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Brightcove’s IPO and the perils of online video

Updated. Brightcove said Wednesday that it plans to go public and has filed an S-1 registration statement with the U.S. Securities and Exchange Commission. The startup, which is best known for providing a white-label video distribution solution to enterprise and media customers, plans to raise $50 million through its initial public offering.

But Brightcove’s IPO will be modest in comparison to expectations many of us had for the company — and for the online video industry in general. Brightcove has raised a total of $100 million since being founded in 2005. Most of that money was raised in the heady days before the market actually developed, including a $59.5 million round raised in 2007, just a few months after Google acquired YouTube for $1.65 billion.

Given the promise of online video and the amount of money pouring into other video startups during that era — Joost raised $45 million in 2007 and Veoh raised $26 million around the same time — investing in Brightcove seemed like a solid bet. After all, the company was a platform play, not an advertising play. And it had a solid management team led by CEO Jeremy Allaire, who had helped create Macromedia’s Flash technology created ColdFusion and served as CTO of Macromedia, which was later sold to Adobe. (s ADBE)

The online video market has grown substantially since then, and Brightcove has grown with it. It has aggressively added to its customer base and increased the number of video streams it delivers. It has 3,300 customers according to the filing, and delivers an average of 700 million video streams a month. On an absolute basis, that’s second only to YouTube’s (s GOOG) 3 billion videos delivered per month, according to data from comScore. (s SCOR)

But while the hockey stick-like growth in online video consumption has materialized, it hasn’t translated into comparable revenue growth for Brightcove. In its S-1, it estimates that the addressable market for online video platforms is approximately $2.3 billion in 2011, growing to approximately $5.8 billion in 2015. Yet Brightcove reported revenues of $43.7 million in 2010, and $28.3 million in the first half of this year. Those are respectable numbers for a startup, but pale in comparison to the $1 billion or more YouTube is estimated to be making in revenues, or the $2.2 billion Netflix (s NFLX) generated. More importantly, Brightcove continues to lose money; it reported a loss of $9.7 million for the first half of this year, and doesn’t expect to be profitable until late 2012.

Lack of growth in online video revenues may be one reason Brightcove finally decided it needed to diversify its business, launching its App Cloud platform. That product allows mobile app makers to easily build and distribute their applications to multiple platforms. With that now available, Brightcove will no longer be solely beholden to the perils of the online video ecosystem to pay the bills, and it can chase another fast-growing market for multiplatform content delivery.

Granted, Brightcove deserves kudos for making it this far while other online video companies have either been acquired at fire sale prices or bit the dust. But the modest revenues revealed by its IPO filing show just how hard it is to make money in online video, even while viewers are tuning in droves.

Update: We incorrectly stated that Brightcove CEO Jeremy Allaire helped create Flash at Macromedia. Instead, he created ColdFusion at Allaire Corp. and was CTO at Macromedia.

Photo courtesy of Flickr user echiner1.

7 Responses to “Brightcove’s IPO and the perils of online video”

  1. Chris Potter

    Their business model seems to suffer from a structural problem – they are spending increasing amounts to bring in ever smaller customers.

    While their marketing expenses grow, competition from the likes of Ooyala (and the growing number of small online video platforms) will continue to commoditize the market and put downward pressure on prices.

    Financials are kind of scary. Revenue grew by 21% in 2010 (down from 48% in 2009), while marketing (their biggest expense) grew by 83% in 2010. At the same time average revenue per customer fell from about $45k in 2008-2009 to $18k in 2010. Things are looking better in 2011, but its going to be a long haul for investors.

  2. Ryan, I think you’re on point with this post. One of the challenges with OVPs has been that they are (for most part) viewed as plumbing. There has also been some commoditization so that pricing pressures are high. Unlike CDNs where despite crowding in the market, the larger CDNs can maintain some price premium and still stay in business largely through large accounts, larger companies have built their own video platforms (Netflix, Hulu, etc…), so the OVP market is revenue challenged despite the tremendous growth in volume.

  3. Just a correction. Jeremy Allaire didn’t create Flash with Macromedia. He created ColdFusion with Allaire which was bought by Macromedia. Macromedia acquired Flash through FutureSplash in 1996 and much later Allaire in 2001.

  4. Cameron Church

    It’s interesting that you use the word ‘Peril’ – slightly sensationalised journalism don’t you think?

    Brightcove may indeed not have managed yet to release significant value in the online video market but that does not mean said value does not exist. Indeed you’ve referenced two companies that have managed to unlock this trapped value at massive scale.

    Really the question is not ‘does the online video market actually have any commmercial value?” but more “does the go-to-market strategy of the current leading OVPs actually make sense”? i.e. is a licensed based model, selling a technology focused innovation roadmap and looking only to solve the delivery section of the supply chain where the most value is trapped?

    With license based pricing all risk and onus of ROI is passed to the customer, with technology focused innovation value (i.e. utility) can take a back seat (especially when arms races erupt between competitors, ala Brightcove and Ooyala) and the delivery portion of the supply chain is not where the real road blocks lie.

    Indeed if a company wants to cash in on online video they need to look across the entire supply chain (just like YouTube and Netflix) and help streamline the business of it’s production, financing, monetising (both protection of rights and productising inventory), distribution, delivery, reporting and settlement.

    Entering the online video market is not perilous, actually it can be incredibly lucrative. You just need to know how and where to drill your well. And the fact that a company like Brightcove who has been uber successful to get to a significant IPO in just over 6 years but may have a missed drilled well is still drinking from a fast flowing tap proves this.

    Well done Brightcove!