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DEV – Why Here, Why Now

Today we officially opened the doors of DEV (Digital Entertainment Ventures). Given all the disruption in one of New York’s core industries, media and entertainment, and the continued focus on Silicon Valley as the place for new ideas, our move begs the question, “Why here? and Why now?” Because with great disruption comes great opportunity and New York, the city of reinvention, is leading the way.

It is difficult to overstate the radical transformation that is underway in the entertainment and media industries.  Music, film, TV, videogames, newspapers and magazines have all been profoundly affected by the explosion of new devices that enable the consumption of digital media. 

In the music industry, a generation has grown up acquiring and listening to music through digital downloads and streaming as CD sales rapidly declined.  Record companies long struggled to respond but have finally loosened the reins on licensing.  This has unleashed a new wave of innovative music services.

Last year Nielsen reported the first decline in TV homes in 20 years, and pay TV subscribers flattened as some consumers scaled back. At the same time, online availability of professionally produced content has increased dramatically. Mobile devices and Internet-enabled TVs that can stream video will support big winners in a new digital video ecosystem.

Video games have been one of the highest growth segments in entertainment with major titles tied to gaming consoles such as Playstation and Xbox.  That has changed now that mobile devices are portable game consoles.  New game studios such as Rovio (Angry Birds), GluMobile (Gun Bros.) and Zynga (Farmville) have emerged as major players.  Many more winners will surface by innovating game design and promotion for these platforms.

DVD sales, historically the most profitable segment of the film industry, have begun a downward slide that looks a lot like the decline in CD sales that preceded it.  Online streaming has struck a chord with consumers after years of indifference to cable pay-per-view offers, and services like Netflix and Hulu have attracted market and mind share with significant upside ahead.

Newspapers, magazines and book sales have declined across the board and in some cases physical versions have disappeared entirely.  Online publishers like the Huffington Post have rushed to fill the vacuum left behind. eReaders, tablets, and handsets are redefining the print experience and igniting new businesses.

Social media has become pervasive and has altered how consumers discover and enjoy entertainment.  It is the common thread that runs through the digital media user experience and the most efficient way for content providers to market to a large audience in a personalized manner.

We are in a period of concentrated change and innovation, a period that New York City and DEV stand to play a strong role in.  

New Media Investing Landscape

The Price Waterhouse Coopers Global Entertainment and Media Outlook report forecasts that U.S. digital industry revenue will cross the $100 billion mark on a gross basis this year and that nearly 60 percent of the worldwide industry growth over the next five years will be driven by digital products and services.  Over the next five years, PWC predicts that worldwide entertainment and media spending will grow at a compound annual rate of 5.7 percent from a projected $1.4 trillion in 2010 to $1.9 trillion in 2015.

Angel and VC funds are the force behind the companies driving this transformation.  In 2010 alone, angel investments in the US exceeded $20 billion and VCs clocked in slightly higher at $22 billion.  These investors are betting on the next generation of innovative companies, some of which will become household names in years to come.  And active investors with domain expertise can benefit these young companies in significant ways  — a recent study by the Harvard Business School Angels concluded that companies that receive early stage funding have a 30 to 50 percent improvement in web traffic and web site rankings, compared to similar ventures without such funding. 

Moreover, New York City, the reigning media capital, is spawning a number of successful start-ups that are displacing traditional media and entertainment companies.  Long time media executive Paul Vidich first talked about this trend two years ago in his excellent article, “Media-related Venture Activity is in Bloom in NYC.” According to Paul, over $100 billion per year in revenue from traditional media companies is vulnerable to smart web solutions. 

Ironically these same enterprises are helping to fuel start-up activity.  Employees from traditional media now complement the growing concentration of engineers, designers and programmers clustered in lower Manhattan and Brooklyn. Television, film, music and publishing companies spent $3 billion from 2007-2009 to acquire early stage companies. 

The gap between early, expansion and late stage ventures has narrowed considerably in the last ten years.  A one to two million dollar investment can take a company significantly further towards an exit due to much lower capital and operating costs entry for technology-based businesses. Storage, streaming and download delivery, and hosting have moved into the cloud with pay-as-you-go models.  Advanced software tools for other core business functions reduce internal development costs.  And an unprecedented talent pool is available globally for every skillset.  Early stage businesses can manage this workforce through virtual offices connected by mobile communication and video conferencing.

The DEV Advantage

DEV is focusing on early stage digital media companies in the New York region to take full advantage of the expertise of our principals and advisors, capitalize on synergies between portfolio companies, and provide frequent counsel to founders and managers.  DEV companies will develop new products in digital media and entertainment, encompassing music, publishing, TV/film, games and the social media applications that help to create their audiences.  Each company will have a significant presence in New York City, which has emerged as a major player in new media innovation. 

-Alan McGlade

Managing Director, DEV

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