Stephen Chao, WonderHowTo.com web entrepreneur

Stephen Chao, WonderHowTo.com web entrepreneur, former Fox TV president: Mr. Media Interview

Tuesday, March 25, 2008

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.

Stephen Chao – movie producer, TV executive
After graduating from Harvard
University in 1977 with a degree in classics, Chao became a reporter for the
National Enquirer. He received an MBA from Harvard business school in
1981. Chao joined News Corporation as a vice president, working on the purchase
of Twentieth Century Fox and Metromedia TV stations. He eventually became
president of Fox TV and Fox News, launching such successful shows as
America’s Most Wanted, Cops, and Studs. In 1992, however, Chao
hired a male stripper to perform at a management conference attended by his
boss, Rupert Murdoch, as well as such prominent guests such as now Vice
President Richard Cheney. An enraged Murdoch promptly fired Chao, who formed a
TV production company the following year. In 1998 he joined USA Networks, now
USA Cable, becoming president of the company in 2000, but he resigned in 2001.
He went on to work in direct response television advertising.

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.

CHAO:
Yeah.

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.
BOB ANDELMAN/Mr. MEDIA: 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.

CHAO:
Sure.

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.,
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.

CHAO:
Right.

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.”
BOB ANDELMAN/Mr. MEDIA: 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.

CHAO:
Right.

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.

ANDELMAN: No.

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.

CHAO:
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.

>BackTrack<

___________________________________

TV Showman, Once Exiled, Returns With
Video Site

Ann Johansson for The New York Times

“I’m a video freak and I love turning over rocks and finding
stuff,” said Stephen Chao, whose new site is a trove of how-to videos.

By BROOKS
BARNES

Published: January 30, 2008

LOS ANGELES — One of Big Media’s most controversial executives is back after
a period of quasi-forced retirement.

Stephen Chao — who was fired from a top position at the News
Corporation
after, in separate incidents, hiring a male stripper to disrobe
at a company meeting and nearly drowning Rupert
Murdoch
’s dog at a party — plans to announce on Wednesday the formation of a
Web video company that he hopes to build into an educational alternative to
YouTube.

The site, WonderHowTo.com,
aggregates how-to videos, from the mundane (like “how to tie a tie” and “how to
market your lawn care business in the winter”) to the strange (“how to do Criss
Angel’s vanishing toothpick trick”) and the off-color (“how to train your cat to
use the toilet” and beyond).

Mr. Chao says the business melds his two primary interests: a fascination
with the bizarre — he worked as a National Enquirer reporter after graduating
from Harvard — and the media frontier.

“I’m a video freak and I love turning over rocks and finding stuff,” he said
in a telephone interview. “What I started to notice is that there is a lot of
how-to information out there that is fabulous but kind of hard to find. We set
out to make it easy.”

Mr. Chao’s résumé includes high-profile stints at the News Corporation, where
he helped create “America’s Most Wanted” and “Cops” for Fox. He has also logged
time at various media companies run by Barry
Diller
. But Mr. Chao, 52 years old, is perhaps best known for one of
corporate America’s most spectacular flame-outs.

In 1992, Mr. Murdoch fired Mr. Chao, considered a gifted but quirky
executive, after he engaged a man to remove all of his clothes during a speech
being delivered at a company management retreat. The purpose was to drive home a
point about decency, but Mr. Murdoch, seated in the audience next to Dick
Cheney
(then the secretary of defense), was not amused. Now, after spending
the better part of the last decade doing consulting work and surfing near his
home in Santa Monica, Calif., Mr. Chao has returned to reinvent himself as an
Internet entrepreneur.

He and his partners, which include E.
W. Scripps
, have already cataloged nearly 100,000 videos. Scripps’
television properties include HGTV, the Food Network, the DIY Network and the
Fine Living Network.

In addition to contributing instructional segments from its vast archives,
Scripps will handle advertising sales for the new company. Scripps said it would
aim at niche markets like glass-blowing or leatherwork that correspond to the
site’s video categories.

General Catalyst Partners, a Massachusetts venture capital firm with about $1
billion under management, is the primary investor in WonderHowTo.com. Michael
Goedecke co-founded the company with Mr. Chao and will serve as chief of product
and technology.

So far, the number of videos on the site is tiny compared with YouTube, but
Mr. Chao says that his business model will try to sidestep legal problems.
YouTube, which is owned by Google,
has been sued for copyright infringement by big media companies; YouTube says
that it works hard to keep copyrighted material off its site.

Mr. Chao said he would avoid the piracy sinkhole by linking to videos around
the Web rather than being the host of the videos, as YouTube does. “Because I
happen to come from television, I happen to believe that YouTube is guilty of
copyright infringement,” he said. “I don’t want to have anything to do with
that.”

The how-to field is considered one of the most promising areas in Internet
video. New companies like Video Jug have popped up to mine the niche, while more
entrenched players like Martha
Stewart Living Omnimedia
see it as a potential bonanza. Ms. Stewart’s
company, for instance, has been experimenting with ways to exploit its trove of
instructional clips about the domestic arts, most recently introducing a
video-on-demand service. Ms. Stewart’s company is also testing something it
calls the Marthapedia.

“The idea is to create a one-stop-shop place to go for any information about
how to do anything,” Susan Lyne, the chief executive of Martha Stewart Living,
said in her most recent conference call with analysts. “Literally millions and
millions of pieces of information.”

How big is the how-to market? Mr. Chao said his research showed that
instructional video just for topics like fitness, dancing, languages, auto
repair and gardening generated $800 million to $1 billion annually.

Mr. Chao is an expert at getting attention, but it will be difficult to top
some of his previous stunts. Once, during a party at Mr. Murdoch’s home, Mr.
Chao nearly drowned his host’s purebred puppy after throwing it in a swimming
pool to see if it could swim. Mr. Chao then had to jump into the pool, while in
a business suit, to save it.

After parting ways with Fox, Mr. Chao spent six weeks working at a McDonald’s
in Redondo Beach, Calif. He went on to head programming for USA Networks, where
he helped develop the popular series “Monk.” But a fiery relationship with Mr.
Diller, the head of the network, overshadowed that experience. The two
executives had a hard time living down an incident when both were at Fox in
which Mr. Diller hurled a videocassette at Mr. Chao with such intensity that it
created a hole in the wall. Mr. Chao framed that section of the wall.

He left USA Networks in 2001 and, aside from introducing several cable
networks in Latin America, he has largely spent his time with his family in
Santa Monica. What made him want to return to the public eye?

“You can’t spend all your life surfing,” he said.

>BackTrack<

 

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