If you think Fox TV is edgy and kooky now, you should’ve seen it back in the early ‘90s when Stephen Chao was a programmer and eventually its President.
He commissioned “COPS,” created “America’s Most Wanted,” and earned a reputation for creating commercial success by pushing boundaries and questioning the conventional wisdom. Chao rose to president of Fox Television and later held the same position at USA Cable where he launched “Monk.”
He dropped from sight for a few years. I hear he did a lot of surfing, and he’s now back in a new medium promoting a website, wonderhowto.com. If you want to see videos such as “Make Your Desk a More Creative Space” or “Increase Boob Size on Pictures with Photoshop” — yes, I did like that one myself — check out wonderhowto.com.
BOB ANDELMAN/Mr. MEDIA: I’m sure this is what everybody who runs into you asks this question. But, okay, why on earth did you get a man to remove all his clothes at a meeting with Rupert Murdoch and Dick Cheney?
STEPHEN CHAO: Do I really have to go into that, Bob?
ANDELMAN: So much time has passed, Stephen. It must be easier to talk about.
CHAO: Let’s see. Let’s count how much time. 1992, 2002, 2008 – that would be 16 years.
ANDELMAN: Yes. And I noticed that The New York Times, when they profiled you a few weeks ago, referred to it, but they didn’t explain it, and that’s the thing I’ve always wondered about. It’s a bit of notoriety that will live with you forever. And here we are so I was kind of curious to ask.
CHAO: Okay. Actually, to tell you the truth, Bob, this is the first time I’ve actually ever spoken to it with any publication or medium or anything, but since you’re polite, I’ll answer the question.
The answer is I was giving a speech on standards and practices, and it was a speech that was meant to illustrate the trade-offs between the different standards and practices we have in America as it relates to violence on the one hand and nudity on the other. Both of those are big hot points in the media. They always have been, and they still are today. And I was citing an example of Dutch television, which had liberated itself from certain constraints. They said “Nakedness really isn’t that big of an issue, but violence, that’s a really bad issue. That’s anti-social.” So all of a sudden — and this was 1965 that Dutch television did this — they said, “We’ll allow nakedness starting now, and we’re going to ban violence starting now.” And, of course, that’s a pretty radical move for any government or television operation to do because it’s a complete switch, and it’s a switch very much like the way it would be a switch today in America, which is that we happen to accept violence on television. We do not happen to accept nudity. And so the question was kind of just a theoretical. Which is better, which is worse for society? Nakedness on the one hand versus violence and killing on the other. So I had a prop, as it turned out, to demonstrate a particular point, and it didn’t go over particularly well. And that’s the end of that story, Bob.
ANDELMAN: Did anyone besides you know what you were going to do, and did anyone try to talk you out of it?
CHAO: I guess the answer to that would be no. No one knew. That’s correct. No one knew.
ANDELMAN: I’m really glad I asked you about it. It was the kind of thing that interested me. I could see myself, a younger version of me, doing something like that to make the same type of point.
CHAO: Exactly. Yeah.
ANDELMAN: And then looking back now and saying, “I don’t know what I was thinking, but it seemed like the smart thing to do then.”
CHAO: To tell you the truth — and this is an indication of the difference between you and me — I don’t think I’ve gotten any wiser since then, so I’m pretty much the same person. I would probably do it just as innocently today and go, “What? What’s wrong?” And that would be that.
It was an interesting point. It was backed up by facts and situation and experience that happened in 1967 on Dutch television. It was kind of a landmark situation in Holland, and it was just meant to be a provocative point. I probably, in retrospect, nothing would’ve happened to me if I didn’t have that naked male, but such is life.
ANDELMAN: Do you think it would’ve gone over differently if it had been a naked woman?
CHAO: Yes. That, in fact, was very much a very good point. I don’t know if there’s anything left that can happen. You either get fired, or you don’t get fired. I chose a man for purposeful reasons as opposed to a woman because I think we accept a naked woman. We really don’t accept a naked man. So I don’t know. It was a choice on purpose. It was meant to be provocative. I hadn’t really given it… I just haven’t given it much thought since the incident since you asked me now 16 years later. I know that I chose a man and not a woman in that situation. That’s the only way I can answer that question.
ANDELMAN: I’m thinking about it. Murdoch’s newspapers, of course, have run topless pictures of women for years so I would think that might’ve gone under the radar, but I guess the man…
CHAO: Well, to be fair to Rupert…
ANDELMAN: But you don’t have to be.
