IGNITION: How to Build a $1B Content Business in Three Years or Less by Linda Gridley/Gridey & Co.


Published on

Published in: Business, Technology
  • Be the first to comment

  • Be the first to like this

No Downloads
Total Views
On Slideshare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

IGNITION: How to Build a $1B Content Business in Three Years or Less by Linda Gridley/Gridey & Co.

  1. 1. December 2, 2010 New York, NY
  2. 2. AgendaI.  A Look Back at Digital Content HistoryII.  Where We Are Today – How the Landscape Is ChangingIII.  Advice for the AudienceIV.  Quick Gridley Plug 2
  3. 3. I.  A Look Back at Digital Content History 3
  4. 4. The Web Back in the Day… 4
  5. 5. …Was Not Much Different Than Consuming… 5
  6. 6. …Offline Content 6
  7. 7. Google Might be an Exception 7
  8. 8. Snapshot of the Web in 2005 73.4 MM U.S. online Users spend 14 hours users per week online 76% of U.S. households 48.0 MM U.S. households with have a mobile phone broadband & broadbandSource: JP Morgan, Barclays, Nielsen penetration 8
  9. 9. Portals Were Newspapers, Commerce PlayersWere Malls, and Exclusive Content Was Exclusive Most Visited Web sites in Jan. 2005 (by uniques) 1. 6. First commerce 2. 7. movers Portals, text based media 3. 8. 4. 9. Exclusive content 5. 10.Source: ZDNet 9
  10. 10. Browsing and Consuming Behavior, No ChangeSince the 1950’s… Browse Consume 10
  11. 11. But Consumers Are Changing, Leading toAccelerating Subscription Declines… US Newspaper Circulation Volume (MM) Post WWII boom, circulation increased 15% from 1950-1970 Subscribers go online, circulation decreased 5% from 1995-2002 Huge shift in consumption, 16% decrease from 2004-2009Source: Newspaper Association of America 11
  12. 12. …Across All Major Traditional Mediums % of Consumers Spending Less Time in Medium Due to Time Spent Online Radio – 19% Magazine – 30% Newspaper – 30% Television – 33%Source: Arbitron/Edison Media Research Internet and Multimedia, 2006 12
  13. 13. Wide Gap in Valuation in 2005… Offline Content Providers Online Content ProvidersSource: CapIQ,Represents LTM revenue multiples 13
  14. 14. ...Sustained Over a Three Year PeriodIndexed to 100 Stock Performance Over Time Source: CapIQ Digital includes: ACOM, ADAM, AOL, DIET, EDGR, HOLL, HSTM, KNOT, TSCM, WBMD, WEBM, YHOO Traditional includes: ALOY, CBS, DIS, GCI, LINT.A, MDP, MNI, NWSA, NYT, SNI, TWX, VIA.B, WPO 14
  15. 15. AOL Time Warner: The Concept Was Interesting,but Was an Unnatural Act •  Different growth philosophies, different cultures, different economic models… •  Still the largest merger in American history; now called the worst transaction in history •  As of the AOL spin-off, the combined value of the separated companies was 1/7th what it was at the mergerSource: NY Times 15
  16. 16. 2005 Was the First Year We Started to See M&A Experimentation with New Content Models($ in millions) 2005 2006 2007 2008 2009 2010 (NBC) (Yahoo!) (Penthouse) (AOL) (Electronic Arts)(Canvas Technology) $619 $100 $500 $860 $391 $756 (DeNA) (News Corp.) $400 (Google) (CBS) $618 $1,539 $1,870 (Disney) (Electronic Arts) (Comcast) $763 $730 $125 (Hellman & Friedman) $2,408 (Google) UGC Gaming $179 Source: CapIQ, greater than $100MM transactions 16
  17. 17. News Corp. Saw Value in Monetizing UGC Notable Company Facts •  Launched less than two years prior to acquisition Acquired in •  “A few million dollars of annual profits” July 2005 by News Corp. for $580MM Deal Rationale • Reach – doubles News Corp.’s web reach to 45 million uniques • Presence in new demographic • Strong monetization components – scale, interest driven consumption • Great category to build a “Media” portalSource: CapIQ 17
