as Google’s Eric Schmidt, CEO of a company that did $16 billion in revenue last year, says making money on YouTube will be “our highest priority this year.” Meanwhile, the few public online video companies are feeling the pressure even more acutely.

And while video portals and video search may no longer be as hyped as they were 18 months ago, the new kids on the block — niche and interactive web programming companies, for instance, like Scannell’s Next New Networks, EQAL, JibJab, and Revision3 (which, full disclosure, produces the GigaOM Show, but has also been on a tear lately, signing web stars Veronica Belmont, Zadi Diaz, and Gary Vaynerchuk) — don’t seem any closer to turning a profit. And creativity and efficiency are hardly best friends. It may well be that this first generation of new media content companies paves the way for the future of entertainment but gets crushed by business realities in the meantime.

Lately, the belief seems to be that the money is in content delivery software and infrastructure — with Brightcove, for instance, revamping to compete with the current darling, Move Networks — but as Om has written many times, the CDN business is not a good one. Living just on top of it may be precarious.

That’s not to say I don’t believe in online video — just that I can see why someone would have trouble holding onto their CEO berth in this space.

Liz Gannes is the editor of our sister blog, NewTeeVee. Follow Liz’s work on NewTeeVee and NewTeeVee Station. Subscriber to NewTeeVee RSS feed by clicking here.

  1. I don’t understand if these days the video portals are equally visited by masses then what is the problem in their path of earning money.

  2. @Sachin
    Having a large amount of visitors to a website does not mean ads will have a high conversion rate, nor does it mean it will make profit. Facebook and Myspace are facing the same problems, Web 2.0 sites in general are having a hard time making profits.

    Youtube doesn’t have a problem earning money, they have a problem earning a profit, since it’s bandwidth and server bills are extremely expensive.

  3. David Mullings Wednesday, June 18, 2008

    As the CEO of a venture that includes an online video property, I can understand why a CEO would prefer a more web-focused person to run the show. I don’t get what took so long to figure that out because it really is common sense.

    In business school, they talk about core competencies and having the right people in the right seats on the bus. Every web person knows that display advertising usually cannot possibly cover the costs of video streaming yet so there has to be a focus on other revenue streams in order to have an effective business model.

    Too many of these video sites are being built first to attract eyeballs, not to generate revenue and become sustainable businesses. That is not the way to launch a business, that is merely trying to get rich quick by getting bought.

    If more of these ventures actually focused on generating revenue as soon as possible, we would see more innovation and more success, but alas, the VCs know best and will provide absurd amounts of money as long as the buzzwords are there.

  4. Am watching this very space rather carefully, from afar. Our growing network is slowly experimenting with short clips…

    Mind You bandwidth is extremely expensive here in the land of OZ

  5. The challenge for most of the destination-oriented online video sites is pretty basic. Often, the highest clicks/plays for video content is the UGC variety and/or mis-appropriated mastered content (strangely, a Family Guy clip that I capture with grainy quality that is associated with me personally typically gets more clicks than the official Fox clip).

    This has two impacts. One, is that it often limits the monetize-able clips to a MUCH smaller subset of the actual plays.

    Two, it presents the same issues that social networks face wrt monetization; namely that advertisers will pay a much lower CPM for ads on a site with commingled video content (i.e., mastered/UGC content inter-leaved) than one that has verified, consistent inventory (albeit with lower play counts – the first issue).

    The other unspoken factor in the online video space is that in-video ad inventory is still fairly limited so you are dealing in a lot of low quality, low CPM infill.

    In many respects, a lot of the same truism in my post “Why Social Nets Struggle to get Advertisers to Show Me the Money” can be applied to the online video space.

    URL: http://thenetworkgarden.com/weblog/2008/06/why-social-nets.html

    Check it out if interested.

    Cheers,

    Mark

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  9. Thanks djacobs, now I got it.

  10. Pez Dispenser Thursday, June 19, 2008

    On2 isn’t a start up. They don’t run any websites. They are supposed to be an enabler of video on the web. You’d think their business would be booming but they compete against Microsoft, Adobe, MPEG LA etc. On2 is a tiny company that practically has to give their products away to get customers.

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