If I could boldface, italicize and underline Meritless in the title of this post, I would.
I stress meritless, but worth asking. I would also email Rafat to ask him for his thoughts on this but come on, what on earth could he possibly say (probably no comment if anything at all).
So here goes:
Yesterday Rafat Ali announced that Larry Kramer joined the board of his company, ContentNext Media, the umbrella company that manages Paid Content, Content Sutra and MocoNews.
The Background
Kramer, of course, was formerly the President in charge of CBS Digital Media upon its establishment in April 2005. Kramer had founded Marketwatch, a joint venture between CBS and Data Broadcasting Corp. dating back to 1997.
Kramer resigned from that post when CBS - by then spun out from Viacom as the mature, income component of the stock - hired dealmaker Quincy Smith. He remained - and remains to this day - an advisor to CBS, but (and we’re beyond speculating now) one can imagine that ’twas with a grain of irritation that he swapped the title of President for Advisor.
I know I would. But Kramer has hithero stated the opposite and there’s no reason to think he’s lying. From Paid Content’s own post on the executive change, quoting Kramer upon the announcement:
“I think the game changed in the last year. It’s nice to have digital assets we’re proud of but we really need to be a presence in the M&A world and he is instantly going to make us a presence in the M&A world.” [Kramer] spoke highly of Smith, who has been working with the company. Kramer said he was asked to stay with the same responsibilities but opted for an advisory role instead. (He had planned a break after selling MarketWatch to Dow Jones but wound up going straight into CBS, first as a consultant and then as the top digital executive reporting to Moonves.) Kramer: “I can honestly say I’m really happy with what we built. It’s time to go into the next stage. We did merge all of the sites into a strong and profitable digital division but that’s just the first step.”
In light of all of this: this begs the question, does that make CBS more or less likely to acquire Paid Content?
Let me stress that there’s nothing to suggest that Paid Content is up for sale. But the day that Alan Patricof’s Greycroft Partners invested an undisclosed sum in his company, naturally it became logical to presume that Greycroft would expect an exit at some point, and as much as we respect the entire crew at Paid Content, an IPO is not a plausible exit, so a sale comes to mind.
The argument could be made that there are dozens of better fits for Paid Content, Moco News and Content Sutra (though we won’t name them here), but by adding CBS’ advisor to both CBS Les Moonves and CBS Interactive CEO Quincy Smith to his board, one would presume, ContentNext Media is certainly “in play” and CBS is a front runner all of a sudden.
Or is it? A conspiracy theorist would suggest that if Kramer had any resentment towards CBS for the executive swap, nudging ContentNext Media away from CBS could be one small but rewarding act, especially since Paid Content has become the de facto industry standard for trade readers.
At Paid Content’s EconSM shindig in LA, during the M&A panel (commented here) someone joked “Did News Corp. just bought Paid Content?” - it was almost prophetic given Murdoch’s interest in business news.
Murdoch Rising
After all, with the impending launch of FOX’s Business Channel, that ain’t a crazy notion either, especially with Murdoch’s penchant for all things digital.
In fact, if that happens, we see this being more of a Jeremy Philips-driven initiative since it would be more fitting with News Corp.’s digital ambitions than something emanating from under Fox Interactive Media [disclaimer: I was employed by FIM from Sept. 2005 to Dec. 2005 and they’re huge fans of this blog and WatchMojo.com in particular]… But that entire debate and strategic angle is worthy of another post.
A Matter of Allegiances
But now that Kramer is on the board, would Moonves and Smith really be happy if Kramer let a site as influential and arguably profitable as Paid Content slip through CBS’ fingers and into Murdoch’s.
And while we continue this exercise in insanity, who can stop short of thinking of NBC Universal. It’s no mystery than CNBC is feeling the impending pressure of Murdoch’s business channel, especially if all signals seem to suggest that Murdoch will end up with Dow Jones and its Wall Street Journal and Barron’s brands… maybe NBC will make a move as well.
While we’re at it, why not Time Warner? Its print business under pressure I’m sure they’d love to bolster their digital business with sites like Ali’s. Of course, Ali’s sites are trade publications… so the fits are stronger elsewhere.
Oh lookie, here we are enumerating a bunch of companies that would also have ContentNext Media in their sights.
