 High Tech News and Information for Southern California |
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I’ve gotten a lot of response from my interview earlier this week with Richard Wolpert, about his new venture fund — which is backed by William Morris, Accel Partners, Venrock, and AT&T. It turns out, Richard also has his own blog — albeit mostly personal observations rather than info for entrepreneurs and others — althought a good one is his look at the difference between Hollywood and Silicon Valley: Valet Parking.
I was greeted this morning by an email from a Silicon Valley group, promoting a event in Los Angeles, and was disappointed to read that they were looking to bring “Silicon Valley to the land of silicone.” It was most likely in jest, but I’ve recently been running into entrepreneurs, venture capitalists, and others from Silicon Valley who think the only thing happening in Southern California is Hollywood content startups.
We’re not just new media startups (which, in reality, are but a fraction of the companies started in this area). We’re Internet advertising; semiconductors; biotechnology, pharmaceuticals, and medical devices; Web 2.0 and SaaS; hardware and electronics; storage and communications; wireless; computer gaming; cleantech and energy; consumer Internet; ecommerce; and a hundred other kinds of companies. That’s part of the strength and the future of Southern California’s technology industry, the diversity of companies here.
Content is a natural strength, of course, because of Hollywood. But it’s far from a dominant part of the technology industry here. Part of the reason you’re seeing some attention in Silicon Valley to Southern California nowadays is they are enamored with digital media and Hollywood; what they’re missing is there’s a lot more depth to the industry and the folks here.
There’s been more than enough written on the public launch of the NBC/News Corp. venture Hulu today, and perhaps I’m in the minority; but looking over the titles streaming out of Hulu, I’m suddenly realizing that network television lost me long ago. Out of the dozens of TV shows available — either as episodes, or even only with clips — on the site, I realize I’ve maybe (maybe) watched a couple of shows, and even then probably in passing at the airport waiting for a flight. Albeit, I’m probably a fraction of the population, since I very rarely watch TV, but the networks have a big job in front of them to attract back folks who they’ve lost long ago to cable/satellite, the Internet, and elsewhere.
Yet another venture firm has turned their eyes toward the new media sector, with the latest — Saban Capital — hiring VantagePoint’s Craig Cooper to head up new media investing in Southern California. Cooper said the fund “will scour the U.S. and international markets for opportunities across all investment stages” in an interview with the Hollywood Reporter. The fund is the second within the last few weeks to specifically target new media in Southern California. Last week, William Morris, Venrock, and Accel, along with AT&T, booted up their new fund headed by Richard Wolpert with the same goal — new media investments in Southern California. The new funds follow a yet-to-be announced (or closed, as we hear) fund from Draper Fisher Jurvetson and the CAA also specifically targeting new media in SoCal.
Interesting quote in VentureWire this morning from David Siminoff of Venrock on their new Southern California media fund:
“L.A. is just not the place you go for cutting-edge semiconductors, but it’s the place for storytellers,” Venrock General Partner David Siminoff said. “I have a feeling deal flow will lean toward the storytellers.”
The quote shows quite a bit of the stereotypes (and unawareness) of the Los Angeles and surrounding area in terms of technology. Unfortunately, usually when people think “Los Angeles” they really are thinking “Hollywood.” So, they ignore the greater Los Angeles area — and its strong semiconductor background — and think the only opportunities in the area are Hollywood media deals. If you’re thinking West Los Angeles, maybe. But if you look at the area as a whole (and in particular, Orange County), you’re wrong.
Some examples of why:
And that’s just to name a few of the firms here… There’s a significant amount of latent semiconductor potential (if VCs ever get back to funding it) coming out of Caltech, USC, and UCLA — schools which have all spawned very significant advances in the semiconductor world. There’s also significant number of companies providing design tools and software, electronics components, hardware, and much more much closer to the semconductor than content/Hollywood world. So please, don’t stereotype LA as being content…
The William Morris Agency and venture capital firms Venrock and Accel are reportedly creating a new, digital media fund to invest specifically in startups in Southern California, according to the New York Times. The new fund is going to be overseen by former RealNetworks executive Richard Wolpert. (Wolpert is a Southern California resident, and was previously commuting between Westlake Village and Seattle).
