Debating The Online Video Bubble: When Will It Burst, And Who Wins When It Does?

I had the opportunity to moderate a panel on venture capital at MediaPost’s OMMA Video conference on Monday. The topic: Why are venture dollars still pouring into online video, and what’s going to happen next?

Weighing in were Jane Hu of Michael Eisner’s Tornante Company, Karin Klein from Softbank Capital, Warren Lee of Canaan Partners, and Neil Sequiera of General Catalyst Partners. Online Video Watch took comprehensive notes. Here are some paraphrased highlights:

Is there a bubble? (Yes, there was a debate about this.)

Warren Lee: There is a bubble, but it will deflate, not burst. The video content companies like YouTube have been heavily funded. They will be challenges to them building a profitable business. On the infrastructure side, there is a lot of room for improvement in delivery of video and handling the load of content that is coming.

Neil Sequiera: Not a bubble. But we need more companies that make this a “real business.” We need companies like Omniture. In the first innings of a nine-inning ballgame, there was a clear winner: Google. They bought a premier site and will figure out how to monetise it over time. I agree with Warren that infrastructure is an opportunity, but people that deliver high quality content to audiences will be the winners.

Are there great companies out there now? Would any of you put more money into Joost?

Lee: Raising a lot of money like Joost did allowed them to experiment, but it also enables them to not be very disciplined in how they spend it. There are lot of companies that have raised a lot of money and have gone away. There is a great deal of experimenting going on.

Klein: I’m not going to pick on anyone in particular, but we are very excited about companies in the content arena. Companies that do a lot of heavy lifting – like transcoding – are the ones who can be the winners because they’ll offer full service solutions to major media companies.

Michael Eisner is investing in original content. Can he, or anyone else, make money creating video from scratch?

Hu: We tend to produce a lot of content all at once, and sell advertising against it. Anyone can distribute content anywhere. The real key is figuring out how to reach the consumer. There has yet to be a real, true hit online. There is no Superman or Grey’s Anatomy. It is partially because we are in the early stages and partially that people don’t know there is original content online.

Who buys, and who sells, during the coming consolidation?

Sequeira: There will be consolidation. If you look at the players and infrastructure and platform business, there is Brightcove and Maven and The Platform. Beyond that, there are a slew of companies that are venture backed. Those three have pulled away from the rest of the pack so far that there will have to be consolidation.

Klein: Some of the video advertising companies will probably consolidate as well.

Was it wise for Providence Equity Partners to put $100 million into Hulu?

Sequiera: I only watch 30 Rock on Hulu. I can’t comment on $100 million, but they are definitely a unique property in a unique moment in time. I commend them for creating a hell of a product. It is our belief that people who create great products do well over time.

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