CHAO: No, I don’t have to be, but I think he’s pretty good at what he does, and he’s pretty consistent, and I don’t consider him, frankly, hypocritical. If you’re referring to naked pictures, what happens in England, for example, on page 3 of The Sun, that’s a different culture, and in true standards and practices, not that a speech in Aspen is governed by standards and practices necessarily or the rules of English media or the rules of American media, but to be fair, yes, you do it in English media. That’s something you do. In truth, would you put a naked person on in American media? And the answer to that is no, you wouldn’t do that in a newspaper, and you wouldn’t do that on a TV show. You might, if you were Stephen Chao, make a provocative point in a conference and behind closed doors, but it is a different culture, and so you can’t import that culture and that standards and practices to America and therefore, label him hypocritical or not cause it’s just apples and oranges all the way around.
ANDELMAN: Stephen, take me back to your days as a programmer and as a president at Fox, the early days of Fox. What kind of things were on the air then?
CHAO: That was 16 years ago so I’m taxing myself right now. I think there were things like “Women in Prison” and “Boys Will Be Boys” and — what was that woman talk show? Joan Rivers. And then there was a little bit of bubble at 7:00 on Sunday in the form of “Jump Street,” which wasn’t really working, but it was doing okay. In truth, Sunday night and Saturday night weren’t doing okay at the time. And then there was a show that wasn’t moving very much, that wasn’t getting any appreciation, named “Married With Children,” and this was, of course, all before “The Simpsons” was there. So that’s what was on the schedule then.
ANDELMAN: You get credit for commissioning “COPS” and creating “America’s Most Wanted.” What else did you put on the schedule at that time?
CHAO: I was really interested in exploring what I thought was a new way to turn up the volume on dating so I launched a show called “Studs,” which actually got me in some trouble also. But it was, commercially, quite successful, and it was making an awful lot of money. It had a very quick start. I made a lot of specials, and I made a lot of shows, or my division did, at Fox. So we were making five hours a week for Fox Broadcasting Company. But the other show that stands out, mostly in terms of just kind of in retrospect, it was “Studs.” I just thought that, again, you have to go back to 1991 to have the context, but the most successful show at the time in the dating area was “Love Connection,” and it was really good. There was just plenty of room to make it more fun and carry on in the kind of double-entendre, racy tradition that “The Newlywed Game” had many years before that. I thought we could just do that same kind of thing in a contemporary way where the male was the victim of the joke, so to speak, between 2 or 3 women. And it wouldn’t be so much conceptual fun to step on the ego of women. It would be an awful lot of fun to step on the ego of men, and that was really the idea behind “Studs.” And it took off and worked and was a lot of fun.
After that, I shifted and ran Fox Television and Fox News, so I was out of the production business at a certain point.
ANDELMAN: Those early days of the Fox TV network, it was kind of a wild, wild West. There was some very unusual fare that got on the air, and I say it with respect because I enjoyed it. My wife and I, I don’t know if she wants me to drag her into this, but my wife and I watched those shows because it was so different. It was such a different time. I kind of wondered what was the programming philosophy at that time? What were you looking to do?
CHAO: Behind the scenes, as is the case I would suspect in most good start-ups, it was kind of desperate in many ways, and so it was a combination of desperately looking for any signs of life and Nielsen ratings and reaction, versus the other side, which is what you want it to be, which is more of this open field of creative experimentation. It’s a combination of really, really trying hard and the combination of really being terrified when things aren’t working. So that’s a nice combination. It’s a lovely place to be, between happiness and despair. A lot of things were experimented on, and out of that, again, just to go back, which is what you’re asking, to go back in history, “COPS” came out of nowhere. “America’s Most Wanted” came out of nowhere. They had no antecedent, so to speak.
At the time, everybody said, “Wow, ‘Hill Street Blues.’ It’s so realistic.” And, today, that’s frankly a laughable statement that people would say, “I really look to ‘Hill Street Blues’ to understand the psyche of cops and the psyche of victims and perpetrators and stuff like that,” because, of course, once you get to “COPS,” it’s like, “What was that cartoon they called ‘Hill Street Blues’? What did that have to do with life?” So it was very interesting because it came out of the blue, it had no antecedent, and it just smashed onto the scene as a completely original television idea. And I don’t mean to give “COPS” in the form of Frederick Wiseman, who did documentaries about cops which, by the way, we luckily were too stupid and ignorant to have known about, but they were similar cinema-verite kind of efforts many years before. It’s a lovely combination of experimentation, of ignorance, of having a budget to spend, and really being open-minded to what might or might not engage the national audience.