  18. 18. Google Also Saw Value in Monetizing UGC Notable Company Facts • Started 18 months prior to acquisition • YouTube had 65 employees at the time of Acquired in acquisition October 2006 by Google for $1.65BN Deal Rationale • Platform to create a new media platform • Ability to build new advertising models for video • Strong social components • Cultural fitSource: CapIQ 18
  19. 19. CBS Stayed a Bit Closer to Home, Buying“Premium” Online Content Notable Company Facts • Business worth $12BN in 1999 • Acquired numerous companies from 2000-2004, including MySimon ($700MM), ZiffDavis ($1.6BN) and WebShots ($70MM)Acquired in May2008 by CBS for Deal Rationale $1.8BN • Reach – CBS became a 10 top web properties with deal • Valuable assets across software (download.com), food (chow.com), gaming (gamespot.com), shopping (mysimon.com), music (MP3.com), Video content (TV.com), and others •  Most properties have seen large contraction since acquisitionSource: CapIQ 19
  20. 20. NBC Also Stayed a Bit Closer to Home, Buying“Premium” Online Content Notable Company Facts • Company was near bankruptcy two years after its 1999 IPO • 41st most visited web site on the internet in the U.S. in 2006 Acquired in •  #1 women community site and #4 overall May 2008 by community site on the web NBC for $600MM • Was thought to have been acquired at a “premium” multiple Deal Rationale • Complimentary demographic – reaches their core audience online • Established online scale for NBC • iVillage has grown from 14MM (pre acquisition) to over 34MM unique visitorsSource: CapIQ, company filings 20
  21. 21. M&A Has Been the Primary Liquidity Opportunityfor Digital Content Top 5 Digital Content Only a Few $1BN+ Independent Digital Deals in Past Five Years Content Business in the Market 1. $1.9BN $21.1BN 2. $1.5BN $3.0BN 3. $963MM $2.6BN 4. $860MM $1.3BN 5. $756MM “Strategic” M&A IPO (Mkt. Cap at IPO)Source: CapIQ 21
  22. 22. Multi-Billion Dollar Media Deals Were PrimarilyAcquisitions of Offline Businesses M&A IPO •  IPO Date: 11/19/09 •  Date: 12/3/09 •  IPO Market Cap: $187MM •  Value: $22.9BN •  Date: 5/1/07 •  IPO Date: 10/31/07 •  Value: $5.8BN •  IPO Market Cap: $3.1BN •  Date: 11/6/06 •  Value: $24.3BN •  IPO Date: 11/10/05 •  IPO Market Cap: $6.3BN •  Date: 3/12/06 •  Value: $6.7BN •  IPO Date: 9/28/05 •  IPO Market Cap: $963MM •  Date: 1/24/06 •  IPO Date: 5/10/05 •  Value: $7.6BN •  IPO Market Cap: $2.4BNSource: CapIQ 22
  23. 23. Historical Key Deal Themes•  Healthy level of experimentation mostly from traditional media buyers –  Many traditional media companies bought technology companies and turned them into media businesses•  Category leadership was #1 priority –  If you bought a vertical leader, the view was that you owned the category – May have worked offline, but not online•  Valuation discovery period for UGC –  Little appreciation for opportunities to build and monetize UGC 23
  24. 24. II.  Where We Are Today – How the Landscape Is Changing 24
  25. 25. Consumer Behavior Shift Social is onramp to content and products Depth and breadth of high quality content New forms of entertainment competing for consumer time PC feels a little oldSource: JP Morgan, Nielsen 25
  26. 26. Anyone Can Become a Content Company 26
  27. 27. Digital Environment is a “Little” Fragmented Brand Driven 27
  28. 28. Offline vs. Online Content Valuation Snapshot Offline Content Providers Online Content ProvidersSource: CapIQ 28
  29. 29. Nowadays, Scalable Digital Content Companies Command Premiums in the MarketIndexed to 100 Stock Performance Over Time Source: CapIQ Premium Digital includes: ACOM, WBMD, YHOO Other Digital includes: ADAM, AOL, DIET, EDGR, HOLL, HSTM, KNOT, TSCM, WEBM Traditional includes: ALOY, CBS, DIS, GCI, LINT.A, MDP, MNI, NWSA, NYT, SNI, TWX, VIA.B, WPO 29
