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Investing in Digital Content II: When it Actually Does Make Sense

November 20, 2007


While I certainly agree that most content plays are a bad fit for VC investment because they require investing alot of capital in the risky proposition of generating a hit, I think our panel’s preoccupation with the “hits” aspect of traditional content led it to miss an important point: the emergence of the digital panel is changing the rules and allowing some content business models to fit within the venture model. Specifically, the digital platform is on the one hand dramatically lowering the cost of creating and distributing content, while on the other hand making it easier to predict success (at least to some extent).

Very few have figured this out.  While I am not one of them,  I happen to have the privilege of backing a team that is. (Yup, you’re right, another VC pimping his portfolio, but that ain’t gonna stop me because I think it is true).

In addition to falling in love (figuratively) with the founders of, we invested based on the belief that they had cracked the code on how to achieve predictably high returns on investments in programming. Here is how they did it.

First, Heavy developed a track record of making content — cheaply — that people consistently liked enough to come back for more.  As a result, and in conjunction with doing a good job of putting their content where their viewers were, Heavy eventually built an audience big enough to be interesting to advertisers. At the same time, they solved a harder problem — how to create and sell brand advertising against that programming and audience. The net result is that Heavy can pretty routinely generate content that need not be a blockbuster to generate returns. And, with predictable distribution and a predictable ability to monetize, Heavy now is able to make highly informed programming investment decisions. When they are pitched on, or themselves originate, a programming concept, Heavy can pretty accurately predict what sort of viewership the program will see, how much revenue it will generate, and thus what sort of ROI investing in the program will generate. In most instances, Heavy can invest in programs that, even if never a blockbuster, consistently end up being equivalent to a modest success for a cable property ­ but at a fraction of the cost.

Having successfully established the three pillars of a digital media platform ­ — programming, audience and monetization ­ — the challenge now is all about execution and scale. Create more programming, extend the audience, and scale the sales effort.

So, yes, absolutely, our investment in Heavy (among others) was a venture investment in content. But ­ — and this is the key for me and my partners — ­ it was fully consistent with the basic venture model we espouse. Heavy had already established that it could consistently generate programs which made money. So the question standing between our investment and a great return is not whether Heavy makes lightning in a bottle and bangs out some blockbuster hits, but rather whether they can take their current model and scale it. Which, from a venture perspective, is not all that different from backing a software or business services company that has had early success with customers and is looking to scale the business. Certainly not without risk, like any VC investment, but by the same token the type of risk and the type of challenges that VCs and venture backed entrepreneurs see every day: ­ building management and scaling the organization, continuing to innovate with product and staying ahead of the competition, and navigating through the constant change of highly dynamic markets.

Importantly, it had nothing to do with me deluding myself into believing I had some special nose for content ­ I most assuredly don’t. But I think I do know great entrepreneurs when I meet them, and a good business model when I see it.

So I totally disagree with the position of some of my fellow panelists. VC investment in content can sometimes make a ton of sense.


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  1. November 26, 2007

    as a filmmaker who has worked for two funded startups, the possible wrench in the works that jumps out at me is this phrase: “So the question standing between our investment and a great return is not whether Heavy makes lightning in a bottle and bangs out some blockbuster hits, but rather whether they can take their current model and scale it.”

    there’s something about the idea of scaling an enterprise that relies on a certain level of quality in it’s content creation, that would scare me as an investor. creativity and content creation can be difficult at best – trying to increase it’s output can not only fail, but destroy the source.

    do they have a plan for finding and/or developing more of the same level of quality product? if they presumably have a finite amount of quality content they can create, do they have a plan for increasing their submissions/pitches? and a plan for managing that increase? these are common questions for startups, but usually there are common possible solutions. so far no one’s cornered the market on how to develop and find talent.

  2. Brandon #
    November 27, 2007

    But ultimately the content is still a commodity. What you’re investing in with Heavy is aggregation, a user experience, delivery and monetization. The only people who’s returns decrease in this model are the content creators. With barriers to entry decreasing rapidly, its only a matter of time before content creators, if they choose to continue to exist at all, must become invested in the distribution mechanism. Otherwise they will starve, and/or go back to writing ad copy. In this regard, the Revver/Squidoo strategy is more sustainable and holistic.

    Investing in Heavy is not a vote for content, but distribution. Content investing is as we know not rational, but fun. Producers join the ranks of restaurantuers, bar owners and angel funders. They’re drunk on the vision and/or hungry to have something interesting to tell their friends about.

    God bless ’em for taking all the risk and sacrificing their returns.

  3. frostmane #
    January 2, 2010

    Классные мультфильмы на Кинозоуне.

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