Stroke of Genius
And maybe therein lies the genius of Patricof and Ali’s decision to lure Kramer to their board, not only does Kramer add a unique mix of journalism and business publishing savvy, but he just changed the dynamics quite interestingly for the site that launched on a hot summer day five years ago in Manhattan by a guy who couldn’t land a gig in the news industry.
But just because CBS, News Corp. and NBC are the easy guesses, does that mean that ContentNext Media will fall within one of those companies’ grips?
Probably not. But we’ll keep mum on who we think is the best fit for now.
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WatchMojo NewsletterContent Delivery Network (CDN) company Akamai has been launching a number of consumer - and trade- geared PR initiatives to boost its profile, reports the AP, here is a link to all of the goodies. Examples including giving you and I a peak at the plethora of data they have on Web usage trends.
One reason, perhaps, it could be argued, is the impending IPO of upstart Limelight Networks, a fierce Akamai foe, backed by a $130M investment by a small firm you might have heard of, Goldman Sachs. The stock with ticker symbol LLNW is set to debut on Nasdaq tomorrow.
Venture capitalist blogger Fred Wilson posted something today that got me thinking. In a nutshell, one of his portfolio companies is comScore. Yet on his blog, he approved ads for Compete.com and Hitwise (Disclaimer: Compete.com is an advertiser on HipMojo.com and the Mojo Supreme network). The thing is, Compete.com and Hitwise are competitors of comScore. I commend Fred for approving ads from Compete.com and Hitwise because it’s the right thing to do as a publisher, but I agree with some of the concerns from comScore employees who think that Fred might have sold them out.
It’s a tough spot to be in, I guess, and a touchy subject. Fred is in the unique position of being a blogger and a VC. And while he controls the content on his site, naturally he has less control with ads. Now, that being said, as a well-known and influential blogger (oh yeah, and VC), Fred actually has oodles and oodles more control over his inventory than the regular publisher with his traffic. Fred is genuinely a great guy and very gracious with his time and advice, so any time I say anything remotely negative about him, or mainly, his posts, I make sure to include that disclaimer and shout out…
But I think Fred is kind of off on this one, with all due respect, for two reasons.
Most publishers would give up their kidney to have:
- Compete.com and Hitwise advertise on their sites.
- anywhere near the amount of control Fred has.
- his notion of Favoriting ads
comScore should buy some ads from FeedBurner and Federated Media to run on my blog and if possible, I’d favorite them. Compete and Hitwise should be able to get their message out on this blog, but I’d favor comScore ads for sure because it’s the superior service.
is neat in theory and actually already available, it’s called frequency capping or weighting, but more importantly, not really a solution for his problem (unless I’m missing something, not really going to address random comScore employee #Z987654321 from seeing an advertisement from a competitor such as Compete.com and Hitwise and think that Fred is pushing their competitor). I also like the blatant plug for comScore at the end…
But frequency capping, weighting of ads is an option when you sell ads and control your inventory.
Fred’s predicament is simply something a publisher chooses when they outsource ads. Sometimes outsourcing makes sense, oftentimes it does not.
I worked as a VP of Ad Sales for a publisher with 5M in readership. I did direct sales to clients, direct to agencies, worked with ad reps, ad networks etc., and allow me to confirm that in 9 out of 10 times, you want to be in contact with advertisers or agencies, and not ad reps or networks. In Fred’s case, his time is better spent on doing his actual work (being a VC and having 2 successful exits in a week, for example) and his site too small to merit going direct…
In other words, unless he wants to block advertisers who compete with his portfolio companies (which in this case might be the most sensible thing since his main line of work is being a VC).
But this got me thinking, while online advertising is booming, the percentage contributed by good old fashion sponsorship and listing fees, essentially fixed priced deals, is going down.
Why?
When we work with advertisers, we try to move the discussion away from CPM, CPC and CPA. Trust me, I have closed 1000s of ad deals with 100s of clients, large and small. I’m also quite skilled with numbers. I can, if I choose to, make the numbers add up to justify any spend. But I don’t. I outline likely scenarios, candidly, but ultimately explain the value proposition and try to get the advertiser to spend a given amount that makes them feel good about the buy.
Otherwise, you have no choice but to be at the mercy of CPM, CPC and CPA which don’t really address client’s concerns anyway because there are countless problems with all of those metrics anyway. For more on these terms and online ads in general, click here.
