5min's Ran Harnevo on His $65 Million AOL Sale

5min Media may not be a household name, but the firm's sale generated big numbers: AOL paid a reputed $65 million for them in September 2010. Why the high price? 5min is one of the web's leading video content syndication companies. Their primary site, 5min.com, is a self-described "one-stop shop for instructional videos and DIY projects" that has inked content agreements with everyone from Kellogg's Cereal to top-tier television networks.

Fast Company recently sat down with CEO Ran Harnevo at a New York coffee shop to talk about video content, the future of the internet, the sale to AOL, and the company's upcoming project, 5minmedia.com.

FAST COMPANY: Can you give an explanation of what 5min is and how long it has been around?

RAN HARNEVO: There is a need to add video to a lot of content on the web and 5min's angle is to put the right video on the right page. So basically, we have two providers we deal with. Content producers have a very big problem getting video to their audiences. We help them bring video to where the audience is. Producing content is one thing; getting an audience is the second thing.

Usually, the DNA of companies is not the right one to attain audiences in scale. In that respect, we help content producers to get a positive return on investment. They enter ongoing ventures with us and basically we help them by pushing the content to the right places on the web. From a publisher perspective, the thing is that most publishers don't have the dollars to produce a lot of video; but if they do, it's video content that appears only on their destination, which is not profitable. So what we offer publishers is to get a huge amount of videos--we have a library of 200,000 videos to date from the best producers out there, with scripts and more. We put the content in one place, with one user experience and content matched in scale to the articles. We use a semantic engine we call VideoSeed and pay them (content producers), because they bring the audience. What we tell them is we'll bring them the content and that it'll be monetized; you have to spread it in order to have a better user experience for your audience. They don't have to worry about licensing, recording, a lot of costs and processes that you have to go through in order to have a video strategy.

How does 5min find their content partners?

I'm happy to say that now it's 50-50 between them finding us and us finding them. Basically, we look at the demand. The demand side is very important--what people want to watch is key. It's very close to the Demand Media or Associated Content model, only done in video. We look at what people want to see and we dive into the supply side. We basically allow the guys who have content to supply their content to the demand side. The process is very simple. If you understand that there is a huge need for recipe videos, you are going to call scripts and say “We have this amazing audience of scale that is looking for recipes. Do you want to help them?” So the trade-off is very intuitive to content producers; we see a huge scale in the content partners we get. We tell people that if they put their videos on YouTube, they have to put their videos on 5min. Of course, that is if we like the videos. We create a curated experience.

If you have a premium plate, especially in niche products but also in entertainment, then you need to put the video on portals but to also make it accessible to publishers as well. It's a very simple trade-off and there's a huge incentive for content producers to participate.

What do you think the future of internet video is?

It will all be television, if you want me to summarize it. I think that the future of internet video is very close to the future of the internet as an entertainment platform on the big screen. Right now videos are consumed on the web. They are also starting to be consumed on smaller, “smart” devices such as iPhones, and iPads. But eventually, if you look at Google TV, Apple TV and all these guys, the content is going to be central. People will consume the content across platforms, and that is an indication of what is to come. If you position all the platforms together, they basically bypass cable as a business model. I have no doubt that the future of online video is to compete head-to-head with television and that television dollars will start shifting onto the web in scale. You can't really stop it. For me the question is who will win it and who will be adaptive enough to understand what is happening. You saw it happen in music and now it will happen to video.

How long do you think the process of adaptation will take?

There are a lot of components. First of all, the television manufacturers. Will they adapt to new technologies? The Sony-Google TV deal is an important deal, even if it's just an example. From now on, customers are buying televisions with access to the web. Look at the new media companies. The big ones will be the last ones to adapt because they want to protect their business models. On the content side, you'll have companies such as AOL and web-based companies that will produce better content. On the technology side, more and more companies such as Apple are trying to disrupt the traditional model. Going back to the content side, you will see many more innovative producers that will be able to do more with dollars on the production side. There will be a tipping point where everything will combine and we will see a drop in cable subscriptions. At that point, a new business model will emerge. Will this be in 2014? 2016? I don't know--I think the question is “when,” not “if.”

5min was founded overseas, in Israel. What was the biggest challenge in adapting to American business culture?

First of all, “When in Rome.” You must adapt. When you come to the United States, you must listen for the first six months. You must educate yourself and understand the nuances of the market. Understand the cultural things you must adapt to. I think that what we basically did was to look for industry leaders to hire and we basically told them “we know how to improvise,” “we know how to move fast” and that is what we are good at--please teach us about what we're not good at. The business mentality and the direction of business in the United States is different and networking--networking is key--one of the things that was very helpful for us was that we insisted on getting American funding instead of Israeli funding. I look at it as “smart money” because it is not only about funding--it helps with networks, connections. The United States market and smart investors helped us tremendously in the first six months. We basically got a foothold in the American market, the chance to operate in two worlds and the opportunity to take what works best from each one. I think we did a good job in adapting, which is something that foreigners have to do if they want to get into American markets.

How long did the acquisition process at AOL take?

Very fast – it was really fast. I'd say it took less than two months.

What was the experience like?

One of the things, about the acquisition, that was most important to me was that it all made sense. They allow good things to happen. It's good to be acquired by a company that shares the same vision--that is, premium content in scale. AOL is turning out to be a major content provider with two emphases--quality and scale. I think that we found a business model that knows how to resonate and it's one that AOL dearly believes in. AOL had, in particular, a strategy before they met us and when we met them, we felt we were meeting a company with a clearly defined strategy. There was not a lot of debate between us. It was clear we had similar views and mutual needs. We have a huge content network they could use access to, we speak the same language, we share the same values and I think that's why it was such a short process.

Now that 5min has been acquired, what is the relationship with AOL like?

We're basically keeping 5min as a brand. I think it's a good brand that a lot of publishers know and trust. We want to keep the brand and we want to keep on working with publishers and content creators. I think AOL helps most of all with third party aggregation. That's one angle. The other angle is that we are helping AOL define a larger video strategy that 5min will be a part of; we can take our content and create a much stronger video experience on lots of other sites. It'll take AOL video's operations and greatly increase the scale. I think 5min will be a meaningful ingredient in AOL's video strategy but it won't be the only one; we will be a key part of the strategy.

What is your advice for other startups that are hoping to be acquired?

Not to hope to get acquired. I think that's a cliche, everyone says that, but cliches don't come out of nowhere. Cliches become cliches because they are told too many times. It's the right cliché; you need to work as if you want to conquer the world and to create a business that makes sense from a revenue perspective and a scale perspective--those are the two main things. If they contradict each other in the early days, choose scale over revenue. Scale is all that matters; look at Zuckerberg, look at Twitter--it's all scale, scale, scale. Then the rest will follow. Make business deals with the biggest companies. Show them first commercially that what you are saying is right. We had a commercial deal way before we got acquired and the goal was just to make money. If anything happens, look at the offer and decide if you want to do it or not.   

[Editor's note: This interview was edited for length and clarity. Image via Fivemin]

 

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