Video Advertising for the Long Tail: Behind Blinkx’s Acquisition of Burst Media

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access to larger sites, and that advertisers buying [on Burst] would have an audience that isn’t overlapping with the other networks.”

But the display ad market became commoditized nonetheless, and declining display advertising rates throughout the 2000s left Burst with very tight margins, Chandratillake says. “Even though they had a healthy gross margin, they just couldn’t cover their underlying costs, which meant they just kept missing profitability, usually by just 5 to 10 percent of their revenue,” he says. Which meant the company was getting beaten up by shareholders, especially through the recession. “Being a non-profitable business was a very difficult place to be on the AIM in 2008, 2009,” says Chandratillake.

“When we first came across [Burst] they were pretty unloved in the stock market,” he continues. “The share price was low, they were out of cash, and they weren’t able to raise any more money. But if you dug into what the business really was, it was pretty compelling.”

In particular, Chandratillake was impressed by the scale of the network Burst had built. Its 50 sites reach 130 million unique users and collectively make up the 36th largest media property on the Internet, according to comScore. “The number one biggest complaint video advertisers have about the Web is the lack of scale, and the fact that the audiences are still very small compared to TV,” says Chandratillake. “So we said, maybe we can take something like Burst, which has this fantastic, passionate audience that’s very engaged and doesn’t overlap with other websites, and if we can convert even a portion of those users to start watching videos and seeing video ads, then suddenly we get to massively increase the scale of the video advertising we can sell.”

So, does that mean Blinkx is morphing from a video search company into a vertical advertising platform like Glam Media or Say Media? Not exactly, Chandratillake says. “The acquisition does change parts of what Blinkx is, but it also leaves in place many parts of what Blinkx is,” he says.

For one thing, Blinkx’s core business of selling advertising on its own site is still growing rapidly—the company has been profitable since the second half of 2009, has a growing cash hoard (it paid for Burst mainly by issuing new stock), and expects to see a doubling of its ad revenue in 2011 to $66 million, up from about $34 million last year, he says. So consumers will still be able to visit and search the company’s index of 35 million hours of video from 800 content partners—the largest video catalog on the Web. But now Blinkx will also be able to offer publishers in Burst’s network the ability to serve videos related to their existing content, and to share in the higher advertising rates that video ads bring.

In fact, when it comes to serving contextually relevant videos, Chandratillake says Blinkx will have a leg up over competitors like Glam Media and Say Media. “They all have a video component but it’s not central to what they’ve done,” he says. “It’s all we’ve ever done at Blinkx. Whatever article you might be reading, I can almost guarantee you we will have a video on the same topic. No one else can do that.”

Of course, everything Chandratillake told me was theoretical up until just yesterday, when the acquisition was legally completed. Now Blinkx will need to … Next Page »

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Wade Roush is the producer and host of the podcast Soonish and a contributing editor at Xconomy. Follow @soonishpodcast

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