If you’re ever pitching a venture capital firm and you want to clear the room, just say you want to start a content company.Most venture capitalists run away screaming when they hear the word “content.”
Well, these reasons, for starters:
- Content is created by human beings, who cost a lot
- Content goes stale fast
- Content is not as leverageable as technology
- Content companies are often dependent on prima-donna “talent” and “stars” who are forever hitting their employers up for more money or leaving and taking their value with them
- Most successful content companies sell for tens or hundreds of millions, not the BILLIONS venture capitalists get stoked about
- The real money in the content business, at least historically, has been in distribution
- and so on…
But one venture capital firm is betting big that the rest of the VC herd is missing something.
Which firm is that?
Village Ventures, a New York-based VC firm run by Bo Peabody, the former founder and CEO of Tripod, and Matt Harris.Village Ventures is organising its portfolio around what it calls its “vertical media thesis.”
This thesis has already helped produce one very successful company, Everyday Health, which has filed for an IPO. And Village Ventures has several other similar companies cooking.
What’s the “Vertical Media Thesis”?
In short, it’s this:
Online content can be a great business, as long as content companies are built from three complementary parts:
- A branded content site focused on an attractive vertical (technology, health, etc.)
- An ad network composed of a few dozen sites in the same vertical, and
- A consumer commerce business that sells something directly to the same consumers who would read the content
Once the company has these three business lines, it employs the following strategy:
It integrates the commerce and content offerings in such a way that the potential commerce customers also consume some content. It then spends money marketing the commerce business, in such a way that the potential customers also consume some content, even if they don’t end up buying anything. It sells ads on its own content and throughout the network.
With this configuration, Village Ventures believes, online content companies can spend tens of millions of dollars on marketing–a strategy that, without the commerce business, is wasted money (remember all those dotcom content companies that used to advertise on TV?). And, in so doing, they can drive millions of visitors to their premium content and rake in the cash on advertising.
These companies have a cyclical advantage: In strong economies, when advertising pricing is high, they coin money by selling advertising. In weak economies, meanwhile, when advertising is cheap, they can buy a boatload of it themselves–driving huge traffic to their sites.
Does the vertical media thesis work?
It’s certainly working for Everyday Health, which should generate more than $125 million of revenue this year. And, as noted, it’s starting to work for several other Village Ventures companies like Tech Media Network and Babble, which are at earlier stages of development.
Village Ventures partner Bo Peabody will be speaking at our IGNITION: Future of Media conference on Dec 2-3 at the Time Warner centre, so you can hear more about these ideas there. (You can also buy your tickets now, and save money on our early-bird deal).
Or you can flip through Village Ventures’ recent presentation on its vertical media thesis, which we have procured included below. The slides are absurdly complicated, but they lay out the simple-but-powerful ideas we’ve described above.