About Frédéric Filloux

Posts by Frédéric Filloux:

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The New Age of Visual Storytelling

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by Frederic Filloux

A new generation of photographers reinvents the way stories are told. For their images, the weapons of choice are social networks and applications, video and mobile phones.   More

The Journalist and The Expert: Rapprochement Required

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by Frederic Filloux

At a time when the information world becomes increasingly shallow, journalists ought to join forces with experts. The alliance would bring deeper knowledge to journos and sharper story-telling to eggheads. More

The redistribution game for news

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by Frédéric Filloux
Forget the 70-30 split for subscription between publishers and distributors. Today, for publishers, the new norm is a 100%-70% split of ad revenues, depending on who sells the ad. For news distribution, re-intermediation will be intensely competitive.

The chart above illustrates the upcoming shift in news distribution. No doubt: We’re heading towards a new phase of massive re-intermediation, of reshuffling the layers between the news producers (traditional media houses or pure players) and readers. This raises important questions: What will publishers gain or lose in the process? Will they end up handcuffed to a cluster of gatekeepers or will they reap decisive gains for their business model.

Who becomes the dominant player in this new structure? More

More facts on mobile 

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by Frederic Filloux

New mobile internet trends have caught my attention this week. Today, we look at their impact on the news business. (1)

In developing countries, mobile growth keeps accelerating.

  • In Nigeria (pop: 173 million, median age: 18), based on page views count, 76% of internet traffic now comes from mobile.
  • In India (pop: 1.25 billion), the rate is 65%. As a comparison, the proportion is 23% in the UK, 22% in the United States and 14% in France.

At least, four elements drive mobile growth in emerging countries: More

New generation CMS can help monetizing quality journalism

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by Frederic Filloux

Monetizing digital journalism requires one key ingredient: Causing quality contents to emerge from the internet’s background noise. New kinds of Content Management Systems and appropriate syntax can help in a decisive way. 

Until now, mining good journalism from the web’s depths has been done from the top. Over the last 13 years, looking for “signals” that flag quality content has been at the core of Google News: With a search engine scanning and ranking 50,000 sources in 30 languages and 72 editions, its inventor, the famous computer Scientist Krishna Bharat, has taken his extraordinary breakthrough to an immense scale. More

Ad Blocks’ Doomsday Scenarios

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by Frederic Filloux

On the ad blocking front, the situation keeps getting worse. Until now, the media industry pretended to ignore the problem, perhaps waiting for a miracle cure. This might turn into a long lull.  

In coming weeks, a large analytic firm will release disturbing figures on the state of the ad blocking scene. According to someone who has advanced knowledge of the data, on desktop computers and on critical segments of the digital audience, the use of ad blocking keeps rising exponentially. More

Circa: What went wrong

by Frederic Filloux

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Circa, the clever smartphone news app, failed to live up to its promises. The fiasco stems from the smartphone advertising market’s inherent weakness, from Circa’s inability to catch up with evolving reading habits, and from an insufficient editorial proposition.  More

Featured On Tim Cook’s Keynote – What It Takes

by Frederic Filloux

At last October’s introduction of the new iPad Air, the creators of a clever iOS app named Replay were invited on stage. To get there, they went through a selection process that illustrates Apple’s perfectionism — and hidden application sophistication.

In September 2014, while at the Stupeflix Paris office, Nicolas Steegmann got a call from Apple in Cupertino. Once the caller identified herself, Nicolas knew something up. The contact came after Stupeflix presentations to Apple’s team in Paris. In rather elliptic terms, Steegman’s interlocutor said it would be great if two members of the company, a developer and a designer, could be in Cupertino the next day. ‘They will have to stay at least two weeks’, she said. 48 hours later, the team was on Apple’s campus. They quickly found themselves in a windowless room and given a straightforward brief: Devise the coolest possible demo for your app. No more details, no promises whatsoever.

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[Stupeflix founder Nicolas Steegmans (right) and motion engineer Jean Patry (left)] 

Replay is a clever iOS application that focuses on a “simple” issue: Automating the process of making of videos, without going through the convoluted steps of a dedicated movie editing app. With Replay, you shoot with your iPhone (or your iPad), select the clips you want, pick one of the proposed theme and you’re done. The app will assemble the clips in the smartest possible way, making visual corrections, adjusting the soundtrack selected from your iTunes library (or drawn from a proposed catalogue) to the pace of the movie. If you have the time and inclination, additional settings let you fine-tune your production. But even if you just stay with basic preset themes, the result is stunning. In literally a few seconds, you end up with a clip perfectly suited to quick sharing on YouTube, Instagram or Facebook.

