If Marshall McLuhan were reincarnated as a venture capitalist, he would likely bet the house on companies that stream video and audio over the Internet.
The late media critic argued that the content of any new medium is always derived from existing media. So, the streaming industry’s use of traditional media to enhance the Internet would be a perfect fit in his portfolio.
“Changes happening now in [media] are as profound as with the advent of the printing press and the telephone,” says Harry Gruber, chief executive of Intervu.
Intervu is a publicly traded streaming company based in San Diego that uses a distribution network comprised of servers located in major Internet hosting centers to transmit video and audio content. Customers including CNN, Microsoft and NBC use Intervu technology for news reporting, corporate communications and distance learning.
After incorporating Intervu in 1995, Gruber did not solicit institutional venture capital investors to build the company. Rather, a group of angel and strategic investors funded the company.
“The VCs couldn’t move fast enough, and we were a little bit farther ahead than they were comfortable with,” he says. “They wanted a product, while we were building a service.”
Gruber believes the venture community now has a grasp on the streaming industry. In fact, he is raising a fund to invest in companies that complement Intervu’s streaming operations.
Marc Scarpa, president of Jumpcut, a streaming production company, cites the success of Broadcast.com as a catalyst to venture commitments.
“The market grows every time a mini-me Broadcast.com emerges,” says Scarpa. “VCs have tracked the market for more than two years and understand the business model now.”
New York City has hired Jump Cut to build a studio in City Hall that will distribute the Mayor’s speeches via the Internet. Jump Cut is also the official producer of Woodstock 1999.
Although the company dismissed offers of seed capital from venture firms shortly after its incorporation in 1995, Scarpa says Jump Cut now intends to raise between $3 million and $5 million in venture financing by the end of September.
“Two or three years ago, everybody was throwing money at anybody getting good press coverage,” he says. “Now, people are a lot smarter with what they invest in.”
Internet event directory Yack.com closed its second round of venture financing recently, raising $18.5 million from a group of five investors that includes existing investors Blue Chip Ventures of Cincinnati and Condor Ventures of Stamford, Conn.
After struggling to raise institutional capital and working out of his apartment for the first few years, Yack.com co-founder Farhan Memon said the company received inquiries from 22 venture firms following the announcement of its $3 million first round in June 1998.
“In 1996, nobody got what streaming was all about,” Memon says. “As is the case with most things that are on the cutting edge, once its right on top of the view, it’s too late.”
Accel Partners General Partner Peter Wagner points to investments in RealNetworks and Narrative Communications to illustrate its early commitment to streaming.
“We have been involved with streaming as long as there has been streaming,” says Wagner. “We are at the center of the opportunity, and were active in the video space prior to streaming.”
Accel recently contributed $6 million to Omneon Video Networks’ $23.7 million second round of financing. The company provides networking and storage solutions for Internet and television content producers and distributors.
“We view the Omneon investment as a convergence opportunity,” Wagner says. “Data and video will converge to form rich media on the computer.”
No Guarantees
Forrester Research senior analyst Jeremy Schwartz says that a convergence between the television and the personal computer is not inevitable.
“There is technology to watch television over the PC,” he says, “but it is not necessarily what every consumer wants to do.”
As broadband capacity increases, Schwartz says television sets will come equipped with mild interactivity including e-mail and Internet access. The aesthetic quality of the content will be superior through a television infrastructure, he says. However, he notes that streamed video and audio will be an alternative source of content that is not distributed by commercial broadcasters.
“The timelessness, obscurity and age of the content means that the quality of the picture is secondary to the nature of the content,” he says. “Broadcast.com provides content you can’t find elsewhere and people are willing to put up with the less than stellar experience.”
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