Deal Radar 2008: Metacafe

Metacafe is a popular video sharing site where users can upload and view video clips. The company was founded by Eyal Hertzog and Arik Czerniak, with early funding from Ofer Adler, in July 2003 in Tel Aviv. In September 2006, the company moved its headquarters to Palo Alto, California and currently has offices in Tel Aviv and New York.

While in some ways Metacafe is similar to YouTube, it specializes in “short-form” entertainment. The average video on Metacafe is slightly over 90 seconds long and is aimed at people looking for small doses of entertainment during the day. The site features videos in categories like Animation, Humor, How To, and Entertainment. Its filtering algorithm, video rank, gauges audiences in order to feature videos that are highly entertaining. Metacafe also has a community reviewer panel in which volunteers review the videos submitted to the site.

But it is Metacafe’s Producer Rewards Program, launched in late 2006, that sets it apart. Under the Producer Rewards Program, the site pays the video creators $5 for every thousand views a video gets on the site. Payment starts when the video—if it does not violate the copyright laws—reaches 20,000 views and is rated 3.0 or higher by the users. The company distributed more than $1 million to its 550 contributors within the first year of the rewards program. The top 10 earners have earned over $20,000 and top earner Kipkay over $100,000 so far.

In July 2008, the site introduced PLYfx, a feature which allows users to personalize video clips. Users can add dialog bubbles, photos, webcam video, clip art, subtitles and save their work to become co-creators. They can also email the personalized clips to their friends. Last month the company also unveiled Wikicafe, a spin on video search, enables users to refine the metadata for Metacafe’s vast collection of videos.

In February 2007, Erick Hachenburg replaced co-founder Arik Czerniak as CEO. Czernaik stayed on the board. However, in April 2008, TechCrunch reported that Czernaik and Ofer Adler left the company and cashed out their shares collectively for $5 million. Though the company had raised money in a third round of funding in August 2007, the price was based on an earlier valuation of $50 million. In May 2008, the company appointed Michael Strambi as chief financial officer. Before joining Metacafe, he was the vice president of finance for MobiTV and has held similar titles at Macromedia and Blue Martini Software.

The company has raised $50 million so far: $5 million in a Series A funding from Benchmark Capital; $15 million in a Series B funding from Benchmark Capital and Accel Partners; and $30 million in a Series C round funding from Highland Capital Partners and Duff Ackerman & Goodrich Ventures.

In late 2006, Metacafe tried to sell itself for $200-$300 million but was unsuccessful. There were reports that this was because of a decline in traffic. According to Quantcast, Metacafe currently attracts over 32 million global uniques per month. And Comscore reported a 125% increase in unique visitors worldwide between July 2006 and July 2007.

I like the producer payment model in Metacafe’s business plan. The global creative talent base is hungry for monetization models. Under the umbrella of a bigger brand such as MTV, perhaps, Metacafe’s talent scouting and developing formula could do exceptionally well. Just imagine if Metacafe became MTV Metacafe…talent would flow, sponsors would put big prizes to find talent…great potential!

This segment is a part in the series : Deal Radar 2008