For investors in search of the next hot investing trend, venture capitalist Mark Suster has two words: Internet TV.
Not that anyone has been paying much attention to him, Suster told a crowd at the Venture Alpha conference held yesterday in San Francisco. “I’ve walked up and down Sand Hill Road and not a single person agrees with me.”
Suster thinks this “means I’m on to something.” But it’s easy to see why others might not agree, beginning with the enduring popularity of good old-fashioned TV. According to the Nielsen Company, Americans watch 5.3 hours of television every single day, and every year, they watch just a tiny bit more than the year before. Indeed, in its latest report on video content consumption, Nielsen found that TV viewership has increased 22 minutes per month per person in the last year, and that it remains the dominant source of video content for all ages.
Compare that with how much time people spend watching videos over the Internet, according to Nielsen: four hours a month.
Of course, Suster is no dummy, as anyone who reads his frequent and wildly popular blog posts can attest. He’s been watching the data evolve. He knows that while four hours isn’t much, in 2010, people spent just 3 hours and 10 minutes watching video over the Internet each month. He’s also aware that a full 25 percent of traditional TV viewers are adults aged 50 to 64. And it’s the next generation of consumers he thinks VCs should be targeting, the 12-year-olds to 17-year-olds who spend a third of their Internet time watching video, along with those “light” traditional TV users, in Nielsen’s parlance: the 18- to 34-year-olds who are increasingly streaming more Internet video via their computers.
“VCs say [video] is what you folk in L.A. do; [they say] we don’t want to be a part of it,” Suster told the audience. But anyone who thinks that YouTube is still “dogs on skateboards” hasn’t been paying attention, he argued, pointing to some figures of his own.
For starters, it costs between $4,000 and $6,000 per minute to produce a network television show while it costs between $100 and $400 to produce a minute of Internet programming, said Suster. (He’s been paying attention because he has a vested interest in doing so. In April, his L.A.-based firm, GRP Partners, participated in a $1.5 million round for Maker Studios, a Venice, Calif.-based startup that’s building a stable of YouTube creative talent.)
Suster argued that the online video advertising market — projected to hit just $3 billion next year – is a big market opportunity that’s being dismissed far too summarily, considering that banner ads alone (which see minuscule click-through rates) constitute a $12 billion market.
He also observed that 91 percent of households still pay for TV. And what do they get for the expense, he asked? Mostly channels they don’t watch but are forced to take as part of a bundled deal. “That’s called an album,” he said. “And how did that work out for the music industry?”
Snappy quotes aside, it was hard, during Suster’s presentation, not to recall the many claims we’ve heard over the years about the promise of Internet TV. Remember when “The Blair Witch Project” became a breakout hit in 1999? When it grossed roughly $250 million worldwide, many in the tech and entertainment industry thought it would usher in a new era of democratized movies that could be promoted on the Internet. That didn’t exactly happen.
And while Suster dismisses other VCs’ concerns that even low-cost programming is a hits-driven business, they have a point. There really is no formula for what’s going to be successful and either way, it’s awfully hard to change the taste of American television viewers, who’ve been trained to expect a certain level of quality over many years.
Not last — and not discussed yesterday — much of our Internet programming comes through cable companies. Suster likened YouTube to the next Comcast. But it isn’t beyond imagination that Comcast, not wanting an Internet channel to steal its customers, could somehow interfere with it. Comcast has already been busted once for trying to slow the sharing of files online. And though last winter, the FCC approved rules that ban cable TV and phone companies from preventing access to competitors or certain Web sites, rules have a way of getting overturned when high stakes and powerful lobbyists are involved.
None of that dissuades Suster, who has become renowned in the startup world largely because he’s so transparent about his ideas, both fashionable and otherwise.
“Today, 108 million people in the U.S. are going to watch 1.3 billion online videos,” Suster told yesterday’s audience. “This is our future, and the market disruption is arriving now. I don’t know when it reaches the point when Silicon Valley wakes up and says, ‘Holy sh*t,’ but I’ll be happy when it does.’”