I think all those factors made it very interesting, and I think that those are factors one really tries to find in life because it’s not too much fun if you get too successful, and it’s not too much fun if you hit too much failure. So I guess it had just the right combination of things. And, by the way, you have to pick your right moment in life. Namely, you can’t say, “I’m going to launch a fifth network,” which 2 people did, and expect there to be enough of a marketplace for that. Now, it’s easy to say in hindsight, but at the time, prospectively, when either CW or Time Warner were being launched, you go, “It’s getting kind of thin. Do you really want to divide the pie up between 6 networks plus syndication?” And the answer is, “Wow, that’s kind of slicing it kind of thin.”
At the time when Fox was started, and, again, it’s a combination of creative programming strategy and smart business strategy. You have to say, “It’s been dominated by the big three. There is this group of stations called the Metromedia stations that could be the core of a new network. The big three incumbents are really kind of traditional. Their timing and their scheduling is kind of traditional. They don’t have a 10 o’clock news. There’s vulnerability. We are only required to do fewer hours. There’s all kinds of opportunity in that situation in terms of advertising, in terms of market, in terms of station groups, in terms of creative ideas. So you look at that, and you look at the larger market, which is basically what Rupert did before he bought the Metromedia stations, and he said, “You know what? I think there’s room here for a fourth network.” So you have to make the big, overall, broad-stroke judgment of it, and then you have to dive in with every piece of smarts you’ve got in every category of advertising, program development, distribution, promotion, everything. But the first stroke is, is the market there? And that stroke was chosen and decided by Rupert very bravely when he decided to buy the Metromedia stations. That was the real beginning of the Fox network.
ANDELMAN: How much pressure was there on the programming side by the people controlling the money at Fox, whether that be Rupert or people working for him? Was there a lot of pressure to perform, or was there a window to experiment and see what might work for a few seasons?
CHAO: I would say, to Barry Diller’s credit, I think there was a lot of pressure on him, but I think what he did is truly the sign of a great manager, which is he kept none of that pressure or transferred none of that pressure to anybody in the program department. And he really said look, you need a carte blanche to be creative and to really think of something interesting. And he didn’t say, “I need money, I need ratings, I need advertisers.” He compartmentalized that and just said, “Do something good.” So the answer is no, there wasn’t pressure. I’m sure there was in some certain areas where there appropriately should’ve been, but in shaping and fostering a creative enterprise, you just have to know when to draw the line.
ANDELMAN: Did you continue to have any relationship with Barry Diller over the years once you were out of Fox?
CHAO: Yes, I was hired twice subsequently – once to help Q2 and QVC and subsequently to run USA. So three different times I’ve worked for him in my life.
ANDELMAN: Wow. I didn’t know that.
ANDELMAN: I know that you probably want to talk about your website.
CHAO: I do indeed. You’re a mind reader, Bob.
ANDELMAN: I know that — but we have some time, and there’s a couple things to touch on, and we’ll come to that. I’m also very interested in what have you been doing since you left USA? I didn’t know about your involvement with QVC, but for the most part, people who watch media haven’t really seen much of you in the last 6 or 7 years. How have you been spending your time?
CHAO: Let’s see. I’ve been a private investor so I’ve bought and sold some companies, not necessarily in the media business. One that I’m particularly fond of that my friend ran was called Helios Nutrition. It was a kefir company so it was a natural foods kind of thing that was in all of the big good stores like Whole Foods and Wild Oats, and it was really successful as an alternative to yogurt. That’s one thing that I did. I just choose ideas and situations that I find engaging. I can’t say that I have to be in the media business. That’s not a requisite when I make choices, although I happen to like the media. I think it’s lots of fun, but it’s not a prerequisite.
ANDELMAN: But was I off-track when I suggested you’ve been doing a little surfing?
CHAO: Well, I’ve gotten pretty decent at surfing. It happens to coincide with my kids. I have a couple of kids. They’re 16 and 13 so the occasion to surf is kind of a magical thing because when you’re a 16-year-old boy, how much time do you really choose to be with your dad? And if dad’s a decent surfer, takes you to kind of really decent spots, and drives you there, dad’s pretty good. So it was really fun to be able to surf and get pretty good at it. I’m pretty good would be an exaggeration. I don’t want to say that. I’ve gotten decent at it.
ANDELMAN: So you’re not “John from Cincinnati” decent at it?
CHAO: I’m okay, actually. I really love it. It’s really a remarkable sport for me. I used to like skiing or snowboarding, but then the idea that you can go into the ocean without any equipment or artifice and just have a surfboard, I just can’t think of any sport like it. So I happen to really, really love the sport.
ANDELMAN: Let’s make you more comfortable, and let’s talk about wonderhowto.com.
STEPHEN CHAO: Great.