Behind Replay’s simplicity are years of work and a great deal of sophisticated programming. The company’s roots are in an automated video generation system originally designed for completely different goals.

As often, a company’s final product has little to do with the original intent.

Stupeflix is a pure engineers’ startup. It was created in 2008 by Nicolas Steegmann, an engineering and mathematics graduate from Ecole Centrale de Paris, and Francois Lagunas who holds a PhD in computer sciences and linguistics from Polytechnique and Ecole des Mines. Their first product was an automated video generator that scrapped images and text from Wikipedia and other sources, inserted text-to-speech voice-over, to create 45 sec. glances at various cities and places around the world. The result was more a demonstrator than a commercial product (you can still access hundreds of automatically generated videos here on YouTube.)

The concept paved the way for a much more bankable product: a system to create videos entirely online, with presets themes — the ancestor to the Replay app. Its business model was (and still is) based on the proven freemium mechanism: Casual use is free, scaling to a professional/intensive use requires a subscription.

The same went for the next iteration: a home-brewed API allowing third parties to use all the tools Stupeflix developed to create videos. As a result, digital advertising agencies such as Publicis, Saatchi and TBWA jumped on it. Hundreds of thousands of videos were created for Coca-Cola, Red Bull or Sprint, to be used in countless promotional operations. Stupeflix still derives significant revenue from its API business.

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Technically speaking, editing and rendering a video is CPU intensive — GPU intensive to be more precise; Stupeflix’s APIs suck a lot of graphic processing power. At the time, explains Nicolas Steegmann, graphics rendering was outsourced to a specialized server farm in Texas (where the oil industry consumes loads of computational power for geophysics modeling). Now, Stupeflix relies on Amazon Web Services, which has since cornered the CPU/GPU for-hire market.

It took 18 months to port the video rendering engine to iOS. Many invisible features had to be pared down to fit the power of the iPad/iPhone processor. Unbeknownst to the user, Replay performs many complex graphics tasks. For instance, it analyses each piece of raw media material picked by the user. Color palette and saturation, exposure, motion, pace are decomposed and translated into mathematically useable components. These chunks of data are then fed into a “cinematographic grammar” hard-coded by Replay’s programmers (all movie enthusiasts). Each theme or skin selected by the user reflects a Quentin Tarantino or Alfred Hitchcock inspiration that will direct transitions, colorimetry, beat, as well as soundtrack sync. And an embedded machine learning engine also devises new rules by itself.

The fluidity of Replay’s performance caught Apple’ attention during the summer of 2014, a couple of months before Tim Cook’s unveiling of the new iPad Air.

Now secluded in their room of the Apple campus, always escorted when they had to walk in and out, Stupeflix’s team is hard at work devising the most mind-blowing demonstration of their app. Early on, they had a hunch that the whole process was in fact a competition among applications (12 contenders, as they would later discover.) For two weeks, a quiet selection process took place, with a stream of people visiting the team, now allowed to test its work on the last version of a new iPad camouflaged in a thick neoprene enclosure to conceal its size and shape. Each successive visit was made by someone ranking higher and higher in the chain of command — as the team realized after Googling the reviewers. They knew they were on the short list when their demo was shown to Phil Schiller, Apple SVP for Worldwide Marketing. The next day, the pair was taken to a conference room where their work was reviewed by Tim Cook in person. They knew it was a go. It was time for a series of full rehearsals.

On D-day, the two-minute presentation was to be made by Jeff Boudier, the Stupeflix man in San Fransisco (and co-founder of the company), assisted by François Lagunas controlling the iPad. It went well, except when a slip of a finger (due to an excess of makeup applied to the demonstrator’s hand) caused the auto-correct to transform the title “Utah Road Trip” into a weirder “It’s a road trip”… After the show, Apple staff asked to re-record the demo for a spotless posterity (the re-edited version visible here on Apple’s site, while the original is here; time code about 00:55:10 on the two keynotes). This says much about Apple’s attention to details.

