A stark and energizing item in the annals of consumer intent:

A Pew Research study in the US has shown rising tablet usage, while the Economist’s own research reveals that 28% of its readers already own a tablet, with a further 23% expecting to own one within a year.

A survey among its US subscribers asked those aged over 40 how they read the Economist – more than 95% said they read it in print. But when asked how they expect to read it in two years’ time, the number expecting to do so in print fell to 35%. “I’ve never seen a statistic like it,” says Rashbass.

The data point is in the middle of an engrossing interview by the Guardian’s Roy Greenslade with Andrew Rashbass, CEO of the Economist Group.  Rashbass also has an encouraging observation about what he calls “the mega-trend of mass intelligence.”

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Talking about the partnership of tech and marketing at TalkNYC

October 18, 2011 in Advertising, Events with 0 Comments

I had the opportunity last week to speak at Round 3 of TalkNYC’s Tech Meets Madison Ave confab.  Round 4 is takes place on December 7:  if you get energized by meeting interesting people, hearing the juxtaposition of divergent experience and converging interests, and being in the middle of something that’s important and hard to define, I encourage you to go.

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The setting is informal and high-end:  the Ney Center at Wunderman.  An enterprising, connected and unabashed digital advertising/social media entrepreneur named Derek Smith is at the center of the venture.  He appears to have one simple mission:  bring together people who should be talking about the intersection of technology and marketing and have them say interesting things.

I shared the stage with David Tisch, Managing Director of the incubator TechStars.  Our mandate?  Talk about the dynamics of partnership between established brands and emerging companies.  What are the issues to watch out for?  How can these partnerships work?  What can drive them apart?

Our comments had to be relevant to a diverse audience:  about one-third agency and clients; one-third investors; and one-third emerging companies.

Tisch talked about the energy, innovation and perspective embedded in early-stage companies.  The challenge for any brand partnering with them is to make a calculated assessment about the company’s credibility and staying power.  Most early-stage companies don’t succeed long-term, but the amount and sourcing of their funding, the track record of their founders and the solidness of their business concept are reasonable indicators of whether they will have better than average odds.

My contribution was to point out the difference between the risk tolerance and outcome ranges for early-stage, late-stage and mature capital.  Brands — and their most significant marketing vendors, such as advertising agencies — have profitable business models that generate capital returns  that need to be protected.  The demands of innovation are constantly balanced against the conservatism of an established business.  For these parties, entering into partnerships with innovative early-stage companies is in a large part about reconciling the potentially conflicting goals of the capital that funds these business.

Boil it down:  Understand how each party makes money, what risk tolerance each party will bear, and how that risk will affect the most important relationships embedded within each company.   An early-stage company that has lost focus may try to please the needs of their biggest source of cash…their investors.

One last note: it’s always intriguing to watch an entrepreneur get into something that reflects their basic nature.  TalkNYC is a reflection of the positive, curious and social core of Derek Smith.  I’m really intrigued to see where he takes this surprisingly low-key and increasingly influential event.

 

Annals of strategy: Have a business model

September 15, 2011 in Digital media with 0 Comments

A pithy observation from Robert Andrews of Paid Content:

For the last two decades, most publishers have operated with one overriding mission – to republish their content on multiple new devices. But mostly that content is retained in its original form (linear prose, itself inherited from print).

By pushing that same content out to new devices for free with no corresponding business model, publishers risk readers substituting their lucrative print habit with cheap or free mobile consumption.

Is Zagat Google’s signature content purchase?

September 13, 2011 in Content strategy, Digital media, M&A with 0 Comments

Google‘s purchase of Zagat is a signature deal for the leading web advertising company and has prompted a significant amount of discussion in traditional and digital media circles.

A common first take is that the acquisition is a validation of the value of original content and an implicit acknowledgement by Google of the limitations of a content-neutral media model.

Conversely, observers wonder how Google will handle the challenges of managing a traditional media business that makes money from the sale of print directories.

That conclusion does not take into account the distinctive attributes of Zagat’s content model.