ANDELMAN: And I’ll repeat it – wonderhowto.com. How did you get involved in this site?
CHAO: Well, about 2 years ago, I started with my partner, a guy named Mike Goedecke, and we were kind of all very amused, as you probably were, by the advent of pretty decent streaming as it was represented by YouTube, and I guess there’s now 250 other video streaming sites out there, 400. But it really seemed to cause a shift. Namely, “Wow, it’s not a bad experience.”
I don’t know how much you remember what it was like to download a file and play it back and go search for that file if you could — it wasn’t very easy for me, and I’m okay at the computer. And it was a very painful experience. And around that same time, it was the tail end of when cable had said, “Video on demand, it’s the future. You’re going to be able to use your remote control and see anything you want.” And so as that kind of started to fade and then as the idea of streaming video started to happen, it was like, “Wow, there’s really something here that’s very exciting that really augurs toward something new. Who knows what it is?”
I happen to really enjoy YouTube, but I think it has its limitations for me as a television viewer, a media viewer, or an ex-programmer. Once I’ve exhausted the most viewed, most popular kind of sorting mechanisms, I run out of things to do. There’s no further place for me to go. And so Mike and I were kind of at this place looking and really loving streaming video on the Internet, and we said you know, the place that we just always spent our time with or without streaming video is in this strange area of instructional tutorials. We’ve just had this kind of little love affair privately with this category. For example, I happen to have bought six years ago, “Darren’s Dance Grooves,” if you happen to remember that. It was $19.99, and you could learn how to lock, pop, and something or other like ‘N Sync. And I did that for a summer with my kids, and we had some friends who were really good hip-hop choreographers, and we kind of did that. But that’s the kind of thing that I used to do in my spare time because it was video. It was fun and allowed me to get up and do something as opposed to not do something. Like with television, you kind of sit there, and you don’t move. And I just thought this active experience of instructional tutorials was always kind of fun. And obviously, if you’ve done workouts like the “Jane Fonda Workout” or something, everybody’s actually probably tried that once or twice in their life, you go this is kind of fun. You do something. It’s watching TV, but it makes you active. So two years ago, we said, “This is just really great.” Bob, do you ever play Sudoku or anything like that?
ANDELMAN: My daughter does and my wife, too.
CHAO: I see. Well, it’s a strange experience because on the one hand, you’re wasting time. On the other hand, you’re going “This is kind of fun, and maybe my brain’s getting a little bit better than it was before.” So that odd combination of being able to waste time and actually being able to educate yourself or think you’re educating yourself or actually educating yourself is a great experience for me. It’s a really odd sweet spot in my mind where I go, “Gosh, how great, I waste time, and I learn.” And you can take that either way. Again, you can choose to just waste time, or you can choose to really learn something, and you can choose to learn something and do something like dance like Darren or dance like Solja Boy, who does Superman, or you can learn to teach your cat how to poop in the toilet, or you can do anything that you want out there that’s only limited by your imagination. So once we said, “That’s an interesting category,” we said, “We really need to find everything out there.” I’m anticipating probably what your question is. We originally were going to produce a lot of how-to videos because I come from television, Mike comes from advertising, but we started looking around, and we found out there were really odd, eccentric, long-tail things in places that we never believed were possible.
ANDELMAN: You’re thinking of things like, “Make a Cat Hair Cat Toy at Home,” things like that?
CHAO: Ah, that would be “Clip of the Day,” yeah. Like that or “How to Taxidermy a Mouse or a Squirrel.” Those would be things that Mike and I would never choose to spend $600 to produce and edit and post up onto our site, but those were the things that were just endlessly long tail fascinating. So we quickly decided that we would be silly to try to out-produce the Internet, the web, the collective imagination of production that exists on the Internet across the whole world because the likelihood is somebody’s doing it interestingly and well. So we said, “Let’s search and index absolutely every single how-to in the solar system, and that’s what we’ll present.” So instead of saying we’re going to be a walled garden that’s going to make 2,000 a year or whatever number of videos we thought that we could do, we said our particular fascination would be to index and search everything. And so that’s really the definition of what we do. There’s certainly other sites out there who are how-to sites, and they’re making great how-to videos, but there isn’t any other site out there that searches and indexes every single thing, this walled garden, that walled garden, that walled garden, and more. So we cover the entire world of how-to. If it’s a how-to that’s free, we have it indexed, and we’re just really trying to create the perfect.
We’re just really trying to create perfect information in this niche space of how-to for the user. That’s really what our goal is, and we’re about to hit 100,000 videos indexed. Sometime this month we’re going to do that. And it’s onward and upward.
