As we have discussed in this column several times, broadcasters globally are exploring opportunities for revenue diversification beyond advertising. Players like RTL and ITV have successfully done this by building out their production and distribution businesses (Fremantle and ITV Studios, respectively.) In addition, RTL has built a media tech stack, whose services they license to other companies on a global basis.
Another alternative to revenue diversification is to acquire new assets and launch direct-to-consumer (D2C) subscription or ecommerce businesses. One avenue for optimizing this approach is to invest a portion of the broadcaster’s own media inventory into growing businesses in exchange for an equity stake. This practice is commonly called “media for equity”.
What is Media for Equity?
In principal, a media group that typically sells advertising inventory for cash, reserves a portion of its media inventory in order to promote consumer-facing growth companies, something they’ll do in exchange for an equity stake. The usual practice is for media companies engaging in this activity take a minority stake and invest alongside more traditional finance companies.
Typically, companies that are funded have already received capital from established investors, offer a unique product or service, and/or demonstrable revenue growth which can be accelerated through access to media. Financial services, travel, commerce/retail, and beauty and health are among the more popular categories
The ideal point to provide media for equity is when the company has obtained significant market recognition through digital media and could benefit from the broader reach of television. In addition, the value of the media the company is getting in exchange for the equity investment needs to be greater than the amount of media the company could buy with the cash it already has on hand.
Who are the Media for Equity Players?
There are two types of players, with one being leading media companies that leverage their own media directly into targeted investments. The other model are independent media funds that aggregate media across a number of media groups and platforms to invest in growth companies.
Leading media companies that have built out robust investment arms include ProSieben and Mediaset. ProSieben, with broadcast operations in Germany, Northern and Central Eastern Europe, has built its investment arm SevenVentures into what they consider “the world’s leading media investor”. Mediaset, with broadcast operations in Italy and Spain, runs its investment arm through Ad4Ventures and has become the largest media for equity player in Southern Europe. In the UK, Channel 4 has experimented with media for equity with initial success. They invested media in Eve Mattresses pre-IPO, growing their stake almost three times in nine months.
Media for equity funds include players like Berlin-based German Media Pool, Stockholm-based Aggregate Media, and Paris-based 5M Ventures. Established in 2011, German Media Pool has media partners across television, radio, outdoor advertising and print. Since inception, they have invested more than € 175 Million in gross media volume in more than 50 investment rounds across 29 startups. To date, they have enjoyed 12 successful exits and 2 IPO’s. One of their most notable investments is one of Europe’s leading online retailers AboutYou.
While leading media companies compete against media funds for deal flow, there are opportunities for collaboration as well. In March this year, ProSieben’s SevenVentures and German Media Pool together made a € 39 million media for equity investment in FRIDAY, a leading German digital insurer. SevenVentures is providing significant media exposure across its TV assets, while German Media Pool is complementing that media exposure through radio, out-of-home, print and other television properties. In addition to the combined media investment, the Swiss-based Baloise Group, FRIDAY’s founding investor, invested an additional € 75 million in cash. The investors and media groups believe that the overall investment of cash and media will propel FRIDAY to become the dominant consumer insurance platform in Europe’s largest market.
Why It Matters
While media for equity is a clear business diversification model for broadcasters, it is also an affirmation of the sustained viability of broadcast as a marketing platform. Most notably, emerging D2C brands are looking to broadcast television to expand their overall reach after they have exhausted the reach of social media and search. TV ads make a brand look “bigger” and more important and allows them to create the types of high impact branding messages that only television can provide.
Here in the U.S., TV is increasingly important for growing D2C brands. The Video Advertising Bureau, which tracks 120 DTC brands using Nielsen Data, shows that the group spent over $2 billion on TV ads in 2018. This group included Peloton and the Smile Direct Club.
While TV is a growing advertising platform for these brands, the media for equity model has not taken off in the United States. One reason is that the U.S. TV market is highly fragmented across national, regional and local platforms and advertisers.
That said, there are potentially opportunities for national cable channels to begin assessing this space as an avenue for investing media into promising D2C startups that have gained velocity. In addition, initiatives like AOL Founder Steve Case’s Rise of the Rest Investment Fund, which focuses on start-ups emanating from overlooked markets in between the coasts, represent a media for equity opportunity for local TV broadcast groups.
Furthermore, as addressable advertising expands into linear television in the U.S. over the next three years through initiatives like Project OAR, there will likely be opportunities for both national and local broadcasters to explore opportunities that extend the data generated by D2C brands into linear, thereby yielding the type of interesting media deal structures that combine both cash and equity components. In the meantime, U.S. broadcasters can learn from the successes of their European brethren.