Zagat is a curated consumer-generated content company that combines standardized data — basic information about restaurant locations — with consumer content generated through surveys and indexed content created by Zagat’s editorial staff.

The process is unique and time-tested. In fact, one can argue that Zagat is one of the first companies to create a viable business model from user-generated content. In Zagat’s case, the distinctive value proposition is that the content is presented consistently, both through curation and format, and is presented as “peer reviews” to individuals who are willing to pay for access to the information.

Zagat’s business model is a by-product of the tools available to them during their period of early growth. By publishing a local book, the company was able to keep distribution costs relatively low — small press runs — while charging a premium price that offset the incremental costs of managing and editing the survey tool while allowing for a strong opting margin.

Google has not acquired a business model. Google has acquired a content process that creates value around user-generated content. The actual Zagat business model is secondary to the content process.

The purchase is a creative and low-risk approach to solving a prickly problem in the emerging local media space. With approaches to Yelp and Groupon, Google signaled an understanding that a key challenge to aggregating an engaged audience around local is being able to present a deep and organized content database of relevant local information.

Despite decades of information organization around local content — witness early forays into the digitization of yellow pages listings and newspaper archives — no single entity has been able to corner the market on deep, comprehensive and consistent local content.

There are exceptions to that experience. The most notable are in high-value classified categories, such as Automotive and Rentals. The market leaders in these categories, such as Autotrader, Cars.com, Apartments.com, ApartmentFinder.com and ApartmentGuide.com, have deep databases with rich content, discounting mechanisms and close integration with commerce engines.  The business models of these companies are highly reliant on their advertising sales organizations sourcing content from clients in return for delivering measurable leads.

Most consumer experiences around local content, however, are a mile wide and an inch deep.  The quality is consistently  inconsistent. The category presents a basic problem: if you rely wholly on consumer contributions, you get spotty coverage and quality; if you add traditional content-creation techniques, like editorial staffs, you increase costs beyond the near-term revenue opportunity.

In her blog post announcing the acquisition, Google’s Marissa Mayer signals what the important attributes of Zagat are.  She doesn’t speak to the business model around the Zagat brand. She speaks to its core capability in “consumer based-surveys, recommendations and reviews.”  In this regard, Zagat offers the same kind of tools and process that a tech start-up would.

In Google’s evaluation, paying something close to $100 million for a process and infrastructure that could unlock billions of incremental value is a perfectly rational risk. The traditional Zagat’s business doesn’t need to change; the innovative engineers at Google just need to go under the hood and experiment with what aspects of the process culture and content ethos can be migrated into Google’s local ecosystem.

Why would the Zagats sell? In Google they have found the buyer who will value the core engine in their business without discounting for the diminishing value of their legacy business model and for the execution risk of a digital transition.

While other commentators have made astute observations about the execution risk of the transaction, I find that question less compelling than wondering what Google will be able to do with Zagat’s content system. Will we someday see Google Local plastered with tiny “Powered by Zagat”  buttons just like the “Intel Inside” logos? If we do, then Google likely will have solved the thorniest problem in local. If we don’t then it will signal that this exploration was not as fruitful as the company had hoped, but it’s that willingness to risk valuable resources — intelligence even more than capital — that has made Google so successful and augurs well for their future.

 

Experts project long-term decline in paper usage for media delivery

August 23, 2011 in Research with 0 Comments

Interesting cause and effect research from RISI that accents the scale of  digital tipping point for  traditional print-based media.  In The Impact of Media Tablets on Publication Paper Markets, RISI projects a dramatic decline in paper production over the next 15 years:

Print media companies have made great efforts to capitalize on the migration of consumer eyeballs towards digital, and magazine publishers are no exception. While media tablets may have an overall positive effect on readership, paper use in magazines is expected to fall at least 20% over the next 15 years. Newspapers have already faced severe competition from online news sources, and the adoption of media tablets, especially tablet computers, will make browsing news websites and digital editions even more convenient for consumers and advertisers.

