In Internet Streaming, Goliath Needs David, And David Needs Goliath

In screenwriter William Goldman’s famous words, “Nobody, nobody — not now, not ever — knows the least goddamn thing about what is or isn’t going to work at the box office.” To some extent, this statement still holds true. Many producers, directors and content creators rely on intuition to determine which television programming will prove successful with the consumer — a reason why many venture capitalists have historically been hesitant to invest in media and entertainment startups.

However, according to PwC, the media and entertainment industry was the second largest industry to receive venture capital investment in 2014, with $2 billion going into 127 deals. In contrast, investments peaked at $200 million in 54 deals in 2009. The success of companies such as Netflix, Snapchat and BuzzFeed may be the reason behind the dramatic change. Instead of relying on intuition, startup founders are now relying on technology to aid their ability to produce and sell content, all the while increasing investors’ confidence in the industry.

For instance, media and entertainment companies have recently been placing more money and attention on over-the-top (OTT) video solutions — the delivery of audio, video and other media over the Internet without a third-party distributor in control of the content. By providing customers with good content in a convenient and easy-to-use format, vendors like HBO, Hulu and Netflix have thrown the media industry into frenzy. In fact, this year Netflix boasted record numbers in its first quarter financials, along with record U.S. subscribers of more than 40 million.

Yet, it’s not a case of one or the other, and Internet streaming services like Netflix and HBO GO, despite what you may believe, are not in direct competition. In reality, consumers want to watch high quality shows and will make an effort to find them from multiple sources. Just look at the statistics from a 2014 report from Nielson that found Americans aged 18 to 64 have doubled their digital video viewing from 13 minutes a day in the second quarter of 2012 to roughly 27 minutes a day today.

In further research, PwC predicts OTT is poised for massive growth, reporting OTT TV streaming will grow to be a $10.1 billion segment by 2018, up from $3.3 billion in 2013. Against that kind of structural market growth, it’s too simplistic — and wrong — to think about things as a zero-sum game. Rather, it should tell you that the consumer demand for high-quality content continues to grow, which is good news for all those involved in making and distributing great content. But no one provider will carry that growth alone. Many ships float on a rising tide, to coin a saying.

So how, in a market that is so deeply saturated, can new media and entertainment startups realistically compete, especially if in the end, the consumer wants them to work together? And how do venture capitalists determine which startup receives investment over another?

It is vital that startup founders move quickly to embrace, understand and capitalize on new technologies.

The market is rapidly changing and there are more and more platforms and technologies emerging, many of which will shape the digital entertainment experiences of the future. It is therefore vital that startup founders move quickly to embrace, understand and capitalize on new technologies, no matter where they originate — even if they are outside their company’s traditional areas of expertise.

For example, at Sky, an investor in content, we’ve had to learn to embrace change and use new technology to distribute our content in new ways. One way we’ve been able to drive innovation is by partnering with technology leaders — both established and emerging — to create new and better products, and to make the Sky experience even richer for our customers.

In the past year, we invested in the native advertising platform Sharethrough, the cinematic Virtual Reality company Jaunt, OTT startup 1Mainstream and several more. Not only do we work with these companies to find new ways to produce and distribute our content, but we aim to create sustainable value for the companies we work with by providing them with the freedom to export into new markets the successful new ideas and concepts on which we collaborate.

Partnerships and limited investments offer a path to extract benefits from strategic relationships without some of the pitfalls of acquisition. Take, for instance, Yahoo!’s failed acquisition of Flickr. The company bought the photo-sharing site for $35 million in 2005, but failed to grow Flickr as a product, in part because of disagreements on whether to use Flickr for things like dating apps and maps. Other recognizable failures include Sprint’s acquisition of Nextel Communications, which led to the departure of several Nextel executives claiming the two company cultures couldn’t mix. Add in the plummeting stock and company lay-offs, and you have yourself an acquisition disaster.

The difference between what determines a successful investment versus a failed investment lies in understanding which technologies will make your business operate more effectively and efficiently, especially in today’s multi-platform, multi-device world. In addition, there needs to be a fundamental shift from the current competitive landscape mired in the antiquated views of the past — a past committed to the idea that in order for one company to succeed, all others must fail.

The new competitive landscape should adopt a worldview where multiple companies’ success directly benefits upstarts looking to break into the market. In fact, as we’ve begun to see, it’s paramount that these new media alternatives band together in order to drive viewers to their new platforms. No company or streaming option is an island; where one succeeds, others will also flourish.