ANDELMAN: I have to say that, and it’s on the hot videos today if people listening want to check it out, the one that made me laugh out loud, probably not surprisingly, was “Make People Naked with Photoshop,” and it’s just amazing.
CHAO: It’s kind of weird. I have to tell you that one I look at practically everyday because it cycles up into the hot algorithm. It’s not something that I have ever showcased in “Pick of the Day.” It’s not something that we’ve editorially pushed or featured forward. It is something that people have found, and they keep viewing that darn video. It’s just amazing to me. So this is part of it which is what I love about, well, it’s true of TV, but what I love about the web and video experience on the web, you’ve got your Nielsen ratings right there. The Google Analytics is going to tell you how many people watched that video that you just cited today or in the last 30 days and the amount of time they spent on it and if they exited. So from a programming standpoint, it’s kind of thrilling to be able to program something and just watch it happen like make a toy out of cat hair, which is the featured “Pick of the Day.” I’ll be able to see what people thought right away. I can go to Google Analytics right now and find out the answer. It’s amazing.
ANDELMAN: Some of them are very funny. I have a question that came from the web chat. I’m going to paraphrase this a little bit.
ANDELMAN: Coll wants to know if there had ever been a time that you didn’t know how to do something, and how did you eventually find the solution? And I guess that would be before wonderhowto.com.
CHAO: That’s a good question. I’m a guy who’s got kids, and I’m from New Hampshire. A potato gun is something that is really a phenomenon from farms. So if you’re raised on a farm, you know how to build a potato gun. The potato gun is a very simple concept. It’s PVC pipe that you stick a potato into, and it’s got a chamber. You stick hairspray into it, and you ignite it with a barbecue lighter, and it shoots out a potato at 200 to 300 miles an hour. And it’s kind of a thing that farm kids do. I was raised in rural New Hampshire. It’s what you do. It’s not akin to NRA gunmanship. It’s just kind of a toy that you build that’s very fast and could be very damaging, but it’s kind of a toy that you build when you’re 13 or 14. So the answer to your question is when I was 13 or 14, there was barely television, but there certainly wasn’t Internet video, and there certainly wasn’t a robust kind of DVD tutorial market of DVDs for sale. So I had to go and track down friends who knew about the potato gun because while I’d seen it demonstrated, I didn’t know how to build it, and I had to do it the old-fashioned way. I had to call friends and say, “Hey, who’s built a potato gun?” And then I had to go to the dad, and the dad would tell me how to do it. And that is the normal process in life. On the other hand, these days you could look up potato gun on wonderhowto.com, and you’d have an answer and not have to go ask the dad, I suppose.
ANDELMAN: Eric Smith in the web chat has a question: “With the advent of so many video-centric web sites, both entertainment and now how-to sites, how do you plan on marketing your site so that it stands out from the crowd?”
CHAO: Eric, that’s a very good question. It’s kind of the challenge in the next year for me.
ANDELMAN: Well, your first answer, of course, is “I’m going to go on Mr. Media and have a live conversation.”
CHAO: That is absolutely correct! There’s no way to get around the fact that the best publicity and the best marketing is actually non-paid marketing. It just has the most integrity to it. It’s the fastest. It’s the most credible. It’s your default choice. Even if you had a billion dollars, you wouldn’t say, “I want to spend a billion dollars.” You want to say, “I want to create a really good product that people pass around, that people want to write about.”
So to answer your question, Eric, the first stop is to be able to get to the chatter class, which are people like Bob or The New York Times or BoingBoing or whatever it is, the people who control the media. And now the great thing is the media is more diffused. It’s not just The New York Times and The Wall Street Journal. There’s a number of influential people out there like BoingBoing, like Mr. Media, etc.
The first trick or task is really to, of course, make a good product. And the second thing is to really work on issues of publicity and press and spread the word that way. As an example, there was a New York Times piece on January 31, and then that one was picked up by BoingBoing the next day, and a press release followed. So that’s really the start of it. And then there are all these tools. You could buy links, you can buy traffic, you can create stunts that get publicity, you can have a very smart advisor like Todd Beck and then he’ll help you figure it out, you can write to blogs, you can make playlists for the person who runs Technorati. So I guess the choice, because there’s a lot of ways that you can pay for traffic and marketing, the choice is really to talk to the people through the different media, whether it’s blogs or hard copy in old media, and get the word out. That’s probably the best way.
ANDELMAN: What’s the start-up investment dollar-wise between you and your partners? And I know you have a venture capital firm that’s behind you.
ANDELMAN: How much are we talking, Stephen?
