Q&A: Alan McGlade on His New Digital Media Fund
Former MTV executive Alan McGlade and venture capitalist Michael Yang launched Digital Entertainment Ventures (DEV) in New York recently to make early-stage investments in digital media companies. DEV’s total value has not been disclosed, but the fund has already backed Stagit, a Web-based live music platform, and Mad Humans, a mobile gaming company.
McGlade, managing director of DEV, was most recently CEO of MediaNet in New York, a digital content company that began as a music download service formed by major record companies. Prior to MediaNet, he was CEO of The Box cable music television channel, which he sold to MTV in 2001.
McGlade spoke to Xconomy about DEV’s plans to fund and provide guidance to startups that leverage tablets, smartphones, and Internet-enabled television for content such as movies, music, and games.
Xconomy: What did you see happening in the media world that spurred the formation of Digital Entertainment Ventures?
McGlade: I had a unique vantage point. MediaNet is a business-to-business company that aggregates digital content to enable websites to distribute premium content. I worked with large companies, such as Microsoft, Yahoo, and Google, and many of the startups that emerged over the last decade. I saw firsthand the struggles big media companies were going through trying to transition from an analog audience to a digital audience. I saw what was and wasn’t working in the marketplace. There were issues around licensing and distributing content, and building an audience. Working with these companies I got very interested in helping to build the next generation of services. There was a confluence of events that helped propel us forward.
The introduction of mobile computing in a significant way, with smartphones and tablets was an important milestone. That really accelerated the evolution. General computing power, the availability of much higher bandwidth and storage—all of these things support the ability to consume and distribute digital media. Audiences were beginning to shift. Music is almost always consumed now in digital form. CD sales have fallen off considerably over the last decade. In the TV business they talk about over-the-top streaming, which is beyond the set top box. People are connecting directly to services [via the WEB] to watch video.
In the gaming space, everything was centralized through consoles. Now it’s shifting to tablets and phones as the preferred platforms. I saw all this happening. It was a confluence of events, and technological developments, and shifting attitudes by a younger audience. A lot of activity was happening in New York, which makes sense. This is the media capital. This is where music companies have been traditionally headquartered. Television companies, newspapers, magazines, you name it. Look what happened to books in the last couple of years. Everybody is walking around now with tablets and Kindles.
There used to be a barrier to building these services in terms of cost and implementation. Looking back less than ten years ago, some of the services I see being designed now, you would need $20 million to get up and running and build a giant storage system, server farms, and get the bandwidth and developers you needed. Now almost all of that can be offloaded to cloud computing, contractors, and software.. The barrier to entry has changed, which allows creative people to do interesting things at a relatively low cost.
X: What types of startups catch your eye for potential investments?
M: We’re not likely to invest in a new record label or a movie. We’re looking at platforms that enable new business models and new methods of distribution. I like companies that are taking full advantage of the new mediums that have been created. A lot of what you saw in the early stages were companies taking existing physical products and trying to transpose them into the digital world. That’s what you saw in the book business. Companies have taken their existing books that were made for print and digitized them. That’s not necessarily taking full advantage of the medium they are working on. If you’re viewing a book on a tablet, you’re working with a powerful computer. The book doesn’t have to be presented in linear way with chapters, particularly if it’s a how-to or nonfiction book. There are methods of searching using video and graphics that are completely different from the way traditional books are read.
Same thing in gaming. Companies are saying “How can we take this console game and put it on a tablet?” You really want to create a new set of tools, a new paradigm. If you’re working with a tablet, you have a touch screen and a different form factor, and it’s mobile. You have to build native to that experience.
We are also aware of the decentralization in every medium. It used to be that the funnel for albums, movies, or books was through a few sources. A few major record labels, a few major publishers, a few major game makers. Now there are hundreds of thousands of movie titles, games, and books coming out that aren’t even going through traditional paths. There’s self-publishing, people recording their own albums, they’re becoming entrepreneurs and distributing themselves. The aggregation of that content and curation is an important part of what is going on.
X: Do you plan to accelerate or incubate startups that you back?
M: Many of the companies we’re investing in will have seasoned entrepreneurs but we think we can add a lot. We are going to incubate some programs. Those are going to be ideas that germinate within our group. If we get to the demo stage and think it’s something that can get traction, we’ll match them up with an entrepreneur.
X: How did you know Michael Yang prior to working on this fund?
M: We worked on a significant deal with my prior company seven years ago. We’re good complement to each other. His legal and prior investor backgrounds are extremely valuable. I have a strong operating background. We’re building out a network of advisors.
X: Will you focus on New York–based startups when you invest?
M: We would like companies that have some kind of relationship to New York or maybe they started someplace else and New York has become an important thrust to their business.
The time is definitely right. The entrepreneurial community is burgeoning in New York. I got to have a ringside seat as this developed over the last decade. The next generation of services is not going to grow out of big media conglomerates. They’re going to grow through small company startups who innovate.