Metacafe Inc. was founded three years ago at the height of the recession, so to speak. The company has developed a technology that has institutionalized a custom that has become popular in recent years - circulating brief video clips, both humorous and frightening, among friends and colleagues. Metacafe runs a site which is an online community that shares video files. Its technology, which also offers software for downloading, enables users to filter and rate new content thanks to its own screening engine. Metacafe sees itself as a competitor for services offered by other companies in the field, among them Google Video, EFILM, and You Tube.
Metacafe was founded by three entrepreneurs, Eyal Hertzog, who came up with the original concept, IncrediMail Ltd. (Nasdaq:MAIL) co-founder Ofer Adler, and CEO Arik Czerniak. The company has raised a total of $19 million to date from private and angel investors, as well as venture capital funds Benchmark Capital, and Accel Partners.
“People think this is a form of amusement and do not understand that this is an entirely new field of entertainment,” says Czerniak. “Up till now there was cinema and television - now we have film clips of no more than two minutes in length. This is a new generation of web-based, and eventually also cellular-based, entertainment consumption, and we will supply the content. A year ago our site had one and half million page views per day; now we have 450 page views per day. We are one of the hundred most viewed web sites in the world.”
Czerniak says that the new entertainment can be found everywhere. “In the past there was a division between work time and rest and entertainment time. Today, the borders between the two have become blurred. People talk on the phone while at work or studying, and take a break by browsing new sites or their favorite blog, and have now begun to view video clips too. It’s quite contagious. More than 100 million people consume such content every day.
“The industry itself, however, can’t keep up with the number of users. There are no successful business models to support the trend. When people download a ringtone, for example, they have to pay for it. Had there been a revenue model for ours services, we would have tens of millions of dollars, if not more.”
Czerniak believes that the Metacafe will be one of the first companies to try to and crack the code and earn money, and a lot of it, without asking users to pay. According to him, the difference between Metacafe’s service and that of the competitors, Google, and You Tube, is its ability to screen and rate and content.
Globes: So what exactly is your business model?
Czerniak: “Metacafe will own the rights. We are not interested in films that no one wants to watch. We may have fewer films than the competitors, but they will be of a better quality. We believe that because we know how to separate gold from sand, we will be able to make money.”
Could you explain how
“We will shortly begin the process of licensing content and we will then remunerate the content’s creators. We will own the distribution rights. Advertising companies will find it easier to advertise when the content is registered and has a distribution license. This will also apply to the cellular companies. Creative and leading artists will be well remunerated, and they will able to earn tens of thousands of dollars on films that are a success. We’ll be there to earn from the rights - first on the Internet and then on cellular handsets. It will begin like eBay did; at the beginning, privately owned equipment was sold on the site and now the big companies are selling there.”
How did you start?
“Eyal Hertzog had been mulling over the idea for some years as far back as 1999. Although the bubble was at its peak, I am sure that it wasn’t a good time to set up the company back then. Eyal had a collection of funny clips and he believed that something interesting could be done with them. Apparently he was right. In 2003 he began to gather a team and form the company.”
And how did you join?
“When I was doing my military service I had a blog. Ofer read it and got in touch with me. I am a graduate of the Talpiot program and a combat pilot, and I am currently an instructor at the Air Force flying school. I joined Eyal because I believed in the idea.”
Was it not difficult to form a company in 2003?
“It’s true that raising money was hard but it was easy to recruit good programmers. We started off in an apartment that Eyal rented in Neve Zedek, and then moved to the cellar in my grandmother’s house in Herzilya Pituah. We are now in a loft on Schocken Street, and we will soon be moving to offices in the Shalom Towers.”
Ofer Adler joined after it transpired that he had a similar idea, and Metacafe began to develop its application with the capital it raised from friends and angel investors. According to Czerniak, they preferred not to raise capital from venture capital funds at that stage.
Why not?
“When you work with a fund, it automatically raises the expectations from the company and takes the operation in a different direction. Later, we met Arad Naveh of Benchmark Ventures and decided it would be good for us to work with him. Looking back, this was the best decision we made. We received a substantial boost.”
On the other hand, you had to concede a share in the company
“The important thing is to have a chance of succeeding and it is difficult to set up a up a successful venture today without the help of a venture capital fund. If you choose the right fund, it brings a lot more than just money. The funds we work with bring managerial experience, industry contacts and a connection with the US.”
Where will the company be one year on?
“The goal is to be perceived as a company that remunerates creators. We are opening an office in the US, and face the challenge of handling a mass of surfer traffic and competing with big names such as Google and You Tube, which is the hottest start-up at present. The expectations of us are high and our targets are aggressive. We are building the company on a long-term basis, and we are not looking for someone to buy us. We are not a bubble company and we are not offering a service for free. We have a business model and we hope that it will work within the coming year.”
Published by Globes [online], Israel business news - www.globes.co.il - on September 20, 2006
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