CROWDFUNDING, ACCELERATORS, START-UPS: OH MY!

Ten days ago I posted a piece on my blog that analyzed the need for an incubator for entertainment start-ups (A version was also posted on Tribeca's Future of Film site and on TheWrap.com)

The fascinating feedback I received was punctuated all last week by the unfolding of a related drama -- US Senate passage of the JOBS Act (Jump Start Our Business Startups), a law designed to allow start-up businesses to raise investment capital from virtually anyone, unconstrained by most of the current regulations. Efforts like a petition created by Angel List helped corral support. 

The law passed, tweaked with certain safeguards in the crowdfunding provisions. Many consider passage a miracle, given that there was opposition from the Securities and Exchange Commission, public interest groups and others who fear an avalanche of fraud. One observer from within the investment community even called the bill "a train wreck." 

Espect existing crowdfunding sites like Crowdfunder, WeFund, Symbid, Peerbackers and Sprowd to pivot their models. Expect an onslaught of new crowdfunding sites. Expect a ripple effect through the start-up and investment ecosystem. 

For instance, Slated.com raised $2 million in a Series B round just this week. Slated is sort of an Angel List marketplace for film finance, with productions and investors meeting. For now, investors must be "qualified," but with the passage of JOBS Act, it will be interesting to see what happens. 

Some have compared Slated with Kickstarter, which has certainly played the starring role when digerati need to explain how "crowd-based" markets might work. Funds raised for films and other projects on Kickstarter are donations --- no strings attached, especially no equity in the property or company.

The JOBS Act will flip that model on its head, allowing equity to be acquired by a vastly larger body of investors than is currently possible. Even so, Kickstarter is already having a huge impact on film funding, with an estimated 10% of the recent SXSW slate had funding from the site.

CROWDFUNDING AND ACCELERATORS

Crowdfunding for the equity markets is likely to further stimulate the surge of early stage start-up incubators and accelerators that we have seen in recent years, and will likely morph some models away from focus upon a narrow group of VCs and angel investors. 

Moreover, if a true and open marketplace evolves for broad public investment in start-ups, consumer-facing content start-ups could benefit. "Average" people may find a company producing a digital media property more understandable than a specialized tech startup. 

In which case, an incubator for show biz should be even more desireable a week after I wrote about it!

In the meantime, here are some factoids gleaned in the week since my post went live:

• A new "start-up academy camp for Media Innovations called "Media Camp," was launched by Turner Broadcasting during SXSW. I spoke with its director, former Apple technologist David Austin, who told me that MC's focus us early-stage tech companies working on problems that would impact the broadcasting business in general, and Turner in specific. The unit is premised on the assumption the start-up and VC culture simply don’t understand the media business – the revenue flow, importance of rights, business models, etc. The accelerator's boot camp helps startups understand the media biz. Applications can be submitted theough April 16 for the summer session. 
• MovieLabs, the Hollywood-backed R&D center in the Bay Area does not invest in start-ups, but VP Kip Welch told me that they do informally confer with start-ups, investors, incubators and the whole Silicon Valley ecosystem. While a big chunk of the unit's budget is piracy-related, MovieLabs supports standards and research in metadata, identifiers, and other technical issues that make consumer media work better. 
• New hybrids emerge all the time: for instance the MIT Open Documentary Lab: it seems to be part think tank, and part incubator for filmmakers and hackers. 
• Not everyone loves the incubator idea: “Most incubators are cultivating a garden of startups that are dead on arrival,” said Kendall Wouters, a Cleveland-based entrepreneur and investor. He suggests that incubators fail to assess the market potential of ideas that entrepreneurs bring to them. As a result, companies won’t make it through the dreaded “valley of death” -- the time it takes to identify a sustainable and repeatable business model. 

ONE MORE THING...