An epilogue: Replay became a hit, generating substantial revenue thanks to the in-app purchase system. Stupeflix now employs 23 people, all of the same caliber as the founders. To stimulate the team’s creativity, management keeps holding internal hackathons, and they continue to build on the uniqueness of their video algorithms and rendering engines. The company recently came up with Steady, a spectacular app that gives the impression your iPhone is mounted on a Steadicam (a complex system crops each frame in real-time to compensate for unwanted motion) and Legend, that animates texts on the fly. They are now working on another movie capture app that will further transfer the burden of filmmaking from the user to the software. Call it talent by proxy.

frederic.filloux@mondaynote.com

Funding Innovation: France’s Image Problem 

 

by Frederic Filloux

The French government didn’t foresee the negative ripple effect of its interventionism in the Dailymotion case. VCs and entrepreneurs are appalled. It’s time to rethink the French way of funding innovation. (Part 2 or 2)

Last week, we looked at the pathetic Dailymotion saga.  Once described as “one the best French startups”, Dailymotion was funded, for a large part, with public money, then put on life support by Orange, patriotically protected by two economy ministers, and finally sold to media conglomerate Vivendi. The transaction did little to mask the company’s (and the Board’s) lack of a real strategy.

This wasn’t French capitalism’s finest hour.

Apparently, for the French government, Dailymotion was more important than Alcatel, acquired last week by Nokia (read below Jean-Louis Gassée’s analysis). The Nokia takeover will inevitably translate into massive jobs losses: Nordics, especially Finns, can be brutally efficient.

In the French venture capital milieu, the Dailymotion folk tale is seen as yet another blow to an already weak funding ecosystem. All the people I spoke with last week — VCs, entrepreneurs — say the same thing: The incursion of politics in the destiny of a tech startup sends a terrible message to the VC community — especially to non-French investors. If a startup becomes successful, it is likely to become a political issue in such a way that financial considerations become secondary, at everyone’s expense: employees, founders and funders.

Such government-induced repellent is the last thing the French economy needs. When it comes to supporting innovation, France already has an image problem — unfair in parts.

For one, the country does not really like entrepreneurs. Despite efforts deployed by all administrations from left to right, public opinion remains suspicious of entrepreneurship, startups, etc. No one really likes success stories here — including the press — which doesn’t help. A few entrepreneurs get lionized – as long as they don’t disturb the establishment, or don’t hire and fire like entrepreneurs.

Then there are structural obstacles.  Here is a list of the most quoted issues by VCs and entrepreneurs:

— The tax issue. In due fairness, they note, this problem is largely overstated: When looking into details, the French tax system is not worse than anywhere else. Actually, many tax incentives favor investments in startups. But some items — stock options, capital gains, a misbegotten Wealth Tax — have justifiably created a negative perception.

— Administrative weight and scrutiny. Today, it doesn’t take more time to start a company in France than in the US or the UK. But after a year, the administrative burden falls on young entrepreneurs’ shoulders, with scores of complicated taxes and paperworks requirements. And the tax collector is watching: in 2012, about one out of five startups has endured a tax investigation, twice the previous year’s rate.

— Labor laws. A startup requires flexibility, a concept that is at the polar opposite of the super-rigid French labor code which imposes to a 10-person company the same obligations as those of a big corporation. As a result, entrepreneurs are virtually unable to adjust their staffing to the uncertainties of the business; in every incubator, you hear: “Well I could easily hire three more developers or project managers, but if things go South, I won’t be able to fire them before it’s too late”. Plus, employment costs a lot. Not only do the French work (legally) less hours in a week, fewer weeks in a year (and a lesser number of years in a lifetime) than in neighboring countries, but the amount of a salary diverted into social contributions accounts for 38% of French labor costs: that is 5 percentage points more than Germany, 9 points more than Sweden — both countries with much lower unemployment rates.

— Pool of accessible capital. That’s probably France’s biggest problem. “Here, we have no pensions funds, very few family offices (for tax reasons, they stay out of France, mostly in Switzerland, Belgium)”, says an investor, “and we don’t have university endowments”. As matter of fact, the French academic apparatus is notoriously allergic to business. A Stanford-like model is nearly impossible here. (On the relationships between Stanford U and the tech sphere, read this landmark piece by Ken Auletta in The New Yorker.)

The result is a size problem of the French venture capital ecosystem. This table says all:

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Not only is the total amount invested by French VCs small, but it is spread too thin. Compared to the rest of Europe, France does well in the early stages but very badly when it comes to really grow companies.  According to a study made by France Digitale for the European Commission:

France is the top European market for early stage investments, with 35% of all European deals ranging from 500K to USD 2 million taking place in the country, but it is surpassed by other countries immediately after the USD 2 million mark. The German industry is driven by large rounds, demonstrating a favorable later stage environment with 27% of European deals ranging from USD 10 to 50 million taking place in Germany. 

