Four years ago, 5min Media co-founder Tal Simantov was surfing an exercise website. He wanted to find out how to get a good workout, but the site only showed him text and pictures. Where was the video, he wondered?

He next went to YouTube to search for exercise videos. This time he found them, but the quality ranged from decent to awful, and with so many to sort through, finding the best one was its own virtual workout.

Simantov immediately saw an opportunity. He set out to create a Web portal hosting high-quality niche videos, on everything from how to cook bok choi to hiking through the Grand Canyon. That idea became the basis for 5min Media, and not long ago the company’s business model was validated big time. America Online (AOL) acquired it in September for a figure reported at more than $60 million.

AOL’s reasoning was clear. Like most Internet publishers, it has an insatiable need for content, especially video. But creating original content is a costly endeavor. With its 200,000 videos, 5min Media was a likely match.

Much more than how-to videos

If AOL just wanted content, though, a partnership with 5min Media to re-purpose its videos would have been more logical than an expensive acquisition. But 5min Media goes far beyond its flagship 5min.com website. “That’s only 10 percent of what we do,” Hanan Laschover, the company’s CTO, tells ISRAEL21c. “Most of our video views are coming from external websites, from our clients who use our technology.”

To facilitate that model, 5min Media has built an engine it calls “VideoSeed” that aggregates all those videos – from both professional and amateur producers – then automatically matches the results with the appropriate pages on a content publisher’s site.

“Everything is categorized,” Laschover explains, “so that if someone is looking for cooking videos, they won’t get content about fashion.”

AOL will certainly be the top beneficiary of all this new content, but 5min Media won’t be abandoning its client base, which includes more than a thousand publishers, from general websites – like Answers.com and WikiHow – to niche sites such as Askthebuilder.com or Ultimate Guitar.

“We will continue to work with non-AOL properties and this will expand to much more than today,” Laschover says. AOL will be happy “as long we’re putting ads” on the videos.

Advertising is key

Indeed, advertising is the key to 5min business – the company generates revenue (some $10 million last year, just enough to break even, according to Laschover) by placing ad spots before, after and even in the midst of 5min’s instructional videos. What do publishers and content producers pay? Nothing. In fact, 5min Media pays them a cut of the ad spend.

The strategy seems to be paying off. Laschover won’t reveal what ads cost, but says that “inventory is sold out for a year,” meaning new advertisers who want to buy time will have to wait until sometime in 2011.

Despite 5min’s advertising business model, you won’t see commercials in Israel – or anywhere outside of North America, which accounts for 80 percent of the company’s traffic. “There’s just not enough traffic outside the US and Canada,” Laschover explains, to make it worthwhile for advertisers.

But that could be a blessing. It gives Middle East residents more time to enjoy ‘Diet Tips for Suburb Kids’ or to bone up on ‘How to Parallel Park.’ Now that’s a niche video we’d heartily recommend to Israeli drivers.

When 5min originally got going, the first creators of video were the users themselves, but the company quickly realized that in order to maintain the quality it needed to monetize the video, which meant that 5min would have to turn to professionals.

More than 20 million users per month

Of the some 200,000 videos that 5min has collected, video games are the top category, followed closely by health, technology, food, arts, home and people. 5min has more than 20 million unique users a month, according to Web measurement firm Comscore Media Metrix, making it the 13th most popular video website. By contrast, new parent company AOL came in at number 12; the combination of forces should help AOL to close the gap on industry leaders Google and Yahoo.

5min has gone the way of many Israeli startups, opening a US headquarters while maintaining R&D in Israel. 5min also has a content department in Tel Aviv that checks metadata, video quality and tagging. CEO Ran Harnevo sits in the 25-person New York office; in Israel, there are 30 staffers.

AOL is no newcomer to Israel. 5min Media, its latest and fifth Israeli acquisition, complements its purchase of the American video-centric firm, StudioNow, in 2005.

But the company began its decade-long buying spree in Israel with the acquisition of Mirabilis, the creators of the ICQ instant messaging platform, way back in 1998 for the then-staggering figure of $287 million. Between then and now it also purchased Relegance, Yedda and Quigo in Israel.

While 5min didn’t have an exit quite like ICQ, the stakes in 2010 are potentially even higher. With video increasingly moving from ‘nice to have’ to must-see TV, AOL is betting that 5min’s library of instructional videos will provide just the material that the Internet publishing giant requires.