5 Min Read
* Company plans to add whole TV episodes, films
* Could become profitable as early as next year
By Sarah McBride
SAN FRANCISCO, Aug 25 (Reuters) - Internet video is getting even more crowded. Flipboard, the social media magazine whose investors include actor Ashton Kutcher, plans to add television shows and films to move it beyond the online articles that it offers now.
The Palo Alto, California-based company hopes to cut deals with studios to carry movies and episodes of TV shows, getting into territory staked out by Netflix (NFLX.O), Hulu and Facebook.
Flipboard mixes articles from a growing list of brands like Oprah.com and the Economist with social media feeds from sites like Facebook into a personalized online magazine. It has received $60.5 million in venture capital funding and its app has been downloaded 3 million times.
Chairman and Chief Executive Mike McCue said he will tackle the video project at the end of the year. He declined to say which studio partners he has approached. He also hopes eventually to cut deals with publishers to sell electronic books through Flipboard.
Flipboard is available only on the Apple (AAPL.O) iPad, but McCue expects to launch an iPhone version in a few weeks that will also work on the iPod Touch.
The service takes a cut of the revenue for ads sold for Flipboard, though the company would not say what percentage. It could make an operating profit next year, McCue said, but likely will not because it plans to reinvest that money.
"We're trying to create the largest company possible," said Danny Rimer, general partner at Index Ventures, which helped fund Flipboard. He believes display advertising revenue's migration online is "a very big opportunity."
Other investors include Kleiner Perkins Caufield & Byers.
McCue, a board member at microblogging service Twitter, has spent his career in technology. He founded Paper Software, which improved digital content display, in 1989 and sold it to Netscape for $20 million in 1996. In 2007, eight years after founding it, he sold his voice-based information business Tellme Networks to Microsoft (MSFT.O) for about $800 million.
With Flipboard, McCue hopes to feed people's increasing appetite for articles found through social media, like when a friend recommends a story on Facebook. About 5 percent of traffic to news sites such as cnn.com comes from social media, estimates Boston-based research firm Compete Inc.
While almost any free online article can be read on Flipboard, the articles look better if publishers have worked with the company.
Those articles do not scroll, but come in pages that people can turn by clicking on an icon. This provides a sense of rhythm and holds a reader's attention better, McCue said. Flipboard readers tend to spend 45 minutes to an hour a day on the service, most of it looking at articles, he added.
Flipboard also lets the publishers run full-page ads as they would in their print editions. Working with advertisers like American Express (AXP.N), Conde Nast has started experimenting with full-page ads on its Flipboard edition of the New Yorker. Bon Appetit's and Wired's Flipboard versions will feature such ads later this year.
Flipboard and rivals, including Zite, news360.com, and AOL Editions, have occasionally been hailed as important helpers for magazine publishers trying to compensate for their falling circulation and ad revenue.
Flipboard won't disclose how many of the 3 million people who have downloaded its app use it on a regular basis. Publishers say people who view their content through Flipboard represent a fraction of their online readership.
Conde Nast says each of its four publications on Flipboard averages about 100,000 readers, compared to millions for the regular online sites for those same publications.
Moreover, apps as a source of advertising revenue remain far from lucrative. In magazines, for example, it is such a small portion of the $2.4 billion that eMarketer estimates magazines will earn in online advertising revenue this year that the research firm does not measure it separately.
That could change as more consumers buy tablets, the medium where most people use apps like Flipboard. Tablet sales should almost triple to 43.6 million units this year, according to eMarketer, then almost double to 81.3 million units next year.
(Editing by Edwin Chan and Robert MacMillan)
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