VMIX Views its Online Video Service as Silver Lining for Newspaper Industry
These are dark times for the newspaper business, which has been suffering from revenue erosion as classified ads, corporate recruiting, and other forms of advertising—not to mention readers—have moved to the Internet. You’d think that means the outlook also would be gloomy at San Diego-based VMIX, a venture-backed startup that provides Web-based software used primarily by media-owned websites to manage their video clips.
But the media world is full of contradictions. Even with its business focused primarily on newspapers, VMIX president and CEO Mike Glickenhaus tells me, “We’re still seeing steady, consistent growth.”
The reason VMIX has continued to grow—despite the recession and the decline of its newspaper customers—is that video is by far the fastest growing medium on the Internet, including newspaper websites. When I sat down recently with Glickenhaus and VMIX co-founder Greg Kostello, they told me they expect their revenue to grow by 70 percent this year—after growing by 170 percent in 2008. “We’re still not quite profitable,” Glickenhaus adds. “That’s probably still a quarter or two away.”
The outlook wasn’t always so optimistic. When Kostello started VMIX with co-founder Terry Ash in 2005, their idea was to create a website for video sharing and social networking. Their concept was an extension of what they had learned at MP3.com—one of San Diego’s biggest contributions to the dot-com phenomenon. Kostello, who was MP3.com’s executive vice president of technology, became president of Vivendi-Universal Net Technologies following Vivendi-Universal’s 2001 buyout of MP3.com. Ash, who was a senior vice president of advertising sales at MP3.com, also worked at Vivendi-Universal and Universal Music Group before VMIX.
“Even at MP3.com, we understood that video was going to happen, the bandwidth just wasn’t there,” Kostello recalls. Unfortunately, within a few months of getting their initial venture funding in 2005 ($5 million from San Diego’s Mission Ventures and Enterprise Partners Venture Capital), Kostello says the founders realized that YouTube, also founded in 2005, was going to take off in a big way.
VMIX continued to operate as a video-sharing site until the spring of 2008, when the company adopted a new strategy—serving media companies—and raised an additional $16.5 million in a second round of VC funding that included the existing investors and two new ones, JK&B Capital and ATA Ventures.
Kostello says that Glickenhaus, who joined VMIX in May 2008 with 27 years’ experience in radio and broadcast media, has served a key role in leading the shift toward providing Web-based software for uploading, storing, and managing video on customers’ websites. “What we offer is an end-to-end solution,” Glickenhaus says. “We help our customers upload it, transcode it to Flash [Adobe's Video Technology], publish it, stream it, manage it, and syndicate it.”
Glickenhaus adds, “That’s really important for most of the people we deal with. The staff at most radio and TV stations and newspapers is not technical.”
The San Diego company has moved aggressively over the past year in pursuit of its new strategy. In mid-2008, VMIX announced an expanded agreement with Akamai Technologies (NASDAQ: AKAM) to provide dynamic streaming, a deal that also secured Akamai as the primary content delivery network for VMIX’s video software as a service.
VMIX generates revenue primarily from license fees that customers pay to use its technology. The San Diego company counts a number of major newspaper publishers and media companies as customers, including the Tribune Co., McClatchy Co., Lee Enterprises, Minneapolis Star-Tribune, The San Diego Union-Tribune, Penguin Books, Lin Television, and Raycom Television. Today, VMIX has about 40 employees, and views its primary competitor as Brightcove, a Cambridge, MA, Internet TV service that Wade has frequently written about and that is used by several newspaper operations, including the New York Times and the Boston Globe.
And even though many newspapers seem imperiled, Glickenhaus voices confidence in the industry’s staying power, especially on the Internet. “We still see considerable upside, even on the advertising side,” Glickenhaus says. “There are better strategies down the road, in my opinion.”