VentureBeat

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

Today 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.)

Anyone 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.

updated

Plenty is being written about the woes of podcast company Podtech.

Now the company tells us it is taking on more debt, and will be making an announcement soon. This follows a recent $2 million round of fresh capital reported last week.

Podtech, a San Mateo, Calif. launched more than a year ago to create content that could be streamed to viewers, and planned to find advertising to insert inside of the content.

It was never clear what the business model was. The whole point about the new Web is that it is so cheap. You don’t need millions to produce content, or to distribute it — and yet Podtech initially raised $5 million to do so. we’re not surprised the company is now struggling.

Podtech, of course, is far from alone. Another company, Podshow, has raised close to $24 million. A wave of video content creation companies have subsequently launched this year. You’ve seen us become increasingly skeptical about the latest video companies, which continue to get millions of dollars of venture capital in backing.

Without a clear way to make money, Podtech is just the first of what will be many finding themselves backed into a corner. Perhaps that’s why Podtech’s public behavior has become odd. Techcrunch recently wrote a post, noting a change in strategy by Podtech to aggregate videos produced by others and to seek to find advertising for it all — using its own video player technology for distribution. Techcrunch was first to note the company had raised an extra $2 million from its existing investors U.S. Venture Partners and Venrock.

Yet several weeks ago, we’d actually heard about this funding from a source, and contacted the company for comment. Podtech’s PR person Valerie Cunningham said an announcement was pending, and suggested we talk with CEO John Furrier. However, Furrier proceeded to contradict Cunningham and said no money was being raised. He said a new round was being raised in fall. (See our resulting story, where we also wrote about Podtech’s new distribution strategy and its relationship with National Banana and RockinCat.)

Imagine our surprise when it it was later revealed that the internal funding had indeed happened. Furrier apologized last week for his evasiveness, explaining that he’d been in the process of raising a round (what he should have done was simply say “no comment”). Now he tells us the company is in the process of raising new debt, too, and will soon issue a press release about that.

There’s no point heaping more criticism on Furrier and Podtech at this point, because they’re under pressure and knowing the people working there, they mean well.

However, the company continues with a cloudy notion of where it is headed. Furrier’s post Friday describing the company’s “focus,” is anything but focused. Here is what he said:

7. focus of the company: 1) editorial content, 2) develop media franchises through signing (aggregation) of professional producers and in house development (our studio), 3) continue to be the leader in social media for our clients, 4) innovate on the social media ad models that we are developing, and 5) media technology platform

Unlike Techcrunch, we see little hope for Podtech going forward. It is neither focused on unbiased content creation, nor on developing an advertising platform to distribute video. If it is to survive, it must pick one or the other.

Another company, Odeo realized something similar, and actually gave its money back to its investors and took a different tack (we pointed to founder Evan Williams’ public confession about the matter here).

Podtech’s original model would have worked had it not taken venture capital. There’s plenty of business to be made producing marketing pitches for large companies, which it appears to have done with clients like Seagate and Intel. This is work that advertising/marketing agencies do, but there are plenty of these agencies, and you don’t need to be venture backed to do this. Podtech could have filled a niche in that industry, but now has taken too much capital to settle for this.

Meanwhile, how does it justify pumping $500,000 into special shows only to lose their anchors?

We should note that the whole relationship between Podtech, U.S Venture Partners and other portfolio companies is convoluted. In National Banana, US Venture Partners’ Steve Krausz invested in a company run by the husband of his sister. That company is now apparently distributing content through Podtech. Krausz told us his only experience investing in a media company prior to this was Palladium, a video game company that produced parodies on popular games (such as Pyst, in a parody of Myst) back during the late 1990s. The company struggled for some time. Krausz told us the company was sold for a small profit, but another source suggests it was sold at a loss. We’re checking public filings to verify. [Update: Here's what we've found. At time of sale, the deal was essentially breakeven to tiny profit, technically justifying Krausz' use of the term "profit." However, by the time U.S. Venture Partner's investors got the stock, many of them realized losses on it.]

But National Banana, with backing of $1 million, is run by Anthony Bettencourt, a former Entrepreneur in Residence at USVP who also has no media experience. Krausz says the project is an experiment, and worth doing given the huge changes going on in the media world. That’s fair enough. But if you want to do that, you should have a clear strategy about how to do so.

This video-content sector is getting silly, not just because it’s overcrowded.

Last week, we wrote about National Banana, a somewhat mediocre Santa Monica-based video site, where Hollywood producer Jerry Zucker, creator of Airplane! and Naked Gun, is leading the company’s production. The company received $1 million from a Silicon Valley venture firm, U.S. Venture Partners.

