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News  12, Jun 2012

[Echelon Live] RottenTomatoes exit story: Cutting the right deal at the right time

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Last Update: 13/6 @ 4:00PM

Patrick Lee, cofounder of RottenTomatoes, shares his amazing  journey of finding RottenTomatoes, its ideations and its exits.

This post is part of the live coverage of Echelon 2012, Asia’s leading tech startup event happening on June 11 – 12. If you spot typos, slight inaccuracies or need more clarification, do leave a comment in the post and we’ll address it in the next edit.

The beginning

The team originally worked on a design studio: design reactor, with the creative director working on RottenTomatoes as a side project. Initially, the team was against the idea because it was affecting the creative director’s efficiency. Things changed when RottenTomatoes was picked up by an online site as well as a popular movie critic, where RottenTomatoes was named one of the better quality movie critic websites. The team then decided to focus on RottenTomato by leaving Design Reactor with a small equity stake and raising a $1million dollar funding. While things were looking optimistic, the bubble burst. In January 2000, their investor backed out. The team barely made it and were in a survival mode. To cut cost, the team took a 50% pay cut, founder Patrick Lee took a 100% pay cut, and subleased the office out.

Looking up for the better

What turned things around was that during the crisis, the team struck a deal with CNET to drive traffic to RottenTomatoes at a relatively low cost. In January 2006, traffic for RottenTomatoes grew by leaps and bounds through Search Engine Optimization and pure word of mouth. It attained a global Alexa ranking of ~800 with an average unique users of 6.2million per month, which was not a small feat back in Jan 2006. To make things even better, traffic was greatly boosted through automation, executed through movie review query engine, licensing, as well as critics submission, which then reduced the total number of RottenTomatoes editor from ten to just two. Some of the other features implemented were newsletters signup, The Vine forum (what users like might not be what critics like), as well as a gaming category.

How RottenTomatoes made money

Built entirely on bootstrapping, 50% of RottenTomatoes revenue comes from advertising(banner, rich media ads, newsletter,featured sponsor), 30% affiliate deals(AllPoster, pricegrabber, movietickets.com, Sideshow Toy), and of course, the final 20% from licensing to companies like Comcast, Netflix and Microsoft.

Building the brand

To further build up the brand name and brand equity of RottenTomatoes, they had strategic media partnerships with big brands like Daily Variety, The Hollywood Reporter, Ask.com and even Google. RottenTomatoes also had their very own acknowledgement system through their own Certified Fresh to theatrical releases reviewed by 40 or more critics (including 5 Top Critics) with a steady score of 75% or higher on the Tomatometer. There is also a Golden Tomato award, which is harder to get than Oscar, according to Patrick Lee.

Exits

With its amazing traction and brand presence, a few offers came knocking on the door, among them, ifilm.com, eUniverse, the company that owned myspace. While nothing came to pass since the team felt that it wasnt the right terms, some other offers came, which includes hollywood.com, CNET, Google as well as IGN, which eventually sealed the acquisition deal. Patrick recalled that if Google were to offer their deal slightly earlier, they would have taken up the deal.

Why sell, and what happened after the exit?

Simple, the team wanted to try something new, and since Patrick is an American born Chinese, he wanted to come back to Asia and explore the opportunities here. Patrick also joked that its a process of growing up since the notion of exiting a company would put him into another realm of possibilities and a new world out there.

After the sale: RottenTomatoes switched hands a couple of times, first from IGN in June 2004, which was sold later to News Corporation in September 2005, and then to Flixster in January 2010, and finally to Warner Bros Online in May 2011. Patrick has since worked on two projects: Alivenotdead.com which aims to be the social networking site for celebrity and artist based in China, and alive.cn which connects artists with job opportunities.

Final thoughts, and how differently would Patrick have done it.

Patrick shared that the main reason why the team did what they did was because they wanted to work together. Back than this was before it was cool to start a company as opposed to now. Looking back, Patrick says that the team might be lacking a bit in a bigger vision as the team did not optimize the valuation when they exited to IGN. One piece of advise to the crowd from Patrick: Timing matters a lot. Coming from Patrick whom raised his $1million angel round in 2004, had the timing be a bit later and had there be any hesitation, there would be no RottenTomatoes today because the bubble would have burst.

If Patrick could turn back time and do things a little differently, he would change the timing of his sale. He would stayed another 1 or 2 years to get a higher valuation. Patrick would sell RottenTomatoes to Google if they came in and showed their interest a bit earlier. Had they continued RottenTomatoes, it would turn into Flixster, which the team envisioned their RottenTomatoes 2.0 to be. The idea of exploring into other reviews verticals such as restaurants (hi Yelp!) was also conceived in the early 2004.

Indeed, ideas are never new. Rather, its executions are.

Thanks for following the live coverage of Echelon 2012. If you’d like to check out more coverage of the sessions at Echelon 2012, follow this link.

Jacky Yap

Jacky Yap

Having spent one year abroad in Shanghai under the NUS Overseas College Programme, Jacky has an avid interest in entrepreneurship and web based startups. Jacky used to run N-House, Singapore's first entrepreneurial themed residence in NUS, and was also part of the organizing team for Startup Weekend Singapore 2012. You can reach him at jacky [at] e27 [dot] co

  • http://www.facebook.com/rottendoubt Patrick Lee

    Couple small corrections:

    It was 6.2M unique USERS, not page views.

    eUniverse was the company that owned Myspace.

    We don’t know if Google was serious or not.  They contacted us, but we never had any serious talks since we already had signed a no shop agreement.

    Thanks!

  • http://twitter.com/Jackyyapp Jacky Yap

    Hi Patrick! Thanks for the correction. Will do the necessary edits. 

    RottenTomatoes has a beautiful story behind it, and I’m sure everyone loved it. :)

  • http://www.facebook.com/rottendoubt Patrick Lee

     thanks!  glad to hear it.  the feedback was pretty positive.  =)

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