Transmedia Hollywood 3 is coming up on April 6 at USC --  organized this year around the topic "Rethinking Creative Relations." I'll be on a panel moderated by Henry Jenkins called "Creative Economies: Commercial vs. State-based Models", along with Morgan Bouchet from France, Sara Diamond from Canada, Christy Dena from Australia, Jose Padhila from Brazil,  

AN ACCELERATOR FOR ENTERTAINMENT?

IndieWire editor Dana Harris's post on the "8 Film Startups You Should Know from SXSW" got me thinking about entertainment start-ups and what we must do to create more and better companies in this industry. 

"Film, to put it mildly, is not a priority for tech people," says Ms. Harris, and the obverse is even truer, namely that studios aren't likely to be the source of tech-enabled innovation to solve problems in the film industry.

Noting that a trade show isn't a great place to concentrate on problem-solving, she boldly suggests an idea that I've been peddling ever since AFI shuttered the Digital Content Lab:

"A startup incubator entirely devoted to problem-solving for the entertainment industry."

Yes, it's just what we need: a year-round community of tech, creative and business innovators who tackle the pain points and create innovation (and disruption) in the entertainment business, broadly defined. 

One way to think about why and whether an Entertainment Industry Accelerator makes sense is to look at some of the start-ups in the space. Are they solving big problems? Is there an audience? Does the business model make sense? Here are Harris' 8 movie-related start-ups: 

• Tugg offers "crowd sourced exhibition" 
• JuntoBox Films is a "global collaborative film studio" which plans to invest $2.5m in five films, all embedded within its social site
• Fandango's Movies With Friends - a FB timeline app that enables you to embed clips from movies you watch and rate.
• Indiefilmz.com - a VOD site for indie films 
• Moviepilot.com - you subscribe to upcoming movies and follow them as they roll out. 
• Milyoni.com - Facebook-based film distribution, including social commentary with friends while watching
• Filmaster.com - a recommendation engine for movies
• Veam.co - allows filmmakers to post films and charge consumers directly, all via a custom app.

To those I'd add a few others that I've encountered in recent months: 

• WatchIt  a platform that aggregates your movie queue for all forms of movie exhibition into a single list, including theatrical, DVD, kiosk, digital download and streaming. 
• Scene Chat, which adds social commenting to videos on YouTube, Vimeo and more. 
• NanoCrowd which uses "reaction mapping" to zero in on picking movies (and why). 

Notice that only one uses movie clips (Fandango which is owned by a movie studio). Why? Maybe because dependency upon the rightsholders is not good for a start-up --- thus, illustrating one of the key challenges to any Accelerator in this industry, e.g., resistance from the keepers of the status quo. Believe me, this I know from years of dealing with movie clips and studios while at the AFI.

DEFINING MONUMENT OF THE REMIX ERA

It all rushed back to me as I read Daniel Zelewski's superb profile of mash-up artist extraordinaire Christian Marclay in last week's New Yorker (subscription required) This is the story of "The Clock" -- dubbed "the defining monument of the remix age." I devoured two of the 24 hour montage masterpiece at the LA County Museum -- movie clips featuring clocks keyed to the actual time of day. It's amazing. 

At the time it reminded me of the Apple ad introducing the iPhone ("hello….hello…"). Turns out, Marclay had created a 1995 piece "Telephones" which was one of the first real mash-ups, long before YouTube. Evidently Apple tried to license it. When Marclay refused, Apple ripped it off to create its own ad. 

Marbray did not seek "rights" for any of the clips in this massive montage,but then, he is using a fine-arts distribution model, built on a  VERY small number of authorized copies (Five copies of the computer program had been made for sale to museums for hundreds of thousands of dollars, and a sixth to a hedge fund manager is Connecticut.) Very different than distribution via theaters, TV, or the web. Filmmakers usually have to pay for rights, though there is fair use.  

During the last decade, a slew of start-ups began to sprout up offering the use of movie clips. 