But for the odd client that wants to pre-empt other clients, or the publisher that wants to be in control, it seems like a way to go.
What this allows me to do is simply cut out networks so that I am in control of our inventory. Fred’s situation is very different as a VC, he shouldn’t call up comScore’s VP of marketing and put a gun to his head and say: “hey, if you don’t want Hitwise on the site, then outbid them,” but for any other publisher, that’s indirectly or implicitly the option that is presented to advertisers.
If an advertiser wants exclusivity then they should pay a premium for it, that seems fair and square.
Forbes’ Bratt Nelson has a very interesting take on Brash Entertainment’s $400M financing round from ABRY Partners LLC, and including New York Life Capital Partners III, LP, Northwestern Mutual Life Insurance, PPM America Private Equity Fund II, LLP.
Background:
The folks at Brash Entertainment are anything but typical. In late May, the 4-month-old brainchild of Mitch Davis and Nicholas Longano–co-founders of gaming company Massive, which was later bought by Microsoft –scared up a whopping $400 million from a group of private equity firms led by ABRY Partners, which invests in media and communications companies.
Reinventing the Wheel, according to IGN:
Brash Entertainment today announced its launch as a new video game company focused solely on the creation of high-quality games based on tent-pole movie releases, television, and music properties.
(…)
Brash will transform the way great film creativity is brought to life in games. Brash’s innovative business model relies on matching each licensed project with the skills of the best independent development studios, top writers and creative talent. This collaboration is guided by an internal team of experienced producers, under the leadership of video game industry veterans. Brash currently has more than 40 licenses through partnerships with five major film studios, and twelve games in production.
“Brash is founded on the simple premise that top Hollywood creativity plus top game talent should equal great games,” said Brash Co-Founder, Chairman, and CEO Mitch Davis. “We are laser focused on delivering high-quality games. The other aspects of our business are left to the experts— best of breed partners we’ve tapped for their specific expertise.”
Jaw-Dropping Factor, from Forbes:
That’s an extraordinary sum for investors who tend to shop for proven companies with the hopes of making them better and unloading at a handsome profit down the road. As one ABRY partner put it: “This was definitely earlier-stage [for us]. We don’t take business-model risk.”
Dilemma:
The Brash transaction highlights a critical challenge for all entrepreneurs. The specifics of the deal are under lock and key, but Brash management undoubtedly gave up a healthy heap of equity for access to that largesse. Result: a smaller payday if and when Brash sells out to a strategic investor or floats shares in an initial public offering.
Result:
Why trade upside for a cash cushion? Raising money is difficult and distracting, and most small businesses fail because they run out of cash. Raising additional funds in smaller chunks at higher “implied” valuations might let you keep more equity along the way; then again, if you cut it too close, you could end up begging for money at far less favorable terms.
Rationale:
Brash chose to cut out financing risk and focus instead on execution. Its niche: videogames based on other media properties such as movies, television shows and music.
(…)
Brash aims to compete by poaching creative talent from bigger outfits; farming out the coding of the games to smaller, entrepreneurial software shops; and by letting Time Warner’s Warner Bros. handle the tangled logistics of distribution.
Brash will coordinate with the studios to secure licenses to the content and ensure that the story lines translate into games that people will play. “They are thinking story; we are thinking game play,” says Brash’s Longano.
Big is Beautiful?
Once you clear those hurdles, you can start to think about how much money you need–and how much you’re willing to give up to get it. As for ABRY and company, it was go big or go home. “We weren’t going to raise something that wasn’t fully funded,” says the ABRY partner. “It reduces the risk of execution. We would have not invested had they only wanted $100 million.”
Forbes’ Conclusion:
Bottom line: Money in hand today is better than a dream dashed tomorrow. So when it comes to raising early-stage financing, get brash.
Why this is Crazy Talk:
I appreciate Nelson and Forbes trying to rationalize this, but this is crazy talk. For one, since when are private equity financiers the patient kind? $400M is a lot of money, even for a firm that has billions to invest.
One reason why Rupert Murdoch’s $60 per share offer for Dow Jones was so high was that it was intended to scare away both media companies (who could not generate enough efficiencies after paying such a premium) and private equity firms (who are, well, impatient and want a quick payoff).
