The Major-Indie Phenomenon: film, gaming & start-ups

In the not too distant past, the major film studios were on a big-star-big-budget path that targeted huge hits, big sequels and the mass-mass market.  Without going into the history of the independent (indie) film, this led to the advent of the “independent studio” that worked with much smaller budgets but also had the control and vision to create more interesting (and less mainstream) characters, stories, and movies in general.  Around the early 1990’s, Independent Film started to gain real commercial traction as actors and directors that were pining for more artful / character-based projects to display their talents and highlight their craft.  Realizing that there was a real (and valuable) market for more artful, less mainstream movies, the majors created or bought their way into the indie film market and today, most major studios have an “indie brand” that allows them to play in the indie space. It took a few clear success stories in the new, independent-film model to get them to pay attention to a different model than they were pursuing.

Hang in there; I promise I’m going somewhere with this….

It’s interesting that the above studio story could be applied almost exactly the same way to the gaming industry. In fact, the market for indie/casual games is probably at an all-time high today with the popularity of the iPhone, Nintendo DS, and web-based Flash games. The major studios in this market are folks like Electronic Arts, Nintendo, and Activision.  As the majors grew, they spent big bucks going after big hits with mass appeal…just like the majors in the film industry. The casual / indie game companies filled a void that the majors had a hard time focusing on because it didn’t fit their model. Of course, after a few success stories and a maturing market, the majors started to take notice and today all most major studios have a casual game strategy. Notice a trend forming here?

OK. So now I think there is a new version of this story just starting to play out.  Full disclosure: I’m working with the folks at CapitalFactory in Austin, Texas as a “mentor” for thier first go-round of the process . They’re similar to Y-Combinator and focused on helping start ups in a variety of ways, including early, limited funding outside the traditional Venture Captial system.

“Capital Factory is a seed stage mentoring program for startups that provides a small amount of seed capital and weekly mentoring sessions by entrepreneurs who have founded successful companies. Startup companies apply to participate in our 10 week summer program intended to get a startup pointed in the right direction with a clear path to profitability and growth. This year the program runs from May 22nd to August 7th. At the end of the program we’ll be hosting Demo Day and streaming it live over the Internet.”

Something interesting happened last week in this space:  Sequoia Capital, one of the best known Venture firms announced a $2m “investment” in Y-Combinator that will give them more capability to fund and help seed-stage start-up companies. You can get more information here, here, and here.  Y-Combinator funds about 40 companies per year and has launched or help launch over 100 companies to this point, including: Dropbox,  RedditInfogami, Kiko, Loopt, ClickFacts, TextPayMe, Snipshot, Inkling Markets, Flagr, Wufoo, YouOS, PollGround, LikeBetter, Thinkature, JamGlue, Shoutfit, Scribd, Weebly, Virtualmin, Buxfer, Octopart, Heysan, Justin.TV, OMGPOP, SocialMoth, Xobni, Zecter, Adpinion, and more.

What’s interesting is that early-stage start-up creation/funding/mentoring starts to map to the same major-indie phenomenon that we’ve seen in the film and gaming industries:

  1. In the presence of clear examples of success, major players in a mature market begin to notice real opportunity in a new (efficient, scalable) model within that industry
  2. The majors did not die off or get crippled because of the new model; their scale allow them adapt (build or buy) to the new model in their own way and timeframe
  3. The new-model folks found real, material success; further, new-model proponents & the new model itself was NOT crushed by participation from the majors (they co-exist)

Now the question becomes whether or not this trend contineus as macro-economic pressure makes early-early stage company dynamics less interesting to the major venture players. Time will tell but there is at least some history on the side of the trend.