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How Must Media Change to Get Funded by Venture Capital?

There’s not much love between Silicon Valley and Hollywood, although more and more they need each other to thrive.  Years into the digital revolution, it is still difficult to find venture funds that understand content creation like Hollywood does.

There’s not much love between Silicon Valley and Hollywood, although more and more they need each other to thrive.  Years into the digital revolution, it is still difficult to find venture funds that understand content creation like Hollywood does.

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Venrock, Accel, At&T and William Morris Agency have formed a joint venture to slice and dice content, but it is difficult to find cash on cash returns for a venture investor in pure content and media plays, even though Venrock did give BlogHer a seed round. VCs stay away from content creation, because it’s a hits-driven business (although isn’t venture capital?)

An area ripe for innovation is developing cost-efficient content that runs against the big budget approach to building content. The notion of wanting to be a network has played out, but there’s still a huge opportunity to own content. Most of the large buyers have a lot of traffic and and struggling for ways to monetize that traffic. Nate Redmond, from Rustic Canyon, based in Los Angeles, feels that his region has found good ways to monetize its content, from gaming, to TV to movies, but Silicon Valley doesn’t understand it.

For him, owning content has tremendous upside.

Companies want to own the content but not bear the production costs. You want to catch it at the right time and get the rights to sequels, etc. The money will come to the studios and not the production companies.

NextNewNetworks is the closest to a pure content play that has been funded this year: by Goldman in New York.  In a venture-funded environment, monetization strategies are getting more important than they used to be.

NBC has contents, brands, and a promotion engine. They invest in technology platforms that allow them to reach new ways to get audiences to their advertisers. So they funded Adify through their Peacock Investment Fund. NBC also funded BlogHer.

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There are many independent production companies that exist and operate: Radical Media is one of the largest. NBC has a partnership with them that  creates the videos for in-market car buyers and then distributes them.

Silicon Valley can have a major role as an enabler, allowing content to be more data-driven, and allowing it to be found more easily. Content has to get past RSS distribution, which is too publisher-driven.

On the plus side for entrepreneurs today, it’s cheap to build some kinds of products, but not entire new platforms.

Many startups are attacking somebody’s old business, like games, video, or newspapers, and the older companies can’t do that to their own businesses very easily. But they are going to be forced to disrupt themselves or get disrupted from outside.

Most of the disruption has happened in print media, where video can now tap into new below-the-line marketing dollars like classifieds and lead generation.

Large media companies will only be successful if they can develop a model for developing content in an entirely different cost structure, which is different than taking existing content and repurposing it for new media.

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In the game space, there has already been quite a bit of consolidation. EA and Activision are now large enough that they  can manage and control the monetary flow in their space, and can make interesting deals with developers. Right now, there’s a big area of white space without monetization — that’s the time people spend gaming. Who will get hurt by these new models? THQ is one of the companies that can’t seem to monetize the innovation going on in the game space. They have lost the advantage to Sony and Microsoft.

Online gaming is thought to be the biggest opportunity. Online media companies have access to much more customer information than traditional games.

What about the newspaper business? Why is the New York Times in trouble? Because young people don’t read? Partly. There is a vastly different dynamic to the relationship between younger people and their brands on the web. That’s the structural change. The cyclical change is that display advertising softened 8 months ago. And another change is that classified ads have gone away for good from newspapers, and had been carrying the newsrooms of newspapers for years.  Craig’sList finished newspapers.

So what the newspapers need is a completely different, less expensive method of creating content. (I guess that’s crowdsourcing or iReports).

What about video? A structural change has happened with the DVR. Branded advertisers can get their message out, but new brands will have a tough time getting noticed. This gives an advantage to established brands that have a deep footprint established in the 80s by prime time TV. So we will go back to product placements and sponsorships like in the 50s.

People will continue to invest in high end great stuff, but the middle realm will suffer.

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About the author

Francine Hardaway, Ph.D is a serial entrepreneur and seasoned communications strategist. She co-founded Stealthmode Partners, an accelerator and advocate for entrepreneurs in technology and health care, in 1998.

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