CHAO: Okay. Well, I won’t disclose the amount that the venture capital firm put in only just cause I choose not to. But I will tell you that never having previously invested in a start-up Internet site, I thought it was really kind of interesting. Namely, we had spent approximately $500,000 to start up the site. Now that means we had two full-time programmers going probably for a year. We had really researched the world of how-to. Before we opened up, we had found tens of thousands of videos on 600 to 700 different servers. So in terms of walled gardens, we had sourced 600 to 700 walled gardens who really had true expertise in how-to. So we had kind of done our market research, and we really had kind of really well done our programming, our coding, and stuff like that. This was before we had a marketing plan. This was before we actually launched it live without password. We did launch it under our own funds. It was before we bought all the traditional kind of things that cost money like E & O insurance and stuff like that and heavy legal stuff that you need to do to be properly protected.
We spent half a million dollars to start up the business. We had not marketed. We had not done all of the things to be entirely street legal, but the great thing about that is, while that is a lot of money, it’s not a lot of money considering the fact that you can, if you build a smart business model, you can scale up, and the sky’s the limit. It’s the kind of really wonderful thing about the media, which is that if you build it properly, your ability to scale is kind of unlimited, and the Internet is a form of the media or certainly this particular wonderhowto.com. So the answer is probably a little bit more than it takes to open a restaurant or a dry cleaner but less than it costs to open a brick and mortar business by a country mile. It’s really been a fascinating process. It’s not horribly expensive to start an Internet business, which is why there are so many competitors out there cause the barriers to entry, at least in terms of capital, are pretty small.
ANDELMAN: I have to say I was stunned to hear that you had spent $500,000, pre-launch. That’s astounding to me.
CHAO: Astounding a lot or little?
ANDELMAN: It sounds like a lot.
CHAO: It is a lot.
ANDELMAN: It is a lot. I think if somebody invested $5,000 in Mr. Media, we’d probably own Microsoft. So if you guys are looking to invest further…
CHAO: To speak to that point, $500,000 in truth is more than most entrepreneurs will invest. I think that the standard number that you hear is anywhere between $150,000 and $300,000. We decided to go over that only because we were extremely picky about certain things, and we went through fully three redesigns, soup-to-nuts redesign, before we were ready to open it. There’s some pickiness to what we did that we didn’t have to spend that much. But again, in the scheme of things, we’re pretty happy with the product, and we’re very happy with the wonderhowto product. So we’ll see what happens, but we just said, “That’s the threshold. We’re going to spend that much money before, and we’ll spend as much as we need to be really happy that when we’re ready to open, it’s a full representation of who we are.”
ANDELMAN: Stephen, is there another source of revenue besides the ads on the site?
STEPHEN CHAO: That’s a good question. Yes, our business model is advertising-supported. That said, we need a certain threshold of traffic before we can become profitable. I think that, certainly in making the business plan, we were very much intending to monetize it in a couple of different ways. Namely, the real virtue of the site right now from an advertising perspective is unlike Google AdSense and keywords where you have contextually perfect ad placement in a text-based website, in video sites, you kind of have random tags and nonsense and really kind of unreliable metadata. Because each video that we have is in one of 36 categories and 407 sub-categories and because it’s curated by a human curator you know the video is the real deal as opposed to a piece of junk or spam or a broken link or whatever. An advertiser can specifically buy a sub-category and a sub-category could be cat toys, and they could buy that specific placement with complete precision. That’s somewhat or very rare in the video world right now. So we have that going for us that we’re really contextually perfect information from an advertiser point of view, but beyond that, sorry for this. My long-winded answer is we do have in our business model lead generation, and I think down the road, we’ll be able to have direct e-commerce. So if you’re in the mood for making a cat toy, we’ll be able to link you to whatever. If you want to purchase a cat or a toy or something, we’ll be able to link you to that down the road. But that’s not in the plan for another year or two years.
ANDELMAN: How much time is in the plan to earn back the investment? And we’re talking about more than $500,000 that’s been invested in this.
CHAO: Substantially more.
ANDELMAN: Yes. You didn’t speak to how much the VC firm put in.
ANDELMAN: How much time do you have to start making the investors happy?
CHAO: Start laying off people? Yes. I think if everything went the wrong way and zero revenue came in, we’d have two full years of life. Now, you’d know after a year that things are going pretty badly if you have zero revenue. But I would say that if nothing happened properly, we’d have more than two years of life. And so I think that, in my opinion, and I’m only one person, although the CEO of wonderhowto, in my opinion, I think that we should not have a problem. But to answer your question a second way, which is, “Do you intend to get a second round of funding?” which is kind of traditional in the Internet business, which is you get the first round then the second round, and my choice would be to get one round and call it a day and be cash-flow positive before the end of the funding runs out.