Speaking of videos, the rise in interest in both video and video podcasts on the Internet is playing to the strengths of Los Angeles, in terms of the production talent and actors. There’s enough “latent talent” that has been attracted to Los Angeles, trying to get into Hollywood, that it’s much easier to find folks who know how to film, produce, direct, and star in whatever might tickle your fancy. Provided the economic model holds up, I suspect the area here has a serious competitive advantage in the future of online video simply because of the access to talent. There’s been enough said about all of the content being produced for the web (everything from projects like Lonelygirl15 to Eisner’s Prom Queen)–but you’re even seeing efforts here which you might expect out of Silicon Valley — for example technology-industry video blogs like BoingBoing TV (from DECA, here in SoCal); WebbAlert - out of Los Angeles; and Mahalo Daily.
As the Writer’s Guild strike continues, one of the issues which has been coming up ishow writers might get paid for content which is re-broadcast on the Internet. Apparently, writers are unhappy that they receive no residuals when shows are re-broadcast on the Internet.
Interestingly enough, the whole issue of clearances for new media is one of the biggest issues facing the studios in actually applying their content to the Internet. Even at the levels of residuals today, studios cannot pry their content out of the old media world and post anything online, without going through huge hoops and investing more money than they could hope to earn back to get their content onto the web.
I was discussing the difficulty of getting movies onto the Internet the other day with Derek Broes, Senior Vice President of Digital Entertainment at Paramount Pictures, and Derek described to me the great difficulty and time involved in clearing films for the Internet. For example, looking at Ferris Bueller’s Day Off, the popular 1980’s comedy film with Matthew Broderick, Broes told me that it would cost Paramount “millions” in order to clear just the music in that film for Internet broadcast — not to mention all of the other clearances required from the rest of the production. In many cases, it would cost the studio more than it took to produce the film in the first place — to clear a film to show on the Internet. Not to mention the legal hassles, lack of paperwork, and very strange geographic distribution rights requirements that Hollywood currently has with its film distributors (ie. say you figure out how to post your film online in the U.S., but legally you can’t let someone in Romania view it) which just can’t be addressed all that well without a lot of strange DRM twister.
The way much of how Hollywood content gets to the Internet (think ring tones, video clips, etc.) is through the also controversial use of promotional clauses–which allow studios to use that content without any payments or residuals to the artists.
It’s a digital dilemma for Hollywood. The whole system is built on such an antiquated system of physical distribution, that there’s almost no hope of “adapting” the current system to the new world of the Internet. The fact that the studios can’t pay a few more cents for residuals to writers for Internet streaming is but a small part of the huge issue the industry faces. It’s almost easier to start from zero than it is to try to unravel the old media habits and traditions in this new world.
Rafat Ali at Paidcontent has the details here, dug up from an 8K filing. Movielink is the video-on-demand joint venture from MGM, Paramount, Sony, Universal, and WB. The studios have invested an amazing $148M in the venture, and according to the financials they are losing a spectacular $10M on not even $2M in revenues for the six months ended June 30, 2007.
I dropped back again to Digital Hollywood in Santa Monica for a few hours Tuesday to sit into a few sessions. Despite the sign below (and a clear lack of parking anywhere within walking distance of the two hotels), I did get a chance to sit in on both a pitch session for companies looking for venture capital, and session on advertising strategy.
Repeating a mantra I have been hearing from many early stage (non-funded) startups, one of the companies in the pitch session very clearly stated: “our competitive barrier to entry is the ‘network effect’ we have” — “not the technology”. I’m constantly amazed by the extremely early startups who claim they will be the “next MySpace”, that their site are “Web 2.0, AJAX, and social networking” compliant and that their competitive barrier to entry is the fact that “we’re first with this idea.” I had posted earlier on what you might look for to determine if you’re in a bubble; unfortunately this looked a lot like the “idea and an MBA” plans I saw so much of during the last Internet boom.
However, on a different note, it was interesting to hear a panel of ad agencies speak on Advertising Strategies (with speakers from Deutsch, Nielsen Media Research, The Media Group, Universal McCann, Starcom, MindShare Interaction, and Bond Art and Science). The consensus seemed to be that we’re only at the beginning of the shift to including digital and online in the advertising spending mix; one of the speakers, John Montgomery of Mindshare Interaction mentioned a rapid acceleration of movement of advertising to digital; and a transformation taking place with the industry. However, it sounds like there’s still an inordinate amount of attention (and dollars) paid to television and cable advertising. It seems to me that we’re still at the tip of the digital advertising iceberg, and that there’s a lot of money still shifting into the online space.
Benjamin Kuo is publisher of socalTECH.com, an online publication focused on high tech, venture capital, and startups in Southern California.
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