There’s a new strategic investor making the rounds in Silicon Valley looking for deals at the intersection of technology and content. Like nearly all other strategics, this group is making promises of “synergies” and “value adds” and “leverage.” Unlike most investors, however, history suggests it might actually be true.
BSkyB (Sky), which is the UK’s biggest pay-TV broadcaster, and is part-owned by Rupert Murdoch, is opening an office in San Francisco with the express purpose of finding technology investments and partnerships. Manning that post is the company’s former Director of Product Management & Marketing and newly minted VP of Business Development Hilary Perchard, an 11-year veteran of the Sky organization who moved to the Bay Area in March.
“I really drew the short straw in the office, huh? They asked me to move to this place where the weather’s nice and there are smart young people everywhere building amazing companies,” Perchard says, apparently unaware that, like London, SF isn’t exactly known for its sunshine.
Sky has been early to a number of major technology trends over the last decade, including mobile, broadband, TV everywhere, and internet connected in-home hardware, Perchard says. In many cases the firm has developed its offerings in these categories internally, but the success of several recent investments has seemingly strengthened the argument in favor of buy, rather than build.
Perchard is clear that partnerships are at the forefront of this strategy. Sky will very willingly write a check to get involved with a new technology, but rather than a simple return on investment, the company is looking to learn and to source products and services that it can deliver to its consumers in the UK and Europe. To which Perchard adds, emphatically, “We have no desire to come into the US. We view it as kind of a messy market.”
One of Sky’s most successful initiatives has been its NowTV OTT (over the top) content offering, Perchard claims. which today contains 60 channels. The company declined to specify the number of monthly users.
“Like most new technologies we’ve explored, we found OTT to be additive not substitutional to our more traditional offerings,” Perchard says. “Our customers appreciate the flexibility around length of subscription, the channels that they can watch, and the option to do it where and when they choose.”
It was NowTV that led Sky to make its first startup investment. Eager to offer its subscribers a hardware device from which to stream this content to their televisions, the company first looked into building something itself. The conclusion was that it would cost too much and take too long. So Sky approached Roku in pursuit of a white-label partnership. After some negotiating, the firm agreed to invest in Roku’s Series E round (and later Series F) and the NowTV box was born. Perchard describes NowTV as a completely separate brand, akin to Mini alongside BMW.
“Our CEO said, ‘If we can do this with Roku, there must be many, many other examples of where we can do it,’” Perchard says. “Everybody else always says to me, ‘Let’s do another Roku’ – something that allows us to really kick start a business.”
He continues, “We go at new technology hard, we always have. Our approach to innovation is to take an attack strategy, which is very different than the approach of many of the cable companies in the US, where they seem to prefer to take a defensive strategy and try to fend off attackers. Maybe it’s because we still consider ourselves a relatively small, regional business. Going forward, we expect that more and more innovation will come from outside our business, increasingly from the West Coast of the US.”
Sky’s other big bet is in Jaunt, a Palo Alto-based cinematic virtual reality company. At just over one year old, the company is still in the R&D phase, but Sky has already participated in three funding rounds (Seed, A, & B) and is beginning to produce test content for the format, including shorts in the Dance, Drama, Comedy, Boxing, Sports, and Music genres.
“They’re still perfecting the tech. We started out thinking of this as a three-to-five-year project, but in the last six months, that timeline has started to feel like it’s contracting,” Perchard says. “We’re starting to form some views on what this technology medium would be good for.”
Sky’s investments generally range from the low hundreds of thousands of dollars to the mid-single-digit millions, Perchard says, depending on the stage of the company and the status of any parallel commercial relationship. As should be evident from its involvement in Roku and Jaunt, Sky is intent on backing companies for which it sees integration potential, be it in the near or mid-term. Put another way, these aren’t financial investments, in the purest sense. The goal across all these deals, according to Perchard, is to keep UK and eventually European consumers thinking that if you want the best paid TV has to offer, than Sky is the only answer.
“Increasingly, we’re finding our sweet spot is around the junction of content and technology – Silicon Valley doesn’t entirely get that junction,” Perchard says. “We will still pursue things across all of our strategic themes, but that can take a little longer because we do have this sweet spot and this strategic advantage.”
Those themes that Perchard mentioned are: OTT and content discovery, Ad-Tech, and growth opportunities like internet of things, gaming, and security. It’s the latter area that has contributed most significantly to Sky’s growth in recent years.
Over the last several years, Sky has grown its subscriber base from just 10 million to 11.5 million, Perchard says. But in that same time, the company has increased its products and services on offer from 10 million to 30 million (although this number seems oddly high and it’s unclear as to what exactly qualifies as a product). In other words, once a customer is enrolled in any level of service, Sky is eager to increase the number of things it sells them. For many Valley startups, these 11.5 million subscribers might start to look like fish in a highly strategic barrel.
“If there’s a business that looks really good, but is overly focused on a big exit in the near term at the expense of building a real business, that wouldn’t be really good for us,” Perchard says. “We look at businesses for two opportunities: things where we can learn about something in nascent stages (Jaunt), and things where we want to build a big commercial relationship (Roku).”
That’s an attitude that would seem at odds with the mentality of traditional VCs who are very much focused on achieving big exits. But Perchard argues that hasn’t been the case in his experience, and VCs have been eager to bring Sky into deals, if for nothing else than for the global expansion potential.
“Most often, we take small minority stake in these businesses,” he says. “And we’re certainly not trying to slow them down. Actually we tend to be the one chomping at the bit to integrate their technology, in the UK and Europe. We certainly don’t put any constraints on startups in terms of where they can do business and when. That’s not fair and certainly wouldn’t endear us to the venture community. We don’t mind if they’re working with other companies, even our direct competitors.”
Strategic investors and corporate VCs don’t always get a lot of love in Silicon Valley. They can be thought of either as dumb money or as somewhat mercenary, intent on leveraging their involvement with a startup to learn and better their own business, often with disregard for the startup’s best interests. But Sky is adamant about breaking that stereotype. Whether it can do so successfully, only time will tell.
In terms of what companies would be a good fit for potential investments going forward, Perchard points to an interesting, albeit unexpected place. “There are an interesting subset of businesses that have become really successful in US, but haven’t grown internationally. We find the UK is often a good stepping off point. We can also help US businesses test things in the wild without launching in the US first.”
At the end of the day, this is all about getting ahead of the next technology wave, something that Perchard and his team describe as the global convergence of TV and the Internet. With much of the creativity and innovation in this area occurring in and around Silicon Valley – or at least within the portfolios of the investors based there – it would seem to be the right place for Sky to start its shopping spree.
[image via TNW]