We’ve since been informed of another connection. Turns out, Steve Krausz, who led the investment, is Zucker’s brother in law (Krausz’ sister is Zucker’s wife.) We contacted Krausz about the unusual relationship, but he said he’d passed the investment by his firm’s limited partners for approval.

We plan to talk with Krausz more next week when he gets back from travel, but here’s what he said in response to our inquiry about the relationship thing:

The goal of the company is to create great professional comedic content for the web and other new media distribution vehicles. Jerry’s involvement is as a terrific creative resource who sees the promise of the new media allowing a mass distribution vehicle for professional content. He carries the title of Chief Creative Officer. He is very excited, but I assure you the business of the company will be the responsibility of a broad, experienced management team that will be built like any other VC backed company.

We would like to keep our precise business strategy a bit quiet for now, as you can see from the beta launch site which is more about trialing a bit of content then “final form and function”. So far we are getting excellent feedback on the early content and we expect more professional creative talent to participate in National Banana in the future.

National Banana CEO is Anthony Bettencourt, who formerly worked at US Venture Partners. He declined to comment.

Of course, none of this should be a surprise. Where can VCs turn to invest, if not to the people they know best? It happens all the time. Sequoia’s Mark Kvamme listened to his son when making the investment in Will Ferrell’s Funny or Die (scroll down), a competitor of National Banana.

And this fusion of tech investors and Hollywood is bringing all sorts of people together. Yesterday, we wrote about the bizarre relationships at a new Hollywood company called Film Department. A screenwriter with a script about Mideast politics says it got cut because of Mideast politics within the company’s board. The company, on the other hand, says the script was not seriously considered in the first place — and was cut because it was simply no good (more from the company, soon). Sequoia’s Michael Goguen , by the way, is also an investor in Film Department, although not on the board.

Should we change our name to Hollywood Reporter?

Silicon Valley’s venture capitalists continue to pump money into new video companies, even though there are hundreds, if not thousands, of video sites already out there.

The latest include National Banana, a site that produces serial comedy videos, and RockinCat, music videos from the Sunset Strip.

National Banana’s videos are produced by Hollywood’s Jerry Zucker, known for satirical movies “Airplane” and “Naked Gun.” Like Revision3, another video company, National Banana is bringing its comedy in episodes.

You might call it a poor man’s version of that other comedy video company, Funny or Die, featuring Will Ferrell, and which had a hit debut. Funny or Die received an undisclosed amount of backing from Sequoia Capital, an big-swinging venture capital firm (the same firm backed Google, Yahoo among others). So now, other venture firms want to follow. National Banana has received more than $1 million from venture firm US Venture Partners.

We tried reaching Steve Krausz, the USVP partner who sites on the company’s board. But he was taking a well deserved break — the man sits on somewhere between 13 and 23 board seats. He won’t be back until next week.

It’s hard to see how such efforts will become major companies, given that so many other video sites already exist. National Banana features the usual adolescent fare that is bound to appeal to the masses — such as this video about a hidden breast cam or a spoof of Girls Gone Wild (click on image at left).

It is run by Anthony Bettencourt, an “Entrepreneur in Residence” at USVP. He declined to provide more specifics on the site. USVP is also an investor in PodTech, a San Mateo company that makes business related videos. Podtech announced that National Banana is using Podtech’s player for displaying content on the National Banana site.

RockinCat, meanwhile, will be announced next week. It has received an undisclosed amount of seed funding from Silicon Valley individuals to produce a music network. It will be launched by Slim Jim Phantom, drummer for The Stray Cats, and owner of the Cat Club, on the Sunset Strip. It will produce the videos from a studio on the Strip.

RockinCat will also use the Podtech video player on its site. Podtech will furnish ads from its network of 43 advertisers to both National Banana and RockinCat, in return for a share of the revenue. Podtech will also put their content on sites such as YouTube. So Podtech seems poised to profit from this proliferation of video sites — and looks to expand from business video creation to more general video distribution with help from its advertising network.

Podtech has 38 employees and another 15 consultants chief executive John Furrier.

He said Podtech is on track to be cash-flow positive by the end of the year. Podtech plans to raise a second round of capital in the fall, he said.

Video, of course, is hot worldwide. Brad Greenspan, the former chief executive of Intermix, the company that spawned MySpace.com, launched BroadWebAsia, and wants to use it to investment in a Chinese video platform. The company has invested in two Chinese video sites, Mofile.com and Hubotv.com, which reportedly together reach more than 48 million unique visitors per month. He wants to reach more than 100 million generating 1.5 billion page views within two years.