Consequently, past the first round of financing, foreign VCs take the lead: According to a 2013 survey conduct by France Digitale and Ernst & Young, beyond the €50m revenue mark, 67% of the French startup already have foreign VCs among their investors. And when it comes to supporting a truly ambitious and global growth, French VCs are left out of the game. Two recent examples: Less than a year ago, French car-pooling platform BlaBlaCar raised $100m entirely from foreign funds. “We didn’t see any proposals”, said a manager in a prominent VC boutique. More recently, Sigfox, specialized in Internet of Things connectivity, raised €100m mostly form foreigns funds – and from state-owned Banque Publique d’Investissement.

Despite this bleak picture, French investors and entrepreneurs are also prompt to mention key national assets: An excellent technical infrastructure with blazing fast and relatively inexpensive internet connectivity; a significant output of qualified engineers in many disciplines, that are much less expensive (and less volatile) than their US counterparts; a vast catalogue of tax incentives that favor early stage investments; and the famous (and costly) social safety net that contributes to individual risk-taking. This results in a vast network of incubators, often supported by municipalities or regional administrations. As far as the pipeline of capital is concerned, solutions do exist. France Digitale recently proposed to divert a tiny amount of life insurance assets — 0.2% to 0.3% — to venture capital; it could almost double French VC firepower, at no cost to the French state, it says.

The main problem — which extends to most of Europe (not the UK) — is the exit for successful companies. European stock markets don’t have the Nasdaq’s strength (or luster), and the size gap between Europe and the United Sates discourages continental trade sales. Again, based on the EU survey made by France Digitale, “9 out 10 startup companies financed by VCs are sold to foreign acquirers (US and Asia)”.

At least, those lucky ones didn’t collide with the political agenda of the French government and its overzealous ministers.

frederic.filloux@mondaynote.com

Dailymotion: The Cautionary Tale Of A Gallic “Nugget”

 

by Frederic Filloux

No one should be happy with the sale of French video streaming Dailymotion to Vivendi. Not buyers, nor the the startup’s management team –and certainly not the venture capital community. (First of two articles) 

DailyMotion was meant to be a YouTube competitor. The two companies were actually born almost simultaneously in 2005. Unfortunately, Dailymotion remained deeply French (even though his CEO later resettled in California). Over the last two years, it has become a typical French political football, kicked around by a succession of two cabinet ministers, the colorful Arnaud Montebourg (pictured below) and his more sober successor Emmanuel Macron.

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[Then Minister Arnaud Montebourg, defending domestic savoir-faire]

Both government officials vehemently defended DailyMotion, invoking a national imperative: Keeping the French flag floating above the iconic startup. The “nugget” of the French startup scene was granted the status of a national symbol.

But was it really really a “nugget”?

Neither Arnaud Montebourg nor Emmanuel Macron seemed to care enough to have done more than quickly scanning reports from their own cabinet minions –and consulted media headlines for insights. Political imperatives should not be confused with economy realities: As an Industry Minister, Montebourg was obsessed by the defense of the Made in France, while Macron didn’t want to be the one who let the iconic French startup fall in foreign hands.

Dailymotion was created in March 2005. Its two first round of funding ($9.5m in 2006 and  $34m in 2007) were provided by VC firms and private individuals. In late 2009, the French government had to step in to secure a third round ($25m) along with the VC syndicate. Audience looked good, but monetization didn’t work — the bane of video streaming platforms. Orange, the French telecommunications giant (inherited from state-owned France Telecom) was brought in to support Dailymotion by integrating the startup in its digital portfolio. The French carrier acquired 49% of Dailymotion in 2011, then 100% in 2011- at a valuation of €126m. “Creating synergies!” was the resonant battle cry. Except synergies never materialized. Dailymotion’s CEO Cédric Tournay was fixated on competing with YouTube and, to his chagrin, found Orange’s culture less than welcoming to the needs of a fledgling video startup.

Incorporated just a month earlier, in February 2005, You Tube followed a different path: one single relatively modest round of financing ($11.5m) then, twenty months later, in October 2006, Google showed up checkbook in hand, and coughed up $1.65bn to acquire 100% of YouTube. The brand remained, so did the headquarters in San Bruno, near San Francisco airport. But, business-wise, two big changes took place. First, in typical Silicon Valley fashion, the massive cash infusion translated into a large scale, global deployment: audience growth first, revenue later. Second, ads became to pour in, diverted from the fantastic Google money machine. Tons of data were used to determine that users should be allow to skip ads after few seconds, thus warranting qualified viewership to brands whose clips were actually seen in full.

