Ashkan Karbasfrooshan – Building a Video Content Business in a World of Tech

by Ben Yoskovitz on February 17, 2011

Ashkan Watchmojo
Watchmojo is one of the top producers of original video content online. In February, 2011 they announced that they had surpassed 200,000,000 cumulative views and reached profitably with 75% growth in revenue. The company was started in 2006 by Ashkan Karbasfrooshan and now has 13 full-time staff. Ash has remained resilient and aggressive with Watchmojo and it would seem the company is definitely hitting its stride.

Ash is one of the most open and honest people I’ve ever spoken to for NextMontreal. He doesn’t pull many punches in this interview talking about his strategy behind Watchmojo, why he’s been successful, the failure of VCs in the video space and much more. He has an interesting take on co-founders and even the moniker, “Founder” and how it impacts other employees. This is by far one of my favourite interviews because of how much detail Ash provides, and the fact that he’s unafraid to share his opinion.

NextMontreal: What is Watchmojo, when did you start and how has it evolved since the beginning?

Ash: WatchMojo is a producer of premium videos. After my last company AskMen was acquired and integrated into News Corp./FOX/IGN, I had to start from scratch and due to a non-competition agreement, I could not start or join a men’s online magazine, so I thought of creating a catalog of evergreen, ad-friendly videos on a wide array of categories.

At the time in 2006, there was a lot of euphoria around social media and user-generated content (UGC). I felt that social media and UGC would be very disruptive in news and publishing but when it came to any ad-supported editorial media, marketers would seek professional content. People thought I was nuts in financing original video content creation, but now that content is growing in value and acquisitions are being announced every week (AOL acquiring 5min, Techcrunch and Huffington Post, Yahoo acquires Associated Content) the idea behind WatchMojo isn’t that crazy anymore.

It’s basically a cross between About.com and Wikipedia.org with the editorial tone of a consumer magazine, but all in video and all professionally-produced by an amazing team of producers, researchers, writers, videographers, hosts, editors in Montreal. We have a lean but productive team, pumping out 100 videos per month and nearly 7,000 all-time.

The main evolution came early on when we moved from a destination approach to a distribution one, when we realized that search engines did a poor job of indexing videos and consumers were developing the habit of watching videos on sites like YouTube.

Otherwise, we’ve actually stayed true to our core vision that content is king, but without distribution it’s akin to a tree that falls in the forest.

NextMontreal: What’s your background? You’re the sole founder correct?

Ash: I studied finance at Concordia’s John Molson School of Business and wanted to get into investment banking doing M&A but instead, I landed a job at Mamma in January 2000. Then by September 2000 when AskMen was in its infancy I joined to head up public relations and business development, but once I realized the company had no sales I took up advertising sales. I sold millions in advertising and in 2005 once AskMen was acquired I wanted to start a company.

I founded Mojo Supreme in 2005 and incubated a domain specific vertical search engine called MetaMojo.com, a database marketing product called StreetMojo.com which matched demand with supply in various applications such as contests, classifieds and bookmarks. Then when I left AskMen in December 2005, I launched BloggerMojo.com (a blog network) and WatchMojo.com on January 23 2006. Today, 80% of the company’s focus is on WatchMojo.com, we do leverage the blog network but the rest is largely inactive due to WatchMojo taking off and the need to focus.

With regards to founders, I’ve always been a bit wary of that kind of stuff because sometimes startup founders get caught up with that and end up working less hard than they should to set and lead by example. Moreover, founders’ insistence on emphasizing the founder moniker turns off other employees who work very hard but feel devalued in the process.

Organizational behavior is just as important in startups as it is in massive organizations; technically I wasn’t a founder at AskMen but the entire team contributed heavily, I was generating 90% of the company’s revenues for example, but I’d be lying if I said it didn’t play a part in my desire to strike out on my own.

Anyway, for what it’s worth, I first seriously thought about online video content after coming across Mania TV and Rocketboom (both debuted in 2004). Regarding WatchMojo, I’d say that Raphael Daigneault and Christine Voulieris should also be counted as co-founders: Raf as the creative and technical co-founder early on, and Christine (who happens to be my wife) on the content strategy and administrative end of things.

But again, I could care less about that kind of stuff: a lot of the key employees like Kevin Havill and Shawn Larkin joined early on, remained and became integral to our success as have all of the staff: I could (and should) name all 13 people but that would be overkill. We’ve had very little turnover which is a strength of ours and something I am proud of.

My advice to founders is “create an environment where people want to remain under one roof”.

NextMontreal: How do you monetize? What’s working best when it comes to online video?

