The 1M1M Deal Radar 2010: Cheezburger Network ,Seattle

Cheezburger Networks is one the largest humor networks in the world. The company has more than 50 humor sites, including I Can Has Cheezburger?, FAIL Blog, Failbook, Oddly Specific, Failbook, Pundit Kitchen, ROFLrazzi, and There, I Fixed It. It also publishes books and sells t-shirts through its LOL Mart. The company specializes in Internet memes – jokes, gags, or ideas that appear on the Internet and spread rapidly from person to person.

The Seattle-based company was founded in 2007 by Ben Huh, who is a journalist turned entrepreneur. He started a pet news blog with his wife and then bought his first site for the network, I Can Has Cheezburger?, from Eric Nakagawa. Nakagawa had started the site, which featured photographs of cats with humorous captions in broken English written by users. As traffic continued to increase, Huh bought or launched more sites, such as Pundit Kitchen, where users add captions to photos of political leaders or current events.

The staff at Cheezburger Network scour the Internet, including sites such as YouTube, for photos and videos that they curate and include in the network’s sites. Users also submit content, more than 18,000 photos and videos every day. As Wired points out, many of the ideas themselves are not new: Long before Cheezburger’s Totally Looks Like, there was Spy magazine’s Separated At Birth? Before the FAIL Blog, there was “America’s Funniest Home Videos,” which has run for 21 seasons. Fans of National Lampoon and slapstick comedy will find the Cheezburger network familiar territory in many ways.

But the idea of commercializing memes is fairly new and the market size is difficult to assess. It’s a growing industry, says Tim Hwang, Internet culture observer and founder of the annual ROFLcon conference, where participants try to understand what makes memes work and where the industry is going. Huh also recognizes that the model is untested: “There’s no guideline or comparable from taking a cat photo site and turning it into a media empire,” he says. “Currently, we’re a media company, whose revenues are measured in terms of advertising dollars. However, we’re also in a far more dynamic environment with virtual goods, premium features, and services, merchandising, and licensing being added to the market mix. We look at Disney and see a comparable. Their revenues are north of $36 billion and reach from movies, toys, and theme parks to the Web.” The U.S. Department of Labor says that the average American household spent $2,698 on entertainment in 2009. According to Nielsen, the average household spends about 7.5% of its entertainment budget on online and mobile entertainment and 4.9% on video games (which includes hardware, games, and downloaded content).

The company would not disclose revenue figures, but according to Wired, investor documents show revenue of over $4 million in 2009. Cheezburger did say that it grew 300% from 2008 to 2009 and 6,000% from its first month of business. The company has been profitable since its first quarter of doing business. Sixty percent of revenue comes from advertising (a recent visit to the site showed ads from Shopify, Burberry, and TBS’s “Neighbors from Hell” series, among others) and 40% from licensing/publishing and merchandising. With the launch of its new line of Internet meme t-shirts and greeting cards, and five books published, two of which were on the New York Times Bestseller List, and another scheduled for October 2010, Cheezburger believes that this second part of its revenue stream will grow significantly.

Cheezburger Network is largely bootstrapped. Huh used $10,000 of his own money and took some seed financing from angel investors to buy I Can Has Cheezburger?, but otherwise funding has come from revenues. Huh says that he has spoken with several VC and PE firms in case the company does need more growth capital. The ideal investor is the kind that shares Cheezburger’s goal of “making everyone happy for five minutes a day” and has the long-term vision to ride out the ups and down while opening doors and opportunities.

Of the company’s overall growth strategy, Huh says, “We grow because we focus on the fundamentals. We don’t rely on SEO, or marketing tactics, or promotions. We rely on the core of what makes our communities what they are: user-centric, user-driven, user-marketed. We want to deliver on our promise to make them happy each day and we focus on sustainably scaling our model so that we reach our goals.”

The company has more than 16 million unique visitors, 340 million page views, and 110 million video views per month. The age demographic is typically 18–34, but Cheezburger says that its target is anyone looking for a quick laugh.

In addition to the advertisers mentioned above, Cheezburger network has many small and midsized businesses such as ModCloth, book publishers, and t-shirt vendors that come back and advertise month after month. Cheezburger said it has seen a large increase in the volume of ads bought by large national brands such as Walmart, Nike, Toyota, credit card companies, and so forth.

Huh says that there are no plans for an exit: “At this point, we’re just trying to give people their daily dose of laughter.”

Recommended Reading
Deal Radar 2009: EQAL
Deal Radar 2010: Brandissimo!
King of Cheez: The Internet’s Meme Maestro Turns Junk Into Gold (from Wired.com)

This segment is a part in the series : The 1M1M Deal Radar 2010