One might think that media companies would make exceptional venture investors, given that they take a venturing approach in their core business. Each year they deploy a predefined budget (the fund) on a slate of highly speculative movies and/or TV shows (the investments). The outcome is a collection (the portfolio) that contains many duds, a number of break-evens, and hopefully a couple of blockbuster hits. Both media companies and venture capitalists bet on people – venture capitalists invest in entrepreneurs while media companies invest in actors and directors.
Unfortunately, very few media companies look at venture investments the same way they look at creating content. Studio executives have told us that it’s easier for them to get approval for a $100m movie than to get approval to participate in a $10m A-round. In an industry facing an inevitable slow decline in its traditional revenue base, new business models are required in order to bring about the necessary level of growth and change.
Most media companies by now have created “digital teams” or appointed Chief Digital Officers. While digital is critical to the media business, it should be a Business as Usual activity that is part of the core business. The present – and future – of media is business model innovation.
For example, a TV network that specialises in food-related programming might create new cooking shows, recipe apps, and diet websites. However, these efforts are all simply creating content and pushing it through existing linear and digital channels.
Imagine if instead this network became an active participant in the home food delivery business.
Just in the last two years, companies like Plated, Blue Apron, and HelloFresh have raised $21m, $58m, and $193m respectively. Most of the raised capital will likely go towards brand building and customer acquisition.
Building a respected national food brand and attracting a loyal audience is extremely difficult and very costly. How much easier would it be if you happen to be a network with a food-related TV franchise that enjoys access to world-class chefs & restaurants, thousands of amazing recipes, decades of brand loyalty, and millions of loyal fans?
A media company of course knows nothing about refrigeration, produce sourcing, or food supply chains. But through corporate venturing they can participate in these types of businesses not simply by investing capital but also by deploying their unique assets and capabilities. Venturing is an effective way for media companies to get into radically different businesses by building upon their strengths without changing their focus. The point of corporate venturing is not to become an expert in a different business (e.g., home food delivery), it is to take a corporation’s advantages and deploy them in creative new ways.
In return, media companies can offer startups something far more valuable than just capital. They can provide startups the unfair advantage that comes from access to assets such as world-class content, creative talent, and global distribution.
Successful corporate venturing requires a focused effort from dedicated investment professionals. Doing this right means being active in the venture community. Media companies need to establish and test a series of investment theses and actively pursue businesses that fit the criteria. Media venturing groups should explore ways their content, distribution or scale can be applied to new ventures to provide unfair competitive advantages. Success stories such as AOL Ventures, Hearst Ventures and Bertlesman Digital Media Investments begin to show the opportunity awaiting media companies.
Alan Kay famously said, “The only way to predict the future is to invent it.” Media companies typically lack the resources or capabilities to invent new business models. By actively participating in corporate venturing, they can understand and profit from the future.
Iliya Rybchin leads the Media & Entertainment business for Highnote Foundry. He has spent his entire career launching new ventures, creating new businesses, and building and managing innovation departments for companies including Bloomberg, McGraw-Hill, Orange (France Telecom), Virgin, Helio, and Accenture.