Investor Expectations:
The simple problem is that $400M in financing ends up doing just the opposite. Didn’t we just last week learn a valuable lesson in Amp’d burning through $360M? I know, Amp’d is restructuring. Sure, so it can burn through more money. That’s madness.
When it comes to financing, and growth in general, you want time to be on your side. And when you raise $400M in financing, you are behind the eight ball quite a bit.
That’s a general advice you can bank on. But in this case it’s even more nutty because, to quote the venerable Forbes once again:
Collectively, movie-based games have not been as popular as Electronic Arts’ sports-based titles or role-playing titans like World of Warcraft, made by Blizzard Entertainment, a unit of Vivendi. One reason: Movie-based game publishers tend to cut corners in development, counting instead on a movie’s popularity to drive demand.
All right, so let me get this straight, the system is broken, the consumers are all wrong, and Brash is going to change the consumers’ behavior. Nice, we’ve seen this before.
Comparables:
Just some food for thought in the game space, let’s look at the major players and their respective market caps:
- Electronic Arts = $15B with 2006 revenues of $3B and Net Income of $76M.
- THQI = $2.26B with 2006 revenues of $1B and Net Income of $68M.
- Take Two Interactive = $1.39B with 2006 revenues of $1B and Net Loss of $185M.
- ATVI = $5.5B with revenues of $1.5B and EBITDA of $85M
- MyWay = $500M with 2006 revenues of $165M and Net Loss of $77M.
On small financing rounds, some VCs like to get say 10 times their investment.
I know, ABRY is a private investor, the major nuance is that they’ll make less, but larger bets. So let’s say that ABRY would be ecstatic with a 3 times return; which is roughly what Hellman & Friedman got after plunking $1.1B for Doubleclick, shedding some assets and then selling a leaner and meaner DCLK to Google for $3.1B.
So if Brash raised $400M and the investors got 51% of the company, that means a valuation of about $800M. Assume that’s pre-money, I’m no investment guru, but in my talks with private bankers, I’ve seen that they usually want control so 51% is - in my humble opinion - low but a conservative estimate for this analysis.
Bear in mind Microsoft bought the founders’ former company Massive for $200-400M so a valuation of a pie-in-the-sky business at $800M is pretty massive. In fact, it could be a post-money valuation of $800M, whereby the company was valued at say $399M, the investors put in $400M and got 51% - but I’m really guessing here.
So if the valuation was in the $800M range, then 3 times that implies a value of $2.4B. Billion. That’s more than 3 of the 5 gaming sites we listed.
My Experience:
Conventional wisdom notwithstanding, my experience says this is not the way to build a company. You want freedom to make decisions, you don’t want investors getting angsty, and with $400M at risk, they will. My last company had 1/34th of the funding of our larger competitor, and we crushed them partially because they were probably more worried with investors than customers (be it individual users/visitors or corporate aadvertisers)…
My Take:
Point is, judging by those publicly traded companies, Brash would have to grow, and grow quickly, otherwise, ABRY will get brash and become a massive pain where you least wish to get a rash.
Related:
- If I had a Billion Dollars: The Private Equity Funded Billion Dollar Conglomerate I’d Build.
Not a day goes by where we don’t get a sign that we’re repeating past cycles and proof that history is indeed cyclical.
Today it’s the news that mobile social dating site MeetMoi got funding.
What makes this pretty wild is that dating sites were - along with gambling - some of the early money-makers online.
They were also one of the few online content and community websites that grew as a result of user-generated content… though few people actually cared because UGC was never really seen as a great thing. Of course, with online dating sites, most generated 90% of their revenue from subscriptions, very few made money from advertising (Lavalife comes to mind as one who did both subscriptions and ad sales).
But the point is the content was generated by users, advertisers looked the other way despite the fantastic demographics and user data (gee, where have we heard this all before). But like anything else, the growth tempered off and by then (circa 2003) advertising came back with a vengeance and the online dating sites became so old.
You have to wonder about this one, ain’t it easier for Match.com, Kiss.com et al. to simply offer a mobile product to their millions of users, subscribers, visitors and dominate in this space? I guess that’s not what some VCs are thinking, WSJ has a story on one startup, along with other contestans:
Graph courtesy of WSJ.
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