Ash: Unlike search and Google’s Perfect Storm scenario where all earlier competitors shifted to become portals and investors stopped investing altogether, video faces great expectations and thousands of contestants. Without a doubt, video has hitherto flopped compared to the level of investment inside of media and tech companies and funding by venture capitalists: YouTube was a grand slam ($1.65 billion off an $11.5 million investment), but after that, every other “success” was a single or double at best.

We generate revenues from:

  • licensing of our content to media companies (a flat fee to carry our content on a non-exclusive basis);
  • syndication (revenue share with third party sites like YouTube, Hulu); and
  • advertising and sponsorship (deals with marketers who want to run media alongside our content, or distribute their branded content, etc.)

Back in 2009 it was 60-30-10, now it’s 20-20-60. Ultimately the ecosystem and all three sources of revenue are funded by a marketer, but as we grow our audience and brand, the bottom line is we come in contact with the marketer and can offer them more options and grow the size of the business.

Over time ad-supported models are preferred to licensing, but we had to strike those licensing deals early on while video advertising remained embryonic: online video advertising did $1.5 billion in the US last year whereas search does $25 billion and television advertising does $75 billion.

We are proud of the fact that we were the only company that was landing licensing deals which represented guaranteed, recurring revenue. However, those are now relatively small to the advertising-based deals we close with marketers who are shifting ad budgets from television, print and online display advertising to video.

NextMontreal: Are you guys profitable?

Ash: Yes, we had a profitable Q4 (2010), as well as the odd month of profitability before that throughout our 5-year operating history. Frankly, we could have been in the black sooner if I had reduced expenses a bit or slowed down our growth. But I am a growth addict and in typical entrepreneurial fashion I don’t mind having “one foot in the grave and one foot on the gas pedal”. The only challenge has been that I have never had outside investors so I have had to use my own assets and debt over the years to grow the company, but that bet is starting to look smart, although I would not recommend the strategy to anyone. Technically it could still backfire so we are always balancing fiscal prudence with managing our growth.

NextMontreal: What makes Watchmojo unique?

Ash: In video, venture capitalists probably over-invested in technology platforms and distribution companies. They also invested in a handful or more content companies but I would now say that many of those companies had risky editorial and distribution strategies. In no way am I suggesting our vision, strategy or execution was flawless, but I think a few things make us unique, including:

  • our massive catalog of nearly 7,000 evergreen ad-friendly videos on a dozen categories
  • our ability to produce large quantities of high-quality videos at low cost at scale
  • our high-reach distribution online, in wireless, in out-of-home
  • our ability to sell media on thousands of sites
  • our expertise in a nascent but booming space

If someone wanted to buy a video content company right now, you are looking at 2 or 3 companies. Considering most of them would require massive acquisition prices to please their VC overlords, I would say we are extremely attractive.

Up to recently, content wasn’t in demand, but suddenly it is. When demand outstrips supply, the value of an asset rises.

Ideally, that is moot and we keep growing revenues and profits and remain independent for a while, but my guess is big media companies have given up their “Build” strategies and will focus on “Buy” soon.

NextMontreal: What has been the most popular video on WatchMojo?

Ash: Most popular video of all time: Justin Bieber interview we did right before he blew up: 7,000,000 views on YouTube alone.

NextMontreal: How do you categorize content, what kinds of content are you producing?

Ash: While we have 12 categories, we bundle things into 3 super-categories:

  • lifestyle: lifestyle, travel, fashion, etc.
  • entertainment: music, film and video games
  • knowledge: business, tech, science, history etc.

I’d say our catalog is largest in lifestyle and historically that was our #1 most popular super category, but now entertainment seems to be really taking off.

WatchMojo is basically a video magazine, if such a thing exists. So we adhere to an editorial calendar much the same way a magazine would.

If:

  • there is an upcoming event in the calendar across any one of our 12 categories,
  • something is popular
  • someone or something rolls into town,
  • a partner like Yahoo! says we want a video on a topic and will feature on our main page,

we will consider that topic. Ultimately, we benchmark each category to television/cable offerings; our travel content looks like something you would see on The Travel Channel, for example, etc.

Our long term objective is to have a video on practically every topic or keyword, I guess, but make it visually rich and somewhat evergreen (timeless).

NextMontreal: Who are some of your top competitors?

Ash: The answer is definitely NOT “we have none”. Technically, one could argue that these days, everyone and anyone with a camera is a competitor, but that is false.

The range of content producers can be represented by a pyramid, with:

  1. traditional media companies who produce “Super Premium” content on top,
  2. new media companies like WatchMojo who produce “Premium” content in the middle,
  3. user-generated content in the bottom (technically, some UGC becomes more polished over time and falls in the prosumer segment between 2 and 3).

So in 2006, some could argue that our competitors were everyone in 1, 2 and 3.

