Did Joost Fail Because They Wanted to Work With Traditional Media Companies?

Seeing Niklas Zennstrom’s name on LeWeb’s list of speakers along with the news that Joost’s assets were being acquired by Adconion Media Group got me thinking about the dynamics of that specific startup. Joost was founded in 2006 to build a online video portal with the core idea that legal video streaming would be more efficient if it was built on peer-to-peer technology. The company signed content licensing agreements with major media companies, they had major funding ($45M), 150 software developers and experienced founders/entrepreneurs (Zennstrom and Janus Friis) who had had major successes with Kazaa and Skype. It seemed they would be successful once again.

It didn’t happen. Why? CNET explains that their technology choice of a downloadable application certainly impaired their chance of success. The arrival of Hulu, a big hit with users, also didn’t help  but I was specifically struck by this other reason: “Some of the big-name content partners seemed to be putting in a halfhearted effort with Joost, offering up reruns and esoteric programs instead of the new programming that people actually wanted to watch”. Hmmm…

Think about Kazaa and Skype. What did Zennstrom and Friis successfully achieve with these new initiatives? They directly attacked major players in large mature markets using industry weak points. Kazaa was an assault on the music industry, Skype took on telcos. They didn’t say “let’s work with these guys”. They just did it and leveraged the fact that these two industries were very profitable and slow to innovate. They foresaw the disruptive impact of technology and created a lot of value for their shareholders. Venture capital firms usually love these startups. When they created Joost, they changed their entrepreneur paradigm and it failed. Zennstrom and Friis’ new startup Rdio is in the online music space and it looks like they’re going to be working with the music industry. Will it impair their chance of success or has the music industry matured enough in the last 10 years to embrace innovation?

It got me thinking about newspapers, directory publishers, the movie industry, radio, magazines, and other traditional media companies. At one point or another, all these industries (who generate or used to generate fat profit margins) fought technology and we’re slow to innovate. I think it’s getting better (still not fast enough in my own opinion) but I was reminded it is still very slow in Canada by this blog post (in French) written by Yannick Manuri. He says that 40% of all online advertising spent in the country benefited foreign media companies and anecdotally he doesn’t see the sense of urgency in Canadian media companies. It’s a reality in other countries as well.

Why do we need industry disruptors to stimulate innovation in media? Couldn’t it happen by itself?

4 thoughts on “Did Joost Fail Because They Wanted to Work With Traditional Media Companies?

  1. Thanks for the insight! I clearly see any industrial sectors as fundamentally speed-averse. They seem ‘un-innovative’ because they have their foot on the break while trying first to milk and dry to death all potential revenue on the last innovation.

    Canadian Telco –and telco in general– have all the innovations for the next 10 years in their back pocket and wait to release them. Computers industry does that to.

    Media –especially in Canada– take advantage of a closed market (it is a regulated market). Innovation means working harder for a smaller marginal benefit. Disruptors are the only way to go when a market thinks there is no growth.

    Media market is built around Advertizing Oligarchy: “We own the eyeballs, pay the tax to entry”. This isn’t the case anymore, as we all can see. Eyeballs want to be free..

  2. The challenge with media is that the content has an owner and when they don’t want to play ball things can get difficult, as Joost discovered. The first two businesses were not reliant on the content owners and telcos they were largely technology plays so they just got on with the disruptive businesses.

    The challenge with media is that the content has an owner and when they don’t want to play things get difficult.

    An excerpt from a blog piece I wrote in October. Media: It is a control thing!

    Partnerships and Joint ventures have to be a way forward.

    The market opportunity in the new media world will be realised by the those that have grown up around the digital environment – the indigenous – as they are the ones that are most likely to get it and understand how the business models can and will work. These will be individuals that understand the operations of traditional media but are not held back by the need to re-think the traditional business models and operating principles. The traditional media owners still have a very important role to play — they know how to deliver revenue…..

    Most of our traditional media owners have historically made significant revenues but are starting to struggle in the new media world. Most are simply not good at technology and find it challenging to build brand engagement. Consider a media owner like Yellow Pages their business is about conversion and retention of customers, or advertisers. They sell to, process and manage massive volumes of advertisers each year.

    The traditional owners are very good at delivering revenue, distribution is their core challenge. The new players are great on distribution, poor on revenue. Surely strong grounds for partnership.

    Full blog post: http://www.indigo102.com/archives/737

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