ANDELMAN: I can tell you that I’m following as we’re talking, there’s some discussion in the web chat that accompanies Mr. Media. And Coll says “$500,000 on an Internet site seems kind of high, but that you must know what you’re doing.”
CHAO: Coll, you’re giving me way too much credit. It’s what we were comfortable with. It was simply a gut-check, which is, “Are we happy with the representation of the site? Is it creatively what we want it to be?” Obviously, at the $250, $300, the $400 mark, we said no. We’re not happy with it, and then at the $500 mark, we said, “You know what? We really love this site now.” So there is no right or wrong till it’s over or till it keeps going. So it remains to be seen.
ANDELMAN: And she has another question here. She wonders: “Are you guys selling direct advertising, or are you working with a…”
CHAO: Scripps, which owns Do It Yourself network and Food Channel and HGTV, is actually doing the selling.
ANDELMAN: Coll was asking if you had to convince the advertisers that the site was worth advertising on. It’s like the Internet. It operates in a different way.
CHAO: Well, even if we didn’t have Scripps, there would be just any number of ad networks that would fill in the blanks.
ANDELMAN: Right. I know with Mr. Media, we use Google AdSense. We use Amazon Associates. There are a whole bunch of them out there that are kind of invisible to people who just surf the net, but people who are putting up content and looking to get a return, there are a number of ways to do it. Chris came in a little late, and was asking how you’re distinguishing WonderHowTo. There is a site called monkeysee.com. I think one of the things that’s different between WonderHowTo and MonkeySee.com is that they are creating content as opposed to…
CHAO: That’s correct. We point and link to every site out there. We don’t, ourselves, make how-tos. So, for example, there’s a MonkeySee out there. Last week, I just sat down with the people from ExpertVillage, which is perhaps the biggest or one of the biggest in the how-to space. They produce an enormous number of great how-to videos. So we actually have discussions and agreements and partnerships with all of the people out there that we can possibly get to. So, again, we connect to 600-700 different sites. Monkeysee and ExpertVillage are two of those 600-700.
ANDELMAN: Eric Smith had another question. He says, “I notice that many of the videos on your site take you to a third-party site. How do you monetize that, and how do you address copyright issues?”
CHAO: Some of the sites are very happy to have us embed their video. For example, a number of sites have called us up and said, “Please run our video inside, please carry us because that way we’ll be featured, we’ll get on ‘Pick of the Day,’” stuff like that. And so, for example, Sclipo and 5Minutes.com and ExpertVillage are very comfortable with us embedding it. In some situations, for example, if there is a taxidermy.com or there’s a really good site that one, doesn’t have an embeddable player and two, we just haven’t reached them or connected with them individually, we just connect to them. So you come up with squirrel taxidermy, you click on that, it takes you to a window that allows you to get onto that taxidermy.com third-party site.
To answer your question, if it’s an embedded video, for example, ExpertVillage, who we’re very good friends with, we play their video inside of WonderHowTo because they have a lower third that is a transparency. Each play on WonderHowTo counts as a unique traffic for them and as a view count. So they monetize that piece of traffic when it’s played inside of WonderHowTo, and that’s why people are happy for us to embed their particular video. But to answer your question about the third-party ones, the third-party ones you end up on a third-party site. Would we put pre-rolls in front of somebody else’s video? The answer is no. We happen to make our money very simply from the banners in the frames that are around our site. We don’t invade anybody’s player.
ANDELMAN: See Stephen, when we started out, you probably thought I was going to spend the whole time being salacious and talking about Fox and Murdoch, but I just wanted to get that out of the way.
CHAO: I can respect that.
ANDELMAN: If you had to make a how-to video, what could you teach people to do?
CHAO: Well, let’s see. I haven’t personally made a how-to video. I’ve thought about it because then I’d post it to wonderhowto, and I’d probably give it prominence, but I guess my answer is I show them how to make a really, really first-rate taser-powered potato gun. There is a lot of art and skill to the making of a good potato gun. So I guess that would probably be it, not because there’s a need, because there are a lot of potato gun how-tos out there that we index. It’s mostly just to emotionally get it off my chest. I suppose I’d make it because I want to make the best potato gun tutorial there is. That’s probably what I’d do.
ANDELMAN: I want to say that I’m watching as we talk here. I’m looking at a lot of things on the screen, and it seems like you made the right choice going into online media. I just saw a news flash that the parent company of Variety just put it up for sale. They want to get out of the print business.
CHAO: No kidding.
CHAO: How much was the price?