We see that the vast majority of marketers have outright rejected UGC as a medium they can run ads along. Moreover, traditional media companies like NBC, CBS, Disney, FOX, etc. don’t really welcome new media platforms because they [somewhat rightfully] don’t welcome replacing “analog dollars for digital pennies, nickels, or dimes”.

So if you focus on 2, initially in the pre-YouTube era (where you basically had to build distribution yourself via a popular destination) we had a number of companies like Ripe, Mania TV, Heavy that wanted to produce content for the Web and distribute it online or on Video On Demand platforms. Many of them have either shut down or changed strategies outright.

Then in the YouTube-era (where you didn’t need to build distribution yourself via a popular destination) we saw companies like WatchMojo, Revision 3 and Next New Networks emerge.

Revision 3 spawned out of Diggnation, Kevin Rose’s show. I give Revision 3′s CEO Jim Louderback a lot of credit for taking that nucleus and creating an actual company around it. They’re host-driven and target men 18-34; we’re topical and have something for everyone. Revision 3 has raised about $10 million in capital. I admire Jim and count him as an advisor.

Next New Networks was founded by television executives. They have had an insane amount of success (with regards to lifetime views) but a lot of challenge to build a business to reflect all of the money they have spent. Next New Networks has raised $23 million in equity financing and $1 million in debt. Next New Networks doesn’t really produce content anymore, it finds up-and-coming talent on YouTube and takes them to the next level; this is why YouTube is rumored to buy NNN. A lot of people criticize them for the amount of money they raised and shifts in strategy, it’s easy to criticize in hindsight. I’ve met everyone from their investors to founders as well as executives; I give them a lot of credit for trying to build a big business. They were a bit ahead of the time and if/once YouTube buys them it will pay off dividends for all parties and the ecosystem.

Howcast is also a producer of content but limited to the How to variety, which I think is a tough category because with How to content, the average viewer of such content doesn’t care if it’s professionally produced or not (whereas marketers do); so you end up with a far greater competitive set. Howcast has raised $10 million but it too, like NNN, relies on a base of freelancers to create content. Same thing: they have executed pretty well and give them a few more years and they will surprise many more people.

People generally lump us in that group, but we have an in-house team. We also haven’t burned through anywhere near that kind of capital. I don’t view content creators as all that competitive, I genuinely want all of those companies to do very well, we need good case studies and comparables in the industry.

Technology tends to be a zero-sum game: you buy a Mac or a PC, but if I am traveling to Spain I will watch a bunch of videos from different producers. Content tends to do well; if NBC’s lineup is great, it will both help and hurt CBS. Online video is very young, in our industry, when one does well, it helps all players.

NextMontreal: You’re based in Montreal but spend a lot of time in NY. When did you start doing that and why? When did you realize how important proximity to the NY market was?

Ash: As a technology company, Mamma made the mistake of not opening an office in San Francisco. It then opened an office in New York but seemed to use that for marketing and public relations whereas it should have been for sales. That was too late anyway as the Nasdaq was crashing fast and furious.

As a media company, AskMen made the mistake of not opening an office in New York. I would travel 4 times per year but if I was based there we would have generated 2-5 times more revenue and sold for 2-10 times more in the exit.

From day 1, my plan was to open a small office in New York to do sales, business development, marketing and some editorial, but financially that was not possible. So thankfully, since we have a great team in place here, I can allow myself to spend some time in NYC. I spent half of the time from June 2009 to August 2010 in NYC and it certainly did help the company. I was just there this past week. If I had a check to grow the company, I would open a NY office or at the very least hire a NY-based sales person.

NextMontreal: You’ve never raised venture capital (bootstrapped right?) and you’ve been fairly vocal against the VC industry. What are your thoughts?

Ash: Well, without VCs, we would not have had Apple, Google, Cisco, YouTube and countless other amazing companies.

I also consider a handful of VCs as some of my most valuable advisors. So I would say my outlook on VCs is a bit more nuanced than that.

Now, that being said, I don’t want to take the diplomatic route; since you asked the question:

  • good VCs help entrepreneurs build amazing companies,
  • bad ones can get in your way and complicate things, and
  • ugly ones should be barred from managing other people’s money and getting near entrepreneurs.

I was fortunate to have made a bit of money from my days running AskMen’s sales and by virtue of being a minority shareholder at the time of the exit and the subsequent cashing of options I had in IGN when News Corp. acquired IGN… so I was never desperate enough to accept the handful of low-ball offers we were made with draconian terms. Let’s face it, oftentimes VCs don’t invest in the best entrepreneurs and best companies but rather in the latest fad or most desperate entrepreneur (the one who will give up the terms a VC seeks).

