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Chat Site Found Voice in Video

While 25-year-old Streamup founder Kyle Michelson was studying at the London School of Economics about four years ago, he fell in love with the local culture – particularly the Brits’ droll, tongue-in-cheek humor.

Eager to stay connected with others who had similar tastes upon his return to Los Angeles, the young entrepreneur came up with an idea.

“I wanted to create a video chat-room site where you can meet people from around the world,” Michelson said. “I wasn’t happy with the people that I was meeting socially.”

With the help of some tech-minded folks and a $250,000 angel investment, Michelson launched the live video-streaming service Streamup last year. Unfortunately, not many other people shared his enthusiasm. By July, the company had only 10,000 users and was on its “last breath.”

“For nine months, our numbers were flat,” Michelson said. “We said, ‘We have to try something different.’”

That “something” amounted to a simple rebrand, rather than a full-scale product pivot. With a few minor technical tweaks, Streamup began calling itself a video-broadcasting platform instead of a chatting service.

Think of it kind of like YouTube, but instead of searching for prerecorded, archived videos, users tune in to live broadcasts from individual hosts. Viewers can chat in real time with each other or the host.

That change seemed to spark interest.

“We now have over 100,000 users,” Michelson said, even though Streamup is still in its prelaunch beta phase. “We clearly hit something we weren’t anticipating.”

One of the things he could not have anticipated was the demise of another leading live-streaming site.

Just as Streamup was rebranding itself, Justin.tv, a San Francisco live-streaming startup founded in 2007 by Justin Kan, which eventually became gaming video behemoth Twitch Interactive Inc., shut down all channels that didn’t have to do with video games Aug. 5. A few weeks later, Amazon.com Inc. announced plans to buy Twitch for $970 million in cash.

That left many Justin.tv users looking for a new home. And with competitors Ustream and Livestream focused more on the enterprise market, Streamup’s consumer-driven interface full of interactive features, such as group broadcasts, attracted new attention.

The timing was perfect.

Michelson had recruited Iowa-based Nick Overton, a 23-year-old former Justin.tv and Twitch employee, to serve as Streamup’s talent director. As a member of Twitch’s outreach team, Overton was responsible for recruiting top gamers to broadcast on the platform. He has a similar role at Streamup.

Female focus

Unlike Twitch, whose 54 million users are mostly young males eager to learn tips and tricks about their favorite video games, Streamup is going after a different audience: women.

“We’re really all in on the idea of expanding the playing field to women,” Michelson said. “We think it’s a completely untapped market. It doesn’t make sense that live streaming is something that only men do.”

The company plans to reach out to popular female video creators on YouTube who might be interested in using Streamup as a venue to broadcast live events in categories such as travel, food, fashion and music.

So, for example, a well-known chef could host a cooking demonstration and take questions from viewers in real time.

According to data from Reston, Va., analytics firm ComScore, more than 75 million of YouTube’s unique viewers in August were female – representing 49 percent of its total audience.

It is a market that has lately caught the attention of prominent venture capitalists.

Kin Community, a Santa Monica digital entertainment company that produces women’s programming streamed on YouTube, closed a $12 million Series C round last month, bringing its total funding to $27 million.

Kin co-founder and Chief Executive Michael Wayne said he sees potential in the market for live streaming events off of YouTube – but it hasn’t fully materialized yet.

“I haven’t seen overwhelming demand yet for live events with our creators, but I think that is certainly coming,” said Wayne, whose company hasn’t had any contact with Streamup. “It’s a little early for us to know what the models will be, but as a company we want to provide opportunities for all of our creators to connect with their audiences in new and exciting ways.”

So far, less than one-fifth of Streamup’s 100,000 users produce content – the rest watch and chat via on-site text. Of those who do live stream content, some are pushing out programming that belongs to others – movies, live sporting events and the like – a potential copyright problem for Streamup.

Michelson said that if the company is told of a copyright violation it notifies the channel operator and asks them to remove the content.

“We want to do everything we can do to make sure we cooperate with copyrighted content,” Michelson said. “We’re in talks with the studios who own a lot of that content. We have zero interest in being a site for that.”

Nor does Michelson want any sexually explicit broadcasts on his site. He relies on about 10 of the site’s most popular broadcasters to act as monitors. At any given point, between 100 and 200 channels are broadcasting live, Michelson said.

Beyond patrolling the site for copyright violations, Streamup’s biggest hurdle remains building out its monetization features. It has not yet generated any revenue.

Money model

The company is actively searching for more funding to support its mobile and monetization features before it can launch officially.

Michelson declined to say how much money he’s seeking, but did say that the Twitch deal brought renewed attention from VC firms as well as potential buyers.

But he’s not really looking to sell the company – unless it’s at a major premium. “We’re not interested,” Michelson said. “We’d much rather swing for the fences than take an early exit.”

Meantime, the company is in full startup mode: It has no formal office, and its six employees work at a distance from their homes in the United States and United Kingdom.

And, like other startups, a sustainable revenue stream also remains in the distance.

Unlike other live-broadcasting sites, Streamup’s revenue model is centered not on subscriptions or ad sales, but solely on the tipping of broadcasters by viewers via a button below the video player that would process payments through PayPal and similar services. Michelson declined to say how big Streamup’s cut would be of each tip, but he did say it would be more generous to broadcasters than the 55 percent of ad revenue that YouTube offers to creators in its partnership program.

It’s a business model that mirrors that of YY Inc., a $4 billion market cap Chinese streaming site headquartered in Guangzhou that boasts 100 million monthly active users.

“No streaming platform with an English-language focus does that,” said Streamup talent director Overton, referring to the tipping-only model.

But analysts with knowledge of YY are not convinced that the tipping model would work as well in the United States.

“I think it would be viable, but the acceptance would likely be less than in China,” said Cheng Cheng, a research analyst at Pacific Crest Securities in Portland, Ore.

YY also generates revenue from free-to-play Web games that allow users to purchase virtual items during play – a revenue stream that’s more prevalent in Asia than North America, Cheng said.

Nick Ning, an analyst with 86Research in Shanghai, added that YY makes most of its money from men, many of them business owners and government officials in small cities, who tip female performers that sing, dance or host talk shows – a far cry from the female audience that Streamup is after.

“A few big, rich spenders contribute the majority of their revenues,” Ning wrote in an email. “Twenty percent of their spenders contributed more than 80 percent of revenue.”

Neither analyst said YY had any plans to expand its service overseas.

Michelson acknowledged that it might not be possible to scale Streamup to the same size as YY, but that’s OK with him.

“You don’t have to be the same size to be successful,” he said. “Twitch did it with 54 million people. If you become YY for the rest of the world, there is a decent chance you could become pretty huge.”

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