  30. 30. Buyers Much More Focused on Smaller Digital Content Assets in Today’s Environment Digital M&A: Content Digital M&A: Non-Content 2005 - 2006 2007 - 2008 2009 - 2010Total Digital Deals 37 48 41Digital Content Deals 12 15 8 % of Digital Deals over $500MM that are “Content” related 50% 38% 7% Source: CapIQ 30
  31. 31. Part of the Problem VS. Brand Buying Audience Buying 31
  32. 32. Fragmentation on the Demand Side Doesn’t Help 32
  33. 33. Content Consumption Model is Quite a Bit Different TodayDrivers of Influence Content Enlightenment AcknowledgmentThe Network Converse Science Play Opine Tweet Tag Curation Watch Review “Like” Check-in Incentives Read Rank Location Revenue Acclaim Loyalty Intelligence 33
  34. 34. Billion Dollar Businesses Are Created byEngagement and Business Model Innovation Users (MM) Founded Jul. 06 Founded Jul. 07 Founded Nov. 08 175.0 * No. of daily active users Curated Information Entertainment Shopping Source: NYTimes Source: Zynga Source: Groupon 34
  35. 35. Common Themes Across Valuable ContentFranchises Creation of New Business Model The Network Virally Driven in Recent Past Dictates Value             35
  36. 36. Emerging Digital Content Models •  Local + demo targeted + commerce •  Email drives high engagement •  Acquired JackPaul Holdings, Inc., an online retailer for apparel, shoes, and accessories, on May 13, 2010 •  High quality UGC content +real-time + community •  Professional Q&A community, further lowers constraints for professionals to share domain knowledge •  Received $11MM in funding from Benchmark Capital in March 2010, valuing the company at ~$86MM •  Crowdsourced + global perspective at local level •  Submission, acceptance and placement of content all technology driven •  Raised $3MM in a round of funding led by VantagePointSource: TechCrunch, CapIQ Venture Partners in January 2010 36
  37. 37. Three Pillars of Content Value Optimal Value Integrated marketing Distribution Scarcity 37
  38. 38. Technology Driving More Monetization Channels Commerce Advertising Syndication Content Economics Game Subscription Mechanics Paid Links 38
  39. 39. How Integrated Will Content Be With Commerce? Discoverable (SEO)  Higher Engagement Viral  Greater Content Stickiness Tailored Engaged  Higher Consumer Yield 39
  40. 40. Opportunities to Reinvent Digital Content Static One to many Drivers of change More personalized Richer •  Lower barriers to buy, consumer, share •  Flexible, cost-effective applications •  Rapid deployment of new technologies •  Ability to create new Location aware InteractiveEstablished economic precedent experiences New Distribution Channels = New Revenue Models 40
  41. 41. We Are Already Seeing This in Mobile…’08E Rev. Mix for Top 50 Global Internet Companies ’08E Rev. Mix for Global Mobile Internet 30% - Users Pay for Instant Access 76% - Users Pay for Instant AccessDigitalContent Digital Content(Music, (Wallpaper, Ringtone,Video...) 5% Games, Music…) 54% Source: Morgan Stanley 41
  42. 42. …and eReaders “Amazon customers buy 3.3 times as many books after buying a Kindle, a figure that has accelerated in the past year as prices for the device fell” – WSJ, Aug. 2010 US eReader Consumers (MM) Color available Animation, $99 price point more wireless devices Full-frame video More brands available appear More content $199 price point availableSource: Forrester Research, May 2009; Wall Street Journal, August 2010 42
  43. 43. Good or Bad? 43
  44. 44. Scarcity of High Value Content Demand Media creates ~1.5MM pieces of content per year 5 bullets, no comments, mostly ads 5 pages, >50 comments, rich media, few ads Source: WIRED, eHow 44