I have seen every fad come and go: Yet Another Social Network, link shorteners, Twitter-ecosystem companies, Facebook-ecosystem companies, location-based services, social gaming, etc. (I crafted the fake company name Crapstr to connote the latest fad a VC will chase). So seeing a lot of that and the relative paltry number of exits and long-lasting companies, yes, I’ve grown a bit cynical and unimpressed.

Not having a VC has certainly curtailed our growth and probably had some adverse effects: it’s nice to have a board push you to make tough decisions. I certainly have been too nice and too diplomatic as a result of not having a board or outside investors – no doubt. That being said, if we had VCs, they would have probably forced me to cut back headcount in 2008/2009 or outright shut us down, whereas I actually pressed the gas pedal and ramped up.

Ultimately, I complicated my life by choosing to start a content company. VCs hail from technology areas and have little experience in advertising-supported models (Google is the only successful ad-supported tech firm after all). Moreover, being based in Montreal totally limits your options with US VCs. Their idea of Mahn-trey-all is a place they go for bachelor parties for the strippers; I’m sort-of-kidding, but you get the idea.

But when it’s said and done, while I have been very successful at recruiting talent and securing clients, I have not done a good job convincing investors, so that is no one’s shortcoming but mine. I can live with that: I am not going to lie to a would-be investor and tell them that we will generate $50 million in revenue by year 5 because he is conditioned to look for the hockey stick curve only to change my tune when I cash his check.

NextMontreal: What are your thoughts on the growth in angel and early stage investment?

Ash: Taking a step back, I think VC and angel/seed investing tend to balance one another out over time: when one is booming, the other takes a back seat and vice-versa.

But when you cut though the noise, the reason angel and early stage investing has grown is two-fold:

  • open source software, cheap hardware and social media marketing makes launching and scaling a startup cheaper, meaning an entrepreneur doesn’t need the tens of millions from a VC
  • VCs have in aggregate made so many crappy investments and burnt so much money that many of them are in a “stabilization” period where they will cut down on their portfolio companies and focus on the 1 or 2 companies that could make up for the other clunkers in their portfolio. That reality doesn’t leave them the luxury of making new investments, so that void creates an opportunity for angels, basically.

NextMontreal: What are some of the top lessons you’ve learned as an entrepreneur?

Ash: Success = vision + ambition + execution + determination + luck + timing.

Determination is #1.

Even overnight success stories take 5 years to materialize.

Don’t let good news get you too happy and don’t let bad news bring you too down.

Your team is extremely important… so even if things don’t go your way or people don’t always do what you expect of them, it’s ok… you can’t be a dick in life or in business. Even if in the short-term that hurts you, being somewhat diplomatic, balanced and a statesman will pay off over time. I am not saying I live up to that 100% of the time myself, but I would guess that people would always want to work with me because of my work ethic and how I am with others. I have never been in a position to overpay someone to come and work with WatchMojo, but I have the best team in our industry without a doubt. In other words: treat others the way you want to be treated.

Even if you are successful, at best you have Interest in around your company, you need to convert that Interest into Intent, and unless you can change that to Action, you actually won’t accomplish anything, be it with sales, hiring or an exit. And then of course you have to Close the deal. Otherwise, all you have is talk.

NextMontreal: What keeps you up at night?

Ash: Apart from my daughters, it used to be “will I make payroll in a couple of weeks?” Now that we have turned the corner I need to keep us in the black and grow revenues. Thankfully, there is an acceleration of ad dollars into online video, but size and scale matters and while we’re almost there, that remains something we need to improve.

NextMontreal: What’s in the works for Watchmojo for the next 6 months?

Ash: Operationally: we launched a new syndicated player that allows third-party publishers to seamlessly add our content to their site and earn revenue in the process. It has tripled our revenues and pushed us into the black. We’ve also grown our reach tenfold. We need to ramp that up and leverage it to execute on the broader objective of offering more solutions to advertisers’ needs.

Strategically: To be perfectly honest, we probably chased companies for strategic partnerships a bit too much because we needed their help to monetize our ever-growing audience. Problem was companies knew they needed to do something in video but didn’t know what.

Ironically, now that we’re profitable and starting to generate meaningful revenue, we finally have more than one investor group and media company interested in us at the same time, creating interesting discussions. I still think it’s all talk, but combined with profitability, it’s a new position to be in, I won’t lie. As such, while it’s likely that nothing happens and we stay fully independent, I realize that size and scale matter so it’s possible that WatchMojo will not remain independent for much longer because video is becoming big business, so long story short whomever we partner with will naturally have a say in what happens in months 6-onwards.

The good news is that content is more in demand than ever and few companies invested as much, as early and as wisely as we did, so we’re in a great position.