Wow – Grouper Sells for $65 million

Sony Pictures is announcing the acquisition of online video startup Grouper tonight, Tuesday, at midnight EST. The acquisition price, confirmed by Grouper, was $65 million in cash. Our previous coverage of Grouper is here.

Sausalito, California based Grouper has built three key technologies: an online video sharing site, a desktop video editor and most importantly a closed (non-bittorent) P2P network for distributing media. Michael
Arrington called Grouper Version 2 a “near perfect product” when he reviewed it at launch in December. The company reports that it had 8 million unique users last month (which, unsurprisingly, conflicts completely with Comscore data discussed below). Grouper was backed by $5.25 million in funding, largely from Deutche Telecom’s T-Online.

Sony says they will use Grouper’s technology to share lower quality Sony videos online, distribute DVD quality video by P2P and allow users to create mashups of select Sony media properties. Grouper says the P2P network took the company two years to build. The fact that Sony is strong in both content and hardware made Grouper more interesting than other video startups, though company President Josh Felser told me that several studios were interested in an acquisition. Prior to being CEO of Grouper, Felser was the President of, acquired by AOL for $320 million in 1999.

It’s obvious that online video is hot right now. Major companies have been making distribution deals and launching their own download services.

However, the Grouper acquisition price is out of whack when compared to other recent video acquisitions. US Comscore data says Grouper had about 542,000 unique visitors in July 2006, compared to YouTube’s 16 million. Viacom’s recent acquisitions of iFilm (December 2005, 3.3 million U.S. uniques) and Atom/Shockwave (August 2006, 1.3 million U.S. uniques) for $50 million and $200 million, respectively suggest a per-unique-visitor valuation of $15-$20. Grouper’s per-unique-visitor valuation, by comparision, is roughly $70 – $120, depending on whether you look at June or July 2006 data.

It’s hard to use Comscore data for meaningful analysis as it doesn’t necessarily reflect total videos uploaded or viewed, and doesn’t reflect videos embedded on third party sites. I also only have U.S. Comscore data. However, noting those issues, the $65 million valuation on Grouper suggests a YouTube valuation of around $2 billion.

Of course, it looks like Sony was most attracted to Grouper’s P2P technology for movie distribution, meaning YouTube comparisons are inappropriate. $65 million is still a lot to pay, however, and bittorent, as well as services like Red Swoosh (covered here), are proven and effective means of moving large amounts of data over the Internet.