• Killerclips launched in 2002 with a movie clips search engine When you go there now, you're are greeted with a rather forlorn Eddy Murphy clip and this text: "Sorry fans, the movie companies finally decided to kill all of our clip content although we make nothing -- it's only a labor of love. Why does YouTube get away with it?"
• AnyClip launched in 2008 to considerable acclaim, at least in Silicon Valley where it was an audience favorite at the TechCrunch 50 event. Alas, the company could not license enough studio clips to realize its dream of a universal movie search engine, and has pivoted its model, though it claims more than 50,000 live clips.  
• MovieClips.com launched in 2009 with 12,000 two-minute clips from most Hollywood majors (not Disney). It seems to be holding on,  
• Movie Tagger is a crowd-sourced concept which would, like Wikipedia, allow anyone to add tags down to the single shot of a movie from Michael Naimark and a team at USC. The project has not yet launched.

AN ACCELERATOR FOR ENTERTAINMENT?

It's such an obvious idea, one might ask, why has the accelerator model never been applied to the support and funding of entertainment-industry start-ups?

LA, like many second-tier tech hubs, has seen an explosion in the creating and growth of incubators, accelerators and other instruments designed to help start-up companies race towards launch, viability, funding, and exit. (For a good overview of incubator and accelerator models, and some examples of those here in LA, check out Joey Tamer's blog post. One of the new start-ups, Amplify.LA touts its showbiz connections. Indeed, many of LA's leading tech investors are high net-worth refugees from mainstream entertainment companies. 

The accelerator movement is intended to find winning companies that deliver the kind of profits sought by investors in the angel and VC world, preferably 10 to 20 times investment. Tech companies with business models that can grow quickly and scale across the globe are what accelerators want to fund. Start-ups that require battle with incumbents like the studios are less attractive. Truly disruptive start-ups like Neflix or Tivo, as you may have noticed, launched up north where there's less reverence for the legacy of the studios. 

An instructive discussion on the topic is currently ranging on Q&A site Quora around the question "Can start-ups one day really Kill Hollywood?"  -- triggered by a manifesto from accelerator pioneer Paul Graham of YCombinator calling on start-ups to, in fact, innovate Hollywood out of existence. 

Hollywood is just not about start-ups, even when many of its richest executives invest in them as angels and VCs. Instead we have organizations like this:

• Movie Labs, an attempt by the studios and MPAA to lure engineers into solving a narrow set of tech problems (they even have a Palo Alto address.
• USC-based Entertainment Technology Center brings together senior tech executives from both studios and interested technology companies to address industry-wide challenges. ETC played a major role resolving business and tech issues around digital cinema and 3D, and created an master technical standard -- all problems the studios needed to solve.  
• Across the USC campus, the year-old Annenberg Innovation Lab, headed by Jon Taplin, is an R&D Lab conducting interesting projects, but not yet incubating new start-ups. 

Clearly, there's a gap, an unmet need, a vacuum waiting to be filled with investors and visionaries with a passion for entertainment solutions driven by technology.

The whole accelerator movement is exploding, powered by the relatively low barriers and cost of entry for start-ups building web- and mobile-based products. We're seeing examples every day of accelerator-inspired models that seek to incubate all manner of enterprises, not just return a 20x profit. These include the announcement this week at SXSW of the Public Media Accelerator, an accelerator focusing on women-run mobile businesses, and purpose-focused accelerators for education, government, social entrepreneurs, journalism, and health, to name a few. 

I'm currently working on the development of a new accelerator-inspired Lab in Toronto that will focus entirely upon digital entertainment content -- what we're calling "engaged entertainment." Historically, content hasn't been seen as having a predictably "scaleable" business model, but that's changing, given the blur between content, technology, social, and audience.

In every case, the success of the incubator or accelerator is due to the commitment of a core community of true believers whose interests (and resources) converge to generate a critical mass that gets the program up and running. I have no doubt, based upon my 20 years of running innovation programs at the AFI, that this community will flock to support such a venture. Now we need some deep pockets. Call me if you have ideas on how to make this real.