As the viewer trend data make clear, legacy TV is undergoing a dramatic transformation, led by the many alternative ways of watching video. Cable subs are in decline, network TV viewership has tanked, and now even cable TV viewership is eroding. We frequently discuss the new streaming providers (YouTube, Netflix, Amazon, Hulu) and the on-demand show/movie retailers (iTunes, Amazon, Vudu), but a new model is emerging and worth discussing — the over-the-top (OTT) TV network. Our recently-exited investment in Crunchyroll provides a prime example.

Crunchyroll is the largest provider of Japanese anime online. They license scores of hit and long tail anime shows from Japanese media companies for streaming throughout the world ex-Japan. They offer a free ad-supported viewing option and attract millions of unique monthly viewers. They also offer a paid commercial-free offering at seven dollars per month which makes available a deeper selection of shows. They are available on the web for PC streaming, and have an app available on every mobile and connected TV platform available (iOS, Android, Roku, AppleTV, PS3, Xbox, etc.).

Crunchyroll has amassed hundreds of thousands of paying subscribers and is profitable with net margins many internet and legacy media companies would envy.

While they don’t benefit from the incredibly rich we-will-pay-you-a-fee-even-if-no-one-watches-your-network affiliate fee model of legacy cable TV, they enjoy a more accountable dual advertising/consumer subscription model. While most of us would consider this content niche, their total active actual viewers are considerably larger than most cable networks on your cable grid. Perhaps most impressively, like most technology companies, they are highly efficient, employing fewer than fifty employees.

This model benefits from many of the advantages of the web. An embedding/link-sharing culture helps Crunchy, as everything viewable can be shared and discussed throughout the web. The product is highly mobile and feeds our preference for snackable media consumption on phones and tablets. Non-subscribers get easy access and a thorough chance to experience the content without paying. And the team is staffed by fantastic technologists who rapidly adopt and optimize the service for every new platform that emerges. The team has already started expanding their successful model to new content verticals.

Their success, I think, points the way for niche programmers to deliver great video services directly accountable to their viewers and advertisers alike, and not polluted by the MVPD indirect affiliate fee model nor the antiquated Nielsen people viewer/sweeps model.

For these reasons, Peter Chernin’s The Chernin Group is the new owner of this impressive company and team. I look forward to watching the continued success of Kun, Brandon, James, Brady and the whole team. Without much fanfare, they have pioneered a way forward for much of the video programming world. We are honored to have been investors since 2007 and to have watched you succeed.