In the context of two articles published by The New York Times and Advertising Age on Sunday, January 13, it's appropriate to share (below) these two commentaries published exclusively for Jack Myers Media Business Report members on February 27, 2012, plus similar commentaries on the same topics published earlier this year. I remain focused on providing Jack Myers Media Business Report members with advanced insights and market intelligence that consistently remain well ahead of traditional trade and consumer press sources. For membership information visit www.jackmyers.com. The Times and Ad Age articles were:
FROM JACK MYERS MEDIA BUSINESS REPORT
February 27, 2012
Digital Economic Collapse and VC Funding Shifts are on the Horizon
February 27, 2012: As always, there will be new entries into the marketplace that will disrupt the already volatile status quo. Of greater economic concern for the thousands of VC companies that litter the digital landscape, is the economic restructuring of the media industry that will redirect VC's to other business categories as their funds decline in value, as their investments consolidate with unproductive valuations, and as uncompetitive investments are forced to shutter or shrink. It is increasingly apparent that there will be a fundamental restructuring of early and mid-stage companies that have yet to achieve profitability as investors can no longer justify additional capital. For now, venture capital is still flowing, but the spigot is closing. For some companies, it might close in the next several days and weeks as the demand for profitability and return- on-investment intensifies. Tech has become a commodity, available to customers at a fraction of its real value due to an over-population of competitors, all marginalizing the business. Some stand-outs have staying power, but the possibility that they might collapse under their own success is just as real. Equity capital is becoming attractive again, and most legacy media companies are performing reasonably well, shifting the emphasis of value investors away from the venture market and toward legacy media companies that have strong established businesses with digital growth layered on.
FROM JACK MYERS MEDIA BUSINESS REPORT
February 27, 2012
Investor Focus Shifts to Content and Context
February 27, 2012: Venture capital investors, in general, are locked into rigid patterns and decades-old decision-making, opening the doors for a new wave of investors who have a fresh vision of the future and of opportune growth markets. These investors will be more interested in the content and context oriented business models that capitalize on the cheap availability of technology to drive distribution, deliver advertiser value, measure performance, and generate consumer engagement and loyalty. The technology infrastructure to support advertising and media businesses for the next decade has largely been built-out. Yes, there will be advances but the technology-based venture opportunities in this business have been largely played out. Many VC's will simply shift their focus to other business categories, but those who remain loyal to the media community will look toward underserved markets that technology has enabled. Digital media and advertising businesses will be most appealing in the future to VC's when they focus on communicating effectively with actively engaged consumers by:
And, in my first Jack Myers Media Business Report of 2013, I added these commentaries on technological overload and marketers' growing focus on content and earned media.
FROM JACK MYERS MEDIA BUSINESS REPORT
January 7, 2013
Terry Kawaja's Lumascapescharts include an estimated 1,500 venture-funded companies. As Terry's groupings clearly demonstrate, there is excessive overlap and redundancy in almost every category.
Venture capitalists typically have four walls around the box they ask companies to fit into:
With the average VC-funded company now taking nine to ten years to reach an exit, that requirement has clearly become moot with expectations unmet. The abundance of VC-funded companies in every part of the digital media space battling it out with minimal competitive advantage makes it apparent the third wall has come crashing down. The vast majority of media entrepreneurs who first introduced their ideas to VCs have been bounced out of the companies they founded, and are now known by the seemingly positive, but increasingly demeaning term, serial entrepreneur. Few have even one success under their belt. So wall one is still followed but mostly irrelevant.
So that leaves us with wall two: a proprietary technology. This of course is preposterous. Unless the business is designed to own and sell patents, there is little protection offered by proprietary technology. In fact, the greatest financial drag on digital companies has been the need to maintain technological leadership and relevance. Yes, proprietary technology is valuable, but its lasting impact on the business and revenue growth is negligible unless the resources are available for continued aggressive technological development, implementation, sales and marketing. That's the advantage Google has and the conundrum Yahoo! finds itself in today, along with the vast majority of the companies included in Terry's Lumascapes. Companies have been funded based on models and assumptions that bear little connection to the real world, and they now find themselves at a standstill, unable to expand without significant added capital; unable to clearly define or market a unique selling proposition; unable to merge or consolidate because 2 + 2 would need to equal about 16 to satisfy investors; and unable to scale back to gain profitability because the goal has only to do with achieving an exit for investors who are under water – and little to do with building a viable small and sustainable business.