This left little chance to Dailymotion, underfunded, unable (nor encouraged) to  build upon Orange’s worldwide base of 244 million customers spanning over 29 countries. Through it Strategic Investment Fund, the French government still retained a 27% share in Orange SA (publicly traded on EPA:ORA and NYSE:ORAN). With such a stake, one would have pictured the French government representative sitting on Orange’s board pushing the bold, patriotic development of Dailymotion. No. Dailymotion was never more than a wart on Orange’s conservative product line. And the telco’s CEO, Stephane Richard (himself a former chief of staff of the Economy Minister), quickly set his mind on getting rid of the startup, under the best possible conditions.

A first opportunity flared up in early 2013 when Yahoo! approached Orange to acquire Dailymotion. From Yahoo!’s perspective, the operation made sense. The French company was performing well on markets other than YouTube’s native one, and Marissa Mayer wanted to have her video streaming platform to build upon. Orange’s Stephane Richard was elated: Yahoo! had proposed $300m (€275m) for the company; after all it the company had cost him about €150m, between the acquisition and the cash infusion. Not bad for a quick exit.

All of a sudden, the Minister in a striped marinière woke up and harangued Orange’s CFO: “I’m not going to let you sell one of the best French startups, you don’t know what you are doing”. Yahoo! quickly retracted its offer.

A year later, Orange, willing to get rid of an asset that was losing both relevance and value, tried to secure a syndicate involving Microsoft and Canal+, the Paris-based paid-TV network. Again, no luck.

Two years later, Montebourg is gone (now Board Vice-Chairman at Habitat) and the Economy minister is Emmanuel Macron, a pragmatic former philosopher (yes) and investment banker seen as less driven by ideology and grandstanding. But when Hong Kong’s Pacific Century CyberWorks showed up to acquire Dailymotion, the soft-spoken Macron jumped in and asked Orange to consider “other” suitors (read French or at least European ones). Problem is, in spite of government efforts to arouse bidders, there were no takers –a few tentative marks of interest, but no formal offer. PCCW was out.

Until Vivendi showed up. To its owner, industrial magnate Vincent Bolloré, and its newly appointed CEO Arnaud de Puyfontaine, the timing was just right. Vivendi faced a shareholder revolt lead by the American hedge fund P. Schoenfeld Asset Management. PSAM was calling for a €9bn dividend windfall from Vivendi’s massive divestment from telecommunications assets that left the group with a €15bn cash hoard. Not only PSAM wanted a fat dividend, but it also demanded a viable strategy. Hence the quick wrap-up of the Dailymotion deal. On April 7, Vivendi announced the purchase of 80% of Dailymotion for €217m (€230m), i.e. a €265m (€281m) valuation. Vivendi didn’t quibble, his shareholder meeting was ten days away. In the meantime, Vivendi had reached an agreement with PSAM: €6.75bn in dividend payouts.

Vivendi has yet to find what to do with its brand new “nugget”. It will have to deal with harsh facts:

  • Last year, Dailymotion made €65m in revenue, and had a negative EBITDA of €2-3m. No big deal, but due to the specific nature of its business, of its infrastructure costs, the platform is said to require a €20m-€25m yearly cash-burn. (In fact, Dailymotion guarantees a minimum revenue for some of the media it hosts — to some extent, it buys its own revenue.)
  • Dailymotion his having hard time monetizing its audience as most of its videos are user-generated (and therefore carry few ads) while Facebook is crushing the market –threatening even YouTube.
  • Canal+ needs could generate post-deal opportunities. But, until then, the paid-TV network (owned by Vivendi) seemed quite happy with the deals it had with YouTube. So is Universal Music, also a Vivendi subsidiary.
  • Vivendi made an opportunistic acquisition and overpaid it: in its books, Orange is said to have downsized the value of Dailymotion to €58m; that is almost a 5x implicit valuation for the transaction.

As far as going after YouTube, it’s no longer a realistic goal, as shown in these two charts:

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This politically-induced operation carries its share of collateral damage. From now on, every Gallic startup that will be seen as a success — real or presumed, that’s beside the point — is likely to become a political football, a situation adverse to the interests of the company and its backers.

Next week, we’ll see how the maneuvers around Dailymotion have done more harm than good to the French startup ecosystem and to those who try to fund it.

—frederic.filloux@mondaynote.com