  45. 45. Key Ingredients of a Valuable Content EnterpriseEngagement Science Mechanics Multi-Level Monetization Distribution Innovation Quality 45
  46. 46. III. Advice for the Audience 46
  47. 47. To the Sellers•  Billion dollar businesses are created in today’s environment –  But it is more about true value vs. perceived value•  Loyalty at scale is a powerful barrier –  If you have it, keep it at all costs –  If you dont have it, creating it is not only about the content•  If you arent risking the business frequently, you wont get there•  The buyer universe for digital content will continue to expand 47
  48. 48. To the Traditional Media Buyers•  Acquiring teams is as much or more important than the asset –  “Synergies" is not just a financial concept•  Early stage today can quickly become scalable and profitable tomorrow –  Staying close to early stage companies should be a strategic priority•  Fight for good assets –  Paying a bit more wont matter if you execute on your strategy 48
  49. 49. To the Tech Buyers•  The lines between a content company and a tech company will blur over time•  Creative talent is as scarce an asset as engineering today•  There are billion dollar content driven businesses being built today•  You can be the favored buyers because you understand technology growth drivers 49
  50. 50. To the Investors•  Innovation in digital content is happening across content development and delivery chains•  Quality vs. Quantity - quality content is worth paying for•  Social, local, scalable, and real-time will drive content value over the next five years 50
  51. 51. Predictions•  Content economics environment will get much better over the next three years –  New channels will open new revenue models –  New mechanics will be applied to drive more revenue from existing channels•  Larger distinction and value attributed to “quality” content –  Both UGC and professionally created•  More value will accrete to multi-faceted revenue models vs. traditional advertising and/or subscriptions 51
  52. 52. IV. Quick Gridley Plug 52
  53. 53. Highly Focused Industry Expertise UnderliesOur Investment Banking Services•  Founded in 2001, headquartered in New York, NY•  Sharp focus provides valuable strategic insights and perspectives for clients Advertising & Internet Services Marketing Services •  Adserving / Online Media Network •  Advertising Agencies •  Customer Acquisition / Affinity Marketing •  Customer Care •  Content Driven Aggregation •  Database Marketing •  Contextual Advertising / Search •  Loyalty Marketing •  Customer / Web Analytics •  Market Research •  Online Research •  Specialty Marketing Services •  Electronic Payments / Internet Banking INFORMATION •  Teleservices •  EC / Web Integrators & TECHNOLOGY & Database / SERVICES Financial Technology and Information Services Outsourcing Services •  Data Analytics / Decisioning •  Payment and Transaction Processing •  Consumer / Specialty Data Providers •  Financial Security •  Business Data Providers •  Financial Technology / Outsourcing •  Financial Information Services •  Business Process Services •  Specialty Information Providers •  IT Consulting / Systems Integration •  IT Research •  IT Outsourcing 53
  54. 54. Gridley PublicationsThe Compass Quarterly Newsletter Comprehensive Industry Overviews 54
  55. 55. Gridley Conference Content Panelists, Presenters,and Attendees – 1/11/11 The IDEA Conference Innovation… Disruption… Engagement… Action! January 11, 2011 The Jumeirah Essex House 160 Central Park South, New York City 55
  56. 56. Linda Gridley Gridley & Company LLClinda.gridley@gridleyco.com 212.400.9720 tel Twitter: @gridleyco www.gridleyco.com 56