India has witnessed a tremendous growth in its media and entertainment business. In the past decade, we have seen the growth of billion dollar home grown media conglomerates like Network 18, Zee, UTV, Reliance ADA, Yash Raj, NDTV, Bennett & Coleman (Times of India), and Hindustan Times to name a few. At the same time the foreign players too have done extremely well, either directly like Star TV, or via investments and partnerships with local players. Today Disney, Viacom, Turner, Sony – you name it and they have a large presence in the Media and Entertainment business. When it comes to Television, Newspapers, Magazine, Sports, Movies, Theaters, DTH and entertaining over 700 million people in India, these companies rock.
However, the one area where none of these companies have been able to make a dent is the Internet and New Media space. Leaving a few exceptions in most cases, Internet and New Media ventures of these companies have been a complete disaster. And it’s not that these companies have been not spending enough money or time on the space. I think in aggregate, all the Indian media companies put together over the last 5 years would have invested between $300-$500 million in the space but the result is, we have an online advertising market dominated by Google (over 60% market share), the mobile operators are taking away majority of the moola when it comes to VAS revenue, e-commerce is dominated by players like Ebay, jobs is Naukri, matrimonial is Shaadi, gaming is Indiagames, VAS is Onmobile to name a few. There are tons of examples like Makemytrip, Cleartrip, Hungama, Sulekha, Justdial, Rajshri, Rediff , Smsgupshup, who have dominated their respective sectors even though they had to compete head-on with competition with large media companies who had companies in the same space, with high capital, technology and ‘quality people’.
I wonder if these big media companies will ever understand the real reason for this situation and continue to fund their internet ventures by replacing the CEO with an even more expensive CEO who will rubbish all the past strategies and invest another $20m in marketing and brand repositioning
Having interacted with a number of such companies here is my take:
Large Media Companies STRONGLY believe:
1. That they have the ability to create ICONIC brands with the help of their media power and it’s the BRAND which is everything.
2. By hiring somebody from Google, Microsoft, Rediff, Yahoo, Facebook, ebay, or Amazon, to head their business they can build a business equally successful as these companies.
3. By poaching an entire sales and creative team of a startup competitor by offering them triple the salary, they can overnight wipe out competition.
4. By investing millions of dollars on server farms, high end technology from Microsoft, Complex CMS and video solutions, Oracle, SAP they can have a super competitive edge over a startup competitor who is mostly using (cheap) open source software.
5. By offering something FREE over what a startup competitor is charging for they can kill competition.
6. By Exclusive content, movie stars, prizes, tickets and every possible incentive they can make customers switch to their brand.
7. Using their Television, News and other media vehicles they can create enough PR to create viral effect.
8. They have piles of cash and unlimited resources over a startup who is constantly scavenging for funds and resources. That startup will DIE someday on its own.
9. The value of these startups is very high because of the stupid VC investors in the company. Actually, these startups are worth a lot less and one day they will buy it for peanuts or hire the founders as their employees.
10. They can always sell Internet and Online inventories as a bundle with their Television and Print inventories.
11. ESOPS in their media companies are worth a lot more than STOCK in some arbitrary startup with no revenues and cash.
While the reality for Startup Internet and New Media ventures is the reverse:
1. Most startups were able to build brands with very little marketing spend but more on innovation and word of mouth on the strength of their product.
2. Founders and core teams of startups are driven by ‘PASSION’ and not just ‘MONEY’. Hiring a CEO with a $200k package and saying he is passionate is a joke. Most founders take huge salary cuts over their last jobs.
3. Being low on resources actually drives startup teams to deliver a lot more as they now have to go the same distance with lesser cash. In fact, having too much cash is not good for an early stage business
4. Open source solutions perform better, faster and have proven to be more stable than the expensive ones. A startup with no cash understands this and is forced to find the most cost effective solutions.
5. Having VC’s investors who look at investments very objectively is a boon to startups. As they are able to spend a lot of time mentoring the startups and at the same time if the startup is going nowhere they are unemotional about this and can ‘pull the plug’ anytime. This is a big motivation/scare for a startup team, which once again drives them to perform. Over a media company startup where irrespective of the ‘division’ making or not making business plan the media company can never really pull the plug…since there is a lot more at stake, including stock market expectations, face etc.
6. One of the worst things any startup can do is to hire some heavy hitter from a successful company like Google or Microsoft (unless he is willing to join at a huge discount to his salary with stock in the startup). The concept is simple when you are with Google, Facebook, Rediff and Microsoft you are not doing any selling at all. The product demand is created by the product itself, it is designed developed and managed by the masters in America and your role largely is to create fancy presentations, graphs, business plans, paperwork, strategy and keep the firang bosses happy. That is why these managers do very well at media companies since they can always create a great strategy document and why the last strategy they made did not work.
7. Startups are fast in responding to situations, changing course, modifying business models, modifying product and respond to customer situations. The corporate structures of most media companies make any major change an exercise for which they would require a board approval.
8. The hunger to win, the fire in the belly, aggressive, passion, dedication and terms you would normally associate with a startup how many times can you use these terms for a Media Company startup?
9. Finally, for a startup team there is a lot more at stake. It’s not a job they are doing… which a media company CEO and team can change 4 jobs in one year and no one will blink an eyelid.
So, if these are the facts, why do we still see more and more media companies pumping money in their Internet ventures verses investing in startups or acquire startup companies?
A lot of this I think can be attributed to the early stage our new media industry is in and slow development of the startup ecosystem in India. The good news is that media companies are owned and run by some very intelligent entrepreneurs themselves. I believe that in the next 18-24 months, many of these companies will have no option but to get into an active startup investment/acquisition mode as their counterparts in the west had to do. There had been many examples in the west where establish media companies made the same mistakes in the early 2000 and now we are seeing ventures like Hulu and their participation in early stage startup funds where they don’t want 51% stake in the company but operate like a strategic VC fund and at the right time happy to acquire the company. Sony, Cisco, Google, Microsoft, News Corp, Disney, Electronic Arts, Facebook, Time Warner and many others have largely got into new media ventures by aligning with successful startups.
Will this happen in India?
Vishal Gondal is the Founder and CEO of IndiaGames Ltd. and Partner @ Sweat & Blood Venture Group (SBVG). SBVG is a seed/early stage venture capital fund. SBVG backs extraordinary and passionate entrepreneurs and helps them win.