Why sevenload might actually be worth the money

German no-more-startup sevenload – a media sharing portal with a strong focus on quality content (as opposed to fuzzy-shaky UGC clip overlord YouTube) – just received massive VC funding from T-Online Venture Fund. Handelsblatt reports, the overall investment to be 25 Million Euro, 15 Million of which come from the Deutsche Telekom VC. That’s not only a massive investment in a site that so far has its main following in Germany (14 Mill. visits, 100 Mill. PIs, sevenload figures), it’s a big deal for the entire online video market overall. Compare Veoh (21.5 Mill. UUs/month, $26 Million), Vuze (ex-Azureus, 1.5 Million users any given time, $34 Mill. in total), oh, and Google’s megalomaniac YouTube deal of course.

What’s the money for, you ask? Growth of course! International expansion, too, it seems, which again, is a big deal for a Germany-based Web2.0y start-up. Few have been successful in their ventures beyond Germanic borders so far, local rating site Qype is one and the business network XING (both from Hamburg). Going public, as we learn, is also an option for sevenload. That would make them the second German Web 2.0 startup to make that leap, after XING made their IPO in 2007.

So there’s big money in this. And bloggers and media alike are asking “Is it worth the valuation? How will they ever make money?”. Very rightly so! While the scepticists may compare sevenload to YouTube because of its UGC heritage and don’t see advertisers spending big bucks in such an environment, others may look at the quality content approach they’ve embraced. sevenload features a number of channels that aggregate professional (broadcast) and self-(co-)produced content and gives visitors to the site some guidance as what to watch. While there is a lot more German language content than English content on the site at the moment, the fresh funds may help convince content owners to trust in the longevity of sevenload’s existence and license more material.

As always, content is key, but at the same time, there’s the usual hen-and-egg problem. No content, no users, no ad money, no content. VCs can help with the no money part to some extent, though. But this is something all video sites are struggling with and you can’t blame them for content owners (often traditional broadcasters and affiliated production companies) and independent producers being slow to understand the potential that’s in the web for them.

It’s a very long shot to try and replicate linear broadcast TV on the web, but without the linear. As long as broadcasters, public and private haven’t understood that the Web is their only road to survival on the long run, trying to bring “old” TV to the web is doomed. See Joost’s glorious failure in the fragmented European market. See Zattoo’s niche existence with IP-filters limiting access to content from neighbouring countries.

The opportunity lies, as often these days, in the long tail of content. Vuze (disclosure: my client at Hotwire) are taking that route by focusing on licensing the wealth of niche content that simply would never fit on TV, because a) there are not enough channels and more importantly b) because the web offers so much better ways to non-linearly discover new content. While Vuze technically is a P2P BitTorrent client and saves infrastructure dollars that way, sevenload could be the web-based equivalent. Their newly developed player is actually good quality and their social features (think discovery of new exciting content!) are way beyond what Vuze have just introduced in their latest release. Not because Vuze didn’t know better, but through sevenload’s social media DNA.

And the advertisers? Well, they know display ads on websites – and are struggling with the low conversion rates. sevenload claim to have high CPMs (up to 20 Euro), Vuze are playing the “immersive viewer experience” card that should lure classic pre-roll ad spend to the platform. The key question for advertisers remains how these online services can help target customers better than traditional TV ads. Do we know? No. Not yet. But as more and more significant portions of the total advertising budgets move online and users, especially those young folk who have already left linear TV for good, embrace new platforms and new ways of discovering cool stuff, on whatever technical basis, we will find out.

sevenload’s latest financing coup is T-Online Venture Fund’s bet on the future of quality video. In German, venture capital is called “Risikokapital” – risk capital – and that’s what this deal is all about. Taking the risk of failing big time, with the opportunity of shaping the future of a yet to be defined new medium. With great profits. Someday. Bottom line, it’s a great move and great news for the German start-up scene.

By the way…
…word about the investment made its rounds in the blogs a full day before the official announcement. So whenever you talk to peers in the industry at an event (as apparently happened at Supernova), either don’t say anything, or be prepared to announce simultaneously.

Update: Also read my post about sevenload’s communications during their relaunch in March this year.