Suranga Chandratillake's inbox began showing the tell-tale signs of a slim down in the video sharing space last November. A few independently owned, semi-successful startups were e-mailing to ask if Blinkx, Chandratillake's video-search company, was in the market for a video-sharing site or, at least, interested in buying traffic. Chandratillake declined. Blinkx wasn't really interested in running a video upload site and definitely didn't want to enter the field. "There's a video-sharing shakeout," says Chandratillake.
Around the Web, signs abound that the once-hot market for sites that let consumers share videos is cooling. Top executives at Revver and Guba, rivals to Google's (GOOG) YouTube, left in December, and several video-sharing companies are aggressively seeking buyers. Thomas McInerney, the Guba co-founder who recently stepped down as CEO to pursue other projects, has repeatedly said Guba is for sale. "We are going to be a lot more attractive to an acquirer because our number could be in the tens of millions," says McInerney. However, much higher sums were being bandied about last year. Rumors were rife in December that Metacafe was in acquisition talks, though a deal failed to materialize. "I have certainly seen a number of sites suffer significant management changes or look at consolidating," says Chandratillake.
Needing an Edge
A lot of that soul-searching began in earnest after Google's $1.65 billion acquisition of YouTube, the leading video-sharing site, in October. It was then that some sites realized just how much—or little—they were worth, given substantially smaller user bases. Many saw the YouTube deal as the end of the race for a big payout. "It would surprise me if one of these sites cost $100 million," says Forrester Research (FORR) analyst Josh Bernoff. He says a more typical acquisition price would be the $65 million Sony (SNE) paid for Grouper (see BusinessWeek.com, 8/23/06, "Online Video: Tasty Takeover Targets?").
Around the time it was sold, Grouper was one of the top 15 sites in the video-sharing arena, according to July comScore data. Video-sharing sites Metacafe, Veoh, and Revver made it to the top 15 as well. However, it is unclear how many more large companies will still need to shell out considerable cash to augment their online video presence. Yahoo! (YHOO), Microsoft (MSFT), Time Warner (TWX), and Viacom (VIA) already have well-trafficked sites that rank among the top ten in unique video streamers, according to comScore.
The recent announcement from YouTube that it plans to compensate users who upload videos only put more pressure on smaller video sites to differentiate themselves from the market leader in order to gain attention, whether from users or possible buyers, says Bernoff (see BusinessWeek.com, 1/30/06, "Upload Video, Download Cash on YouTube"). Sites such as Revver, Guba, and Metacafe have stood out from YouTube and News Corp.'s (NWS) social networking site MySpace, which also allows users to post videos, in part because they have paid users. Without that edge, they risk losing more market share to YouTube.
Seeing this year as a pivotal year, venture capitalists are spending more to get their investments to stand out (see BusinessWeek.com, 2/5/07, "Make-or-Break Time for the Net Newbies"). Breaking away from the crowd is particularly important for video sites, considering their sheer numbers.
An estimated 250 sites are involved in online video. Many, such as eefoof and Mefeedia, have seen recent declines in page views and traffic, according to Alexa Internet, a traffic tracking company owned by Amazon (AMZN).
Matt Sanchez, CEO and co-founder of VideoEgg, the makers of technology that enables people to easily post and share videos on blogs and social networks, says that many in Silicon Valley think the race to be the top user-generated site has been long decided. "The destination site game, I think, is largely over," says Sanchez.
Finding a New Game
What the next big game will be is still to be determined. A contender could be audio and video search, a field in which companies including Google, Blinkx, Gotuit, and Podzinger are already vying for supremacy. The competition is also heating up between companies that want to bring Web video to mobile phones and television screens.
The next step for video-sharing sites could be to specialize in a particular kind of video content, such as high-definition streaming video, podcasts, or videos about particular subjects, in order to offer something different than YouTube. Already, some sites have begun to specialize. Lycos, for example, has a cinema site dedicated to sharing and streaming independent films. Sites such as blip.tv specialize in content from professional and semiprofessional video bloggers and podcasters. Revver does this as well, focusing on personalities that produce regular shows and gain a following such as Ze Frank and Ask a Ninja.
Revver CEO Steven Starr believes more professional and semiprofessional talent will continue to emerge in the video-sharing space, enabling some sites to become destinations for individual Web personalities and others to serve as content syndicates. "We are in spring training," said Starr at a Jan. 30 discussion about Web video hosted by The NewsMarket. "For anybody who thinks this is the bottom of the seventh inning, that's naïve."
Another option for video-sharing sites is to concentrate on helping users share videos with friends and family members, rather than aspiring for Internet fame, says Blinkx's Chandratillake. Companies such as SplashCast have released technologies focused on enabling users to create personal TV channels for view on Web sites to which people must subscribe (see BusinessWeek.com, 1/31/07, "The New Media Mogul—You"). "What it might turn more into is people using accounts to share personal videos," says Chandratillake.
As pressure increases to remove copyrighted content, more companies may begin producing their own proprietary shows that can drive traffic and attract advertisers. Heavy and ManiaTV each broadcast shows that are financed and produced in-house in addition to allowing users to create channels and share video. In that way, they are less like user-generated destinations and more like traditional television studios that happen to be online. ManiaTV, for example, has live streaming shows featuring television personalities such as comedian Tom Green and former Jane's Addiction guitarist Dave Navarro. The site sells a variety of branded advertising and expects to be profitable by 2008, if not the end of 2007, says ManiaTV CEO Drew Massey.
Massey anticipates some video-sharing sites will try to copy ManiaTV's business model during the next year or two as more pressure is put on sites to prove they can be profitable. "Allowing users to simply upload video is not a business model," says Massey.
Sites that don't get acquired by bigger video sites or content networks, such as Yahoo Video or Viacom, or turn into viable online networks, may simply have to settle for less, says Bernoff. "It is unusual that these things fold up," he says. "If you've got traffic, you have a life left. It just might not fit the big dreams you had when you started it."