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Streamticker 2006: The Deals That Reshaped the Online Video Space
Google, Adobe, Vitalstream, and more bring mergers and acquisitions of tech companies back to center stage in the mainstream media
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It’s like 1999 all over again, minus the Y2K craze and millennium parties. In 2006, the mergers and acquisitions of tech companies once again took center stage in the mainstream media. Even if the number of technology initial public offerings (IPOs) has not reached the frenzy of the late 1990s, the amount of venture capital infused into web technologies—and especially those dubbed Web 2.0 technologies—has increased almost to 20th century bubble levels. In fact, there are warnings of another bubble/burst cycle, but for now digital media technologies have regained VC mindshare, with a video-based web moving to top of mind.

No Surprise?
The level of activity really shouldn’t come as a surprise, for four reasons. First, even as the bubble burst in 2000 and investors came to grips with former Federal Reserve chairman Alan Greenspan’s "irrational exuberance," many industry veterans were predicting the bubble was more of a pause than an invalidation of the advances the web had made into the lives of early adopters and mainstream users. In the last five years, the web has continued to grow in importance, to the extent that many consumers across the globe turn to the web as their primary form of information and entertainment.

Second, the engineers who were laboring diligently behind the curtain in the late 1990s while hucksters hawked their alpha or beta wares as ready for primetime have continued to plod along with consistent advances to the point that the products hit mature, releasable status in late 2005 and early 2006. This was perhaps the driver that led to continued adoption and set the stage for 2006 and 2007.

Third, the demographic turn to the web as an increasingly deep source of information and entertainment has forced traditional advertisers to readjust ad budgets to include an ever-increasing emphasis on online campaigns. There are even glimpses of online taking the lead over traditional media, from simple displays like The Drudge Report breaking stories 12–18 hours before the mainstream media to Rocketboom’s Amanda Congdon being UnBoomed—and then landing a job as an ABC television correspondent—and Google’s implementation of aggregated ad purchases in magazines and newspapers across the United States, passing its bulk-buying savings on to key online advertisers.

Fourth, the public sector has been forced to reconsider the dual roles of taxation and delivery of services, as online purchases have both driven local tax revenues down, forcing the need to deliver services in a more cost-effective manner, which the web also allows. The shift has been subtle but is finally breaking into the mainstream, to the extent that in 2006 South Carolina became the first state in the United States to offer a tax holiday on Black Friday, the day after Thanksgiving, in an attempt to help local brick-and-mortar merchants offset the brunt of Cyber Monday, which occurs three days later.

With these developments, then, it’s no surprise that 2006 brought big changes to the digital media landscape. Let’s take a look at some of the better-known mergers, acquisitions, public offerings, and private fundings from 2006, including what’s working, what needs help, and—very briefly—what to expect in 2007.

Google Acquires YouTube
This acquisition—estimated at $1.65 billion in stock at the time of announcement but probably worth significantly more at time of closure as Google cleared $500 per share in late November 2006—was the mainstream media’s wake-up call to the fact that Web 2.0 technologies are storming the financial market ramparts. YouTube, started in 2005 ostensibly as a way to share one of the co-founder’s videos online and jumpstarted with funding from young millionaires whose fortunes were created in the last bubble, rode a triple wave: greater consumer broadband penetration, a bump in Flash Video quality, and the new buzzword "social networking." In YouTube’s case, social networking is a way to recommend and rate other users’ content, with daily views of particularly popular videos well into six digits, and in some cases reaching close to one million views per day.

While many publications—including StreamingMedia.com—questioned the efficacy of YouTube’s business model as the number of videos viewed and uploaded rose dramatically in early 2006, the company was able to sustain itself on venture funding until users swelled to a point at which YouTube could begin implementing online advertising models. But the company didn’t make it that far before it attracted the attention of Google.

Google had dominated textual search and refined online contextual advertising to a science, posting significant revenues as offline advertisers moved online, but Google also famously stumbled as it approached rich media. Throughout late 2005 and 2006, I frequently ran into Google employees scouring trade shows like NAB, IBC, and Streaming Media East and West in search of online video distribution companies.

YouTube offered Google a significant consumer customer base: the majority of its customers shared many of the same user traits as Google’s core users; beyond the general consumer, though, YouTube had also attracted the attention of leading-edge public relations teams who were looking for a way to move beyond blogs and into more visible online campaigns. The customer base also included the occasional disgruntled company or politician who posted raw interview footage when they felt their mainstream interview had been edited to twist their meaning.