Friday, October 31, 2008, 8:34 AM ET|Posted by Will Richmond
On Monday I wrote that a key mission of mine while attending the Digital Hollywood Fall conference in LA this week was to dig into what impact the economic crises is having on the broadband video industry. Specifically I was focused on three things: financing, staffing and customer spending effects.
I wasn't terribly surprised by what I heard; people are quite nervous. Most significantly they're nervous about financing. Many I spoke to cited the recent Sequoia Ventures presentation which offers a very harsh assessment of the landscape for financings and startups. I heard a lot of lukewarm responses like "we'll have to see what happens" from folks when asked about their ability to pursue future financings.
That said, some deals are still being done. One in particular is a new venture debt deal announced this morning by Clearleap. I caught up with their CEO Braxton Jarratt at DH, and one of my takeaways from that meeting was that venture investing may well be returning to its roots favoring technology-oriented companies that address well-understood industry pain points.
This shift would not bode well for content-oriented startups where investors are bet more on the startup's ability to create enterprise value from audience generation and ad revenue. Evidence of belt-tightening in the content world abounds, with the latest news of layoffs coming from 60Frames. All signs from DH suggest this is going to be one of the hardest hit sectors, as business models remain nascent and ROIs uncertain (one executive told me that every content startup has already eliminated at least 10-20% of their headcount, even if you haven't read about it publicly). While there's no shortage of interest in broadband content creation, the question is whether the dollars will be there to fund these ventures.
Closely tied to content's success is the video management/publishing platform space. I had a numerous conversations with folks about the large number of competitors and concern that both customer spending slowdowns and limited financing are going to force a shakeout. These companies are being advised to watch their cash carefully.
Lastly, there was lots of discussion, especially on panels, around ad spending in this climate. Optimists felt that the fundamentals of consumer behavior embracing broadband consumption would force advertisers to continue their spending in broadband. Conversely many pessimists said that friction, lack of clear ROIs, a flight to safety (i.e. a bias toward TV advertising) and the general slowdown would all conspire against broadband ad spending. It's hard to ignore the pessimists' arguments here; my hope is that any pullback is relatively shallow.
One thing that's certain: broadband is not exempt from the consequences of the financial meltdown. All businesses are assessing what they need to do to survive and succeed. Another major wrinkle has been introduced in the broadband video industry's evolution.
What do you think? Post a comment now.
(A postscript: thanks to the many of you who volunteered feedback on VideoNuze at the show. I really appreciate your comments and encourage all readers to let me know their thoughts. What can VideoNuze do differently or better to provide you more value?)