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Persistence Pays Off: TV on the Web Wins Big

“Persistence Pays Off: TV on the Web Wins Big”

Dave Gardy badgered his partners — until they saw the light.

By late 1995, Dave Gardy realized something was wrong.

His 10-year-old video production company would continue to grow at 10% to 15% a year, but it was turning into a commodity business. Meanwhile, technological advances were overtaking his industry.

Unless Gardy McGrath Inc., his Reston, Va. based company, could move beyond its traditional package of services, he feared that other, more techno-savvy rivals would trounce him.

"By 1996, I knew the Internet would be huge," he recalls. "Our big problem was figuring out how to take our full-service television production company and use it to enter the Internet market."

Gardy decided to carve out a new division of his company devoted exclusively to online services. He was most excited about "video streaming," in which computer users strike a key and view sophisticated video images on their monitors. He called it TV on the Web.

"Thanks to Gardy McGrath, we could quickly establish both a business presence and seek financing for TV on the Web," he says.

Yet despite this wealth of valuable resources, Gardy proceeded with caution. Plunging into the Internet could prove costly and distracting. It might endanger his full-service video production work — the lifeblood of his business. He identified three major risks to launching TV on the Web:

Reallocating money. Gardy knew the only way to add Web services were to invest in the latest technology. This meant sacrificing Gardy McGrath’s margins and taking a direct hit to his bottom line. In 1995, the company earned $2.9 million. By the end of 1996, Gardy had invested 5% of his firm’s income in TV on the Web. This rose to 20% over the next two years.

Reallocating people. "I had to take people off of tasks that produced profit and assign them to this esoteric new thing," Gardy says.

Raising capital. The biggest risk for Gardy involved the hunt for more money. "The risk was I couldn’t pay as much attention to operating my company, because I had to take so much time away searching for capital."

Winning the Internal Battle

In addition to external risks, Gardy faced headaches from within. His two business partners expressed serious concerns about his eagerness to ride the Internet wave.

By 1997, as Gardy was diverting as much as $150,000 a year to invest in Web-casting software, related equipment and personnel, he had to fight his partners’ resistance. "They kept saying, you can only go so far when you have to make payroll," he says.

But Gardy won them over. And he explained that they could set up significant barriers to entry to block competitors from encroaching on their turf. His firm had developed Web-casting expertise and unique system configurations, tapping its experience in both production and video streaming for live Web casts. This propelled the company far ahead of the market.

By 1998, TV on the Web generated $700,000 in revenues, part of Gardy McGrath’s total sales of $3.5 million. Combined 1999 sales are expected to hit $7 million, with most of that coming from TV on the Web.

Last year, Ampex Corp. acquired 50.1% of TV on the Web, resulting in a $20 million valuation. As part of that deal, TV on the Web acquired Gardy McGrath, which became a wholly owned subsidiary of TV on the Web. Thus, the child that Gardy hatched nearly four years ago bought the parent he co-founded in 1985.

Writer: Morey Stettner