ANDELMAN: It does not say, but it’s interesting that the parent company of Variety also owns Broadcasting & Cable, Multichannel News, and Publisher’s Weekly. So that’s going to be something to really keep an eye on. I don’t want to get off-track here too much, but I was kind of surprised by that.
CHAO: I come from television, of course, and I think that television and cable will have a long, long life, of course, but it’s going to be nibbled away at certainly by the Internet, and I think that the internet experience just keeps getting better everyday, whether it’s from a content website point of view, like, wow, there’s this great WonderHowTo to go to or simply because the technology of the streaming of the parties that we connect to simply gets better, and it becomes high definition, and it’s a lot less time waiting time for something to download, and there’s no jitters and jatters between the streams. It’s just a pretty thrilling experience and kind of the first inning out of nine innings of watching video on the Internet. It’s just really, really good. It’s really good now in the first inning. Just imagine how good it’ll be by the ninth inning, and that’s what is really kind of fun for me.
ANDELMAN: I can remember when it would crash your computer, and it was just terrible.
ANDELMAN: A lot of people today don’t really realize how bad it was five years ago, let alone seven years ago.
CHAO: Five years ago. Before YouTube, it was like, okay, I saved the file, where is that file on my hard drive? And you just search, and it’s like horrible. So no, in the last three years, of course, you can witness the transfer in terms of the advertising dollars that go from cable and broadcast to the Internet, but in every direction it’s going that way. Namely, the viewing experience is going to be better, the advertising is going to be better, there’s going to be more Internet broadband connections. It’s just nice. Nothing wrong with television, but it’s awfully fun to have Internet video.
ANDELMAN: Eric Smith has another question. He wants to know if you give users the ability to upload their own video.
CHAO: That’s a very good question. The answer is no. The submission process is it’s kind of like Digg, which is, if there’s a link that you like, submit the link, and we’ll connect to it. We don’t actually choose to allow uploads right now, and I think we will in our future, but right now, there’s a business model issue. The cost of hosting and streaming a video is very, very expensive relative to the revenue you get in for one person or a thousand or a million people viewing that. Although I’m not state of the art, I don’t think YouTube has entirely figured out a way to make their revenues bigger than their costs, and I think this is a basic, basic problem that will be solved by technology and time within a year or two, but right now, our goal is really to provide the best results, and in order to provide the best results, we said, you know what? We’re going to point, search, and index to everything. We’re not going to host and stream. So the answer is right now no, in our future, yes.
ANDELMAN: Is this a full-time gig for you now, and will this company spin off other sites, or is it just going to be this site for the time being?
CHAO: That’s a pretty good question. I thought you were going to frame it as “… and do you have any time to go surfing?”
ANDELMAN: No, no. I try to move on.
CHAO: I don’t let go. I find it to be the most thrilling education for me in a long time. I kind of look at the things that really shocked my brain and made me learn more, and there’s a few steps that have shocked my brain. One was actually going to business school because I didn’t have any idea what accounting was even when I went into it so that kind of shocked my brain in a lovely way. The second was having kids. That completely shocked my brain in a lovely way. And I’d say the third is really starting up an Internet business. It’s just such a refreshing change in all respects in terms of how the medium works, how you get traffic, and all the technology challenges, that I’m just totally happy. So the answer is it’s a full-time job. Is there anything in the future? I kind of really, I guess I’d answer it the way Coach Belichick would answer it, which is, well, when I complete this job, I’ll talk about the next job, but I haven’t completed this job yet.
ANDELMAN: Wouldn’t Belichick answer by putting someone out with a video camera spying on what the other guy is doing? I thought that was his answer.
CHAO: I have so much learning to do. There’s so much fun in this site. There’s so much searching and index, there’s so much community building, there’s so much… Part of the fun of WonderHowTo for me is that it’s just pure intellectual curiosity that’s just unrestrained. The idea that I can do this and maybe get paid and maybe have the company worth a lot is a real gift. This kind of wasting of time watching video is what I do in my spare time so the idea that there’s actually a business behind it is ice cream on top of the pie. It’s just unexpected. So no, I have no plans to do anything but this.
ANDELMAN: I’m laughing. I was about to say goodbye, but I’m laughing because there’s conversation online. Chris has picked up on my comment about Belichick, and he suggests that Bill Belichick should do a “How to Cheat in Football” video.
CHAO: I think the Giants or the NFL should come up with “How to Catch Somebody Who’s Cheating in Football.” I want to know how they caught the guy who was operating the camera. I think that comparing myself to Bill Belichick is probably wrong in so many ways that hubris would strike me dead. So I don’t know. I’d have to pick a different analogy.