The good news is that the shift in distribution medium does not necessarily diminish the engagement and ultimate value of the consumer relationship to the publisher.

Time to be cautious or fearful?

August 19, 2011 in Consumers, Management, Media+Value, Trends with 0 Comments

Over the past couple of weeks, I’ve had conversations with leaders of media companies who are planning cost cuts over the next few months.

The cuts aren’t being made out of “figure-it-out” urgency. They are being made to protect what these leaders believe are viable, but fragile business models.

During the mini-recovery of the past year, their businesses have begun to recover as well. They’ve been rewarded for the hard decisions that were made during the downturn. Operating margins revived. Business strategies were being fueled by market growth. The demand curve had sloped up.

For the last few months, demand has sagged, driven by two macro factors: a lag in consumer spending and caution by marketers.

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These factors tickle down through the media ecosystem, from the demand for business information to the marketing spend by business marketers and into consumer demand.

A smart business leader will prepare for a lag in demand by pulling in costs, but protecting product.

The challenge will be not to over-adjust. The inclination to be decisive and, perhaps, draconian will be justified by recent history. Companies will be leery of pushing up against debt covenants. Lenders will be reluctant give their accounts too much rope.  Equity sources will run models that discount future growth.

In a stable economy, smart capital gets beta-busting returns when they use their sector knowledge to adjust their investment assumptions.

The question we face now is whether capital sources and the management that relies on them will trust their smarts or will get conservative because of how wrong they were in the recent past.

 

Dan McCarthy joins DeSilva+Phillips, a media investment bank

August 18, 2011 in Media+Value with 0 Comments

This week I stepped down as the CEO of Network Communications, Inc. after nine years and became a Partner at the media investment bank DeSilva+Phillips.

When I joined NCI, I was fresh off an unsuccessful internet venture and had spent more than a year looking for an acquisition with the team at ABRY Partners, a private equity fund based in Boston.

My friend — and future colleague — Reed Phillips mentioned that he knew the owners of a company in Georgia that published The Real Estate Book. They had been entertaining offers for their company. The CEO was in Providence for a regional sales meeting; I went up to meet him, described how we’d approach the sales process, and offered to have a Letter of Intent in his hands within a week of getting their financials.

Ninety days later, we owned the company.

Little did I know that the pace that we set doing the deal was a harbinger of the rapid and dynamic change that all of us associated with the company would experience over the next decade.

We set off with an investment thesis that the diversification of the Real Estate Book would offer a strong foundation to build other businesses on. That premise held out: NCI now is one of the leading providers of apartment listings for rent in the US; has the largest regional network of Home Design brands; and is the single largest provider of social media and content marketing services to small and medium sized businesses in the U.S.

We had a second thesis that the unique attributes of the NCI brands — hyperlocal, database driven, results-oriented — would transition from a print to an internet model without meaningful deterioration in value.

That premise was largely true, with one exception. In the apartment space, NCI delivers 60% of its tracked phone and email leads from web and mobile sessions. That ratio will only increase. NCI’s Home Design brands, such as New England Home and Atlanta Homes & Lifestyles, have significantly increased consumer penetration and advertiser value by expanding their digital footprint with online directories, blogs and social media participation. In real estate, however, the market dynamic was markedly different. A cohort of online competitors engaged in a race for listing dominance and within a matter of years, virtually any house for sale in the U.S. could be found in one of a handful of web sites that sold marketing enhancements to real estate agents for a fraction of the price of our traditional advertising option.

The business problems were exciting — managing growth, maximizing value, combating decline, optimizing the balance sheet, focusing resources. The deeper lessons came from the daily interactions I had with the people who made up NCI. They were truly an example of passionate and purposeful people creating the culture of a company. I learned a lot about myself and about the dignity that a group of people could create when they embraced simple values.

Over the past year, as we went through the challenging process of restructuring the company, I realized that I was ready for the next challenge. It was time to move on.

The media market is at a dynamic inflection point. The technology of media has normalized after 15 disