The Ripple Effects Of 5Min's Exit To AOL

by , Sep 26, 2011, 2:15 PM
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This week marks the one-year anniversary of AOL's acquisition of 5Min for $65 million.  The purchase was a big deal because it marked the first large acquisition in online video since Google's $1.65 billion acquisition of YouTube.  The divergent purchase figures capture not only the different sizes of the companies but also the frustration that investors have faced in online video despite lofty expectations and frothy forecasts over the past five years.

When 5Min launched, it aimed to aggregate user-generated, 5-minute how-to videos to build a destination.  Over time, it shied away from UGC and embraced aggregation of "premium" content (that's when my company's relationship with 5Min started.) 5Min not only shied away from UGC, but also never attempted to license "super-premium" content from Hollywood studios and networks.  Indeed, when CEO Ran Harnevo praised evergreen videos he was describing not just our type of content but the hundreds of thousands of videos that the company ended up licensing via partnerships with E!, IGN, CNET and many others.

Instead of limiting itself to its own 5Min.com own-and-operated destination, the Israeli-based company then focused on syndicating the videos it was licensing to a wide array of targeted publishers; like Roo before it, and Grab and Clip Syndicate concurrently.  5Min then set up an office in New York and began to add both content providers and distribution partners.

Before anyone else noticed, by January 2010, "little 5Min" was a comScore top 10 property.  At the time, Harnevo described his brainchild as a Google AdSense for videos. As a content provider who kept tabs on 5Min's growth, I could not help but agree that 5Min's approach of surveying a webpage to determine its content to then load a pertinent video was reminiscent of Google's cash cow.

By then, rumors started to pop up about an impending 5Min sale, for hundreds of millions of dollars.

If 5Min were to become the AdSense of video, then the sky was the limit.

But by September 2010, 5Min had accepted an offer from AOL and sold for $65 million after investors including Spark Capital had poured $13 million in the company.  I won't share too many details of the process, but I will share two tidbits:

First, I always thought 5Min's Harnevo was very much in tune with the limitations of UGC, and seemed like a humble and modest executive. Considering that the other CEOs AOL bought include Arianna Huffington and Michael Arrington, Harnevo has proven to be a class act since the deal.

I also recall when I was in AOL's office in the summer of 2010 discussing our own distribution deal with AOL.  When our meeting was over, my counterpart at AOL asked me: "What do you think of 5Min?"

Without having thought about it much beforehand, I replied: "I love the 5Min guys; I think they have executed really well.  If you're looking to partner with them, it might be hard because 5Min uses its own player. So if you wanted to do some kind of deal with them to get access to their content rights and distribution network, you would have to buy them."

I honestly didn't think much about it then, and I am in no way suggesting that anything I said had a material impact on AOL's decision to buy 5Min, but when it was said and done, AOL moved ahead a few months later and bought 5Min.

Since the Sale to 5Min

Within a week or two, things changed. 

Before the sale, every time 5Min was in the news, I would blog about our partnership and after the deal was announced, before long, our phone wouldn't stop ringing: it was either an "ad network or media company" who was intrigued by the validation of 5Min's exit to AOL and sought to duplicate it. 

Since then, we have signed a plethora of deals with companies who are seeking to emulate 5Min's model.  We have also tightened our partnership with 5Min and AOL and don't see any reason why that would change.

However, what is interesting to me is that 5Min sold for $65 million, a far cry from YouTube's $1.65 billion.  As a content producer, it would be nice for said "ad networks and media companies" to not content themselves to merely duplicate 5Min's mode,l but to take it to the next level to build the $650 million exit. 

It's important to state that if any one of our partners among"ad networks and media companies" are reading this and wondering: "Is Ash talking about us?" the answer is "no."  I am not talking about any single one company -- but admittedly, the entire litany of players who are out there trying to out-5Min 5Min.

The way to build the $650M exit seems blatantly clear to me, and perhaps is something I'll cover in a subsequent article.

0 comments on "The Ripple Effects Of 5Min's Exit To AOL".

  1. R.J. Lewis from e-Healthcare Solutions, LLC
    commented on: September 26, 2011 at 3:40 p.m.

    Ash,

    I agree on all fronts. Ran and the guys over at 5min are great guys. It's nice to hear the company hasn't been squashed under the weight of AOL as so many other acquisitions have. What surprised me about this deal was the timing. Spark Capital, generally isn't looking to make 2X on a multi-year investment, but is generally looking to hit home runs (they are also an investor in Twitter).

    My question to you, is why didn't they stay the course and focus on becoming the $650 million exit? Why did they sell out when they did? They were leading in the video syndication space, and seemed to have running room. Why a year ago, and why AOL?

  2. Ashkan Karbasfrooshan from watchmojo.com
    commented on: September 26, 2011 at 4:02 p.m.

    hey RJ,

    Well, that is a question you should ask Ran.

    Generally speaking as an entrepreneur in the same broad video space but in a very different sphere (content production), I would personally not sell if I had a bunch of VCs behind me because over time content is king and becomes quite defensible.

    But if I were running an online video company that was
    1) aggregating content, and then
    2) distributing it on third-party properties,

    the reality is that this is a very risky thing on the 2 levels outlined.

    After all, ROO was doing this before; ClipSyndicate and Grab were doing this at the same time. Who knew if one of those could not steal 5Min's momentum.

    Heck, what if GooTube decided to become a B2B brand and took on 5Min head-on?

    Not sure if any of this led to their decision but that is what would worry me, I suppose.

    My first boss once told me: you never know how you will react until someone puts a pile of cash in front of you. Lastly, unless we know one's personal situation it's just impossible to guess.

    In the end, props to the 5Min team and backers for a successful exit.

  3. Steven Comfort from Namo Media
    commented on: September 26, 2011 at 4:23 p.m.

    I have two unrelated comments that might lend some color to your article:

    1) Google's enterprise valuation rose more than $1.65B within three days of the announcement of the YouTube acquisition.

    2) Unless a company has a #1 position in the market (YouTube) or an *extremely* rare and valuable technology, the only way to get an multi-hundred million dollar exit is by showing nine-figure revenue, decent profitability, and a clearly lit path for future growth. If you agree with this premise -- then the list of companies in this category shrinks to ~ five: Tremor, YuMe, Specific, Collective and BrightRoll.

    Many will argue that Specific and Collective do not belong on the list (yet).

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