This represents an incredibly opportune marketplace for buyers, a reality that Sir Martin Sorrell of WPP has understood and that agency holding companies will focus on in 2013 and 2014. Marketers and media companies should move now and quickly to identify and acquire (or partner with) the best of breed in the categories in which they will need to compete effectively in 2013 and for decades into the future. There is an ecosystem waiting to be exploited. There are 8,000 to 12,000 media and advertising-related service companies today in search of an exit. Those included in Lumascapes are the most successful, but not the only ones in need of a new forward-looking business model. They've been built on misguided principles and false hopes, and with billions of dollars in venture funding that is now drying up. They are part of the first ecosystem in history that has been funded primarily with little or no promise of support from the industry they serve. Some of these companies have been built on technology but by management teams and advisors who actually understand and support the short and long-term fundamentals of marketing and media. These are the golden nuggets that will drive the business forward, and are the gems acquirers should seek out.
A failure to comprehend these fundamentals is the basic reason that Facebook, Twitter and hundreds of other "successful" companies are struggling to create a business model from scratch. We are grateful to the system that has enabled this and we're confident many of these companies will be rewarded for their success, even if it materializes more slowly than expected. But for those seeking to move forward in 2013, it's essential to recognize the future of technology is not the "next new thing." Success in the future depends on understanding the new marketing, advertising and media ecosystem that technology has created, its implications for your future, and how to most economically and effectively apply existing technologies to assure continued business success and revenue growth.
HAVE YOUR EARNED WEAPONS READY FOR THE CONTENT REVOLUTION
GE has been at the forefront of this movement, underwriting multiple content-based campaigns, the most visible of which can be viewed at www.focusforwardfilms.com * Johnson & Johnson armed itself early with an investment in Baby Center Unilever, P&G, Coca-Cola and many other companies have investments in relevant content, but the core underpinnings of the content revolution will leave most marketers and media companies, including some that believe they are investing appropriately, struggling to comprehend why they failed to prepare and how their management so grossly neglected the need to arm themselves with the basic competitive tools required to communicate in the future. The television industry has done a good job of responding to the expansion of digital distribution. Unlike print media and, until recently, radio, TV networks responded early to the competitive threat and have engaged, built, invested in and produced for digital.
Yet, they're still not as prepared as they'll need to be to prepare for the inevitable erosion of network program ratings, the continued challenges to local broadcast station superiority, the affiliate model and the accelerated fragmentation of viewing options. All of these issues, though, have been well-charted and come as no surprise. What companies have not been preparing for, although the indications are very clear, is the reality of earned media: aka unpaid media distribution and exposure.
Branded entertainment and product placement are the most visibly effective models, following on the same approaches the print industry has taken with custom magazine publishing and special newspaper sections and supplements. But most of these content initiatives are clearly and definitively designed as advertising and with marketing messages an integrated and integral component of the communication.
A new approach, spearheaded by GE, is branding-through-association rather than integration. Similar to the advantages gained through sports sponsorships and concert promotions, the key difference is that the vast majority of future branding-through-association models will rely on earned media, requiring little or no paid media exposure.
Cinelan, the company behind the GE initiative, specializes in engaging well-known documentary filmmakers to produce short form films that respond to brand "briefs" and also respond to consumer interests and passions, as well as the passions of the filmmakers themselves. Thirty of the Cinelan filmmakers, who include several Academy Award winners, produced 30 three-minute films under the Focus Forward umbrella and available for viewing at the Focus Forward site, as well as YouTube, Vimeo and other distribution platforms. The films, along with 90 additional films produced through a Focus Forward film competition, have generated millions of views and shares, all earned. GE's brand association is a logo at the beginning and end, but the company has no branding or product integration within the films themselves. Many of the films have premiered and been exhibited at leading film festivals worldwide, including Sundance and Tribeca.
While there are obvious costs related to content development and production, plus distribution costs, new economics are evolving that enable marketers to recoup some of these costs through back-end rights, non-competitive advertising integration, and international exploitation.
This is just one of many future models that digital creative, distribution and production technologies are enabling and that will progressively erode the basics of the traditional paid media model. TV networks and content studios will not disappear. In fact, my forecasts argue that broadcast and cable network TV will continue to expand, with advertising revenues remaining strong through the end of this decade. But all media and marketers must begin to arm themselves with new message creation and distribution strategies that respond to audiences that are far less likely to conform to traditional patterns and far more likely to consume media from highly fragmented and disparate sources.
I refer to it as Soundtrack Economics. Video viewing will evolve into a Pandora-like model, constantly on. Always in the background. Occasionally elevated to "like" status and shared. Breaking through with ad messages will be difficult – even impossible – without creative content-based strategies and tactics yet to be conceived. It's incumbent upon the marketplace to begin arming for this inevitable future.
*Disclosure: Jack Myers is a partner in Cinelan, which developed and implemented the GE Focus Forward program.