Investors still backing video and music creators — looks like a bubble

Venture money continues to flow into video and music content creators, at prolific rates.

redredwine.bmpToday there’s news from London that a London investment group, Ingenious Media, has raised $79 million to invest in media deals, including to finance comeback albums from past-their-prime rock bands. (Last month, it signed UB40, a reggae band that had a No. 1 hit in 1988 with the song “Red Red Wine.” Picture of the band is at left, courtesy WSJ.) The firm plans to make money from distribution and events. (The WSJ has the story here, and there’s a related deal announcement.)

nationalbanana2.jpgAnyone can produce video and music, and there are multiple, cheap tools to make it look or sound professional, and there’s no cost to distribution (over the Internet). This puts the big media brands are under pressure, because there’s nothing stopping young, hungry talent from creating their own content on the cheap. Why do investors want to back new media companies, when they have no permanent way to distinguish themselves?

More may be on the way. We’re hearing Draper Fisher Jurvetson, a Silicon Valley venture firm, is raising a media fund, to be based in Los Angeles, though we’re not certain what sort of deals the firm is focused on. Partner Raj Atluru declined to comment.

VentureBeat recently ran pieces about Silicon Valley venture firm US Venture Partners’ backing of companies like Podtech and National Banana (here and here) — both content creation sites struggling for distinction. National Banana, a comedy site, is still a young company. It is led in part by Hollywood producer Jerry Zucker, known for older satirical movies such “Airplane.” Why invest in Zucker, who came into his prime during a different age and medium?

Yesterday we caught up with investor USVP’s Steve Krausz, who led the investment in National Banana. His thesis, in short: Last year, we saw the rise of user-generated production of online video. This year, we’re seeing a move by professionals to the online world. VentureBeat’s conversation with Krausz is in the audio file below. Near the end, we ask him about Funny or Die, another comedy site, backed by Sequoia Capital. Unfortunately, the recording cuts off after 8 minutes, around the time we were asking Krausz about lessons learned a decade ago when he backed Palladium, another content creation company which didn’t make any money. Now, like then, the market can quickly fill with competitors, he said — which is the main risk. But the bet is that the skill needed to create compelling comedy is still scarce enough that a company like National Banana has a chance to succeed.