Joost was squeezed out of the market by broadcasters picking their own VOD channels instead of aggregators, acknowledges Mike Volpi, who resigned as CEO after abandoning the company’s consumer focus and has joined its equity holder Index Ventures as a partner.
“The biggest lesson - people want to watch great content,” Volpi told me after his appointment was announced.
“(By) the April timeframe ... with the Disney (NYSE: DIS) negotiation going on and them joining the Hulu joint venture ... it became pretty clear to us that we had to do something else.” More follows…
—What went wrong at Joost?: “The challenge with the online video business is pretty straightforward - most of the economics accrue at this point to the companies that own the content itself and, for the intermediaries, there aren’t any, that I can think of, profitable business models out there. The challenge is that media companies have approached the sector with more of a self-publishing model, meaning the content comes from their websites, as opposed to through aggregators.
“The challenge that Joost had throughout it’s life was that it had virtually no access to exclusive content. Many people will make issue of the choice to go with peer-to-peer or not, to go with a client or not; fundamentally, the issue is the content wasn’t what we needed it to be. That’s probably the biggest lesson - people want to watch great content.”
—Who’s to blame for not having great content?: “You can’t really say that you’d blame anybody for it. Content companies have decided that it’s in their best interests to publish from their own websites. I still believe that consumers generally would like to have that type of content on a good aggregation site, they would still love to have it on Joost, or YouTube or whomever - but, broadly speaking, the media companies have decided that’s not the strategy they’re going to pursue. Everybody acts in their own self-interest.”
—At what point did you begin to realize this was going to be tougher than expected?: “The strategy of media companies really began to shift with the advent of Hulu in U.S. and the iPlayer in the UK. From that point on, we did our absolute best to collect the best content that we could. Frankly, Joost got to 3.5 million worldwide uniques, which puts it in the upper echelon of people outside the iPlayer/Hulu world. So we did as well as we could with premium content but it certainly wasn’t of the scale of the other guys.
“We continued to grow our traffic pretty effectively until the April timeframe. At that point, it was pretty clear that - with the Disney negotiation going on and them joining the Hulu joint venture, and with the post-Kangaroo discussions in the UK taking a fairly amorphous evolution - it became pretty clear to us that we had to do something else.” Did that include selling the company? “When you live in the world of startups, things come and go. The key thing was the economics.”
—So will Hulu succeed?: Volpi is basically referring to decisions - after the joint UK VOD venture Kangaroo was shot down by competition regulators - like those of ITV (LSE: ITV) and Channel 4 to run their VOD through ITV.com and Channel4.com, as well as of NBC, News Corp (NYS: NWS) and Disney to operate through their own Hulu. The U.S. site is now following in Joost’s path in the UK by courting broadcasters in a market where it doesn’t have any content rights, so what chance? “Hulu’s a great company that’s done an amazing job in the U.S., they obviously have access to amazing content. If they can find a way through whatever format - equity or payments or whatever - to get these programmes in the UK, I definitely think they’ll have an opportunity to succeed. If they don’t, then it’s going to be challenging for them.”
—How is Joost shutting down?: Volpi won’t disclose headcount specifics. “It’s going to be virtually all in New York, we are in the process of winding down the Dutch office.” Can Joost investors reclaim their money? “The nature of the equity ownership in Joost is confidential. Index continues to be a significant shareholder.”
—Can Joost win as a white label?: Now that it’s dropping the consumer play for B2B, does Joost actually have any white-label clients lined up? “It does”, but Volpi wouldn’t divulge them. Isn’t white label a difficult market, too, going up against Brightcove which already has a big client list? “I don’t think it’s competitive with Brightcove - Brightcove makes a player, which is a portion of the solution but it’s not a video portal.” Volpi wouldn’t go much further, but did tantalise us by saying: “Suffice to say, Brightcove could very much be a partner of what’s being built, as opposed to a competitor.”
—On working with Index: “I’ve been close to the Index guys for almost a decade now - when Giuseppe Zocco and Neil Rimer founded in 1996, I was at Cisco (NSDQ: CSCO) doing business development work and was one of the original corporate investors in the first Index fund and have been on the advisory board and close to them for a long period of time, aside from the last two years.” Volpi will be advising Index IV and V companies plus those in the growth fund, and investing through Index V and growth fund #1. “My expertise is 15 years in the networking and telecommunications business, but that’s not the most active area these days but I’ll be paying some attention to that. I’ve spent some time now in consumer internet. Principally, technologically oriented businesses of an internet foundation, telecom, networking bent and consumer arena.”
—Were you approached by other companies?: Before Joost croaked, Volpi was reportedly on a headhunting list to be ITV’s new CEO, so did he speak with anyone? “I’ve been very fortunate - a lot of people have been kind enough to express their interest in having conversations - but I felt like the Index opportunity was a great fit for my background and the opportunity to work with people I already know made an enormous difference to me. I felt like I was fitting in to a place where I knew I’d really enjoy myself professionally. That really clinched it for me.” Weren’t you tempted to return home to the U.S.? “We enjoy living in London; you never know what the future holds but for now we’re happy to be in London.”
—Are Niklas Zennstrom and Janus Friis trying to buy Skype back?: “We read the same things you do in the media! We know very little about it. Index obviously has got a couple of funds now - the growth fund and the Index Ventures IV - with a lot of capital at hand. If you look historically at venture returns, the best returns have always come from funds that started investing right around the time of the downturn. From an investing erspective, we couldn’t be at a better point in time. You’re going to see some fantastic companies produced in the next five years.”
—How will the economy influence your investing?: “The bar that you have to pass to be a successful venture is much higher now. That opens up opportunities. You can take advantage of similar characteristics that happened in the last bubble and invest in companies that have great value and take risks - most companies that get funded now are going to see a lot less competitive pressure that they would have two years ago.” Does the economy mean a move away from ad-supported ventures? “You have to be thoughtful about ad-supported models, not so much because of the recession - if we invest in a company today, revenues aren’t the centre-stage, it’s about user accumulation. There’s clearly an oversupply in display advertising and the display market is suffering, notwithstanding the current environment.
“It’s going to be a good time to invest in internet businesses that are more transaction orientated - some of those could be micropayments, others could be good ‘ol fashioned put-in-your-credit-card businesses or subscription accounts or monthly bills. Businesses where consumers transact directly are a very interesting area that is going to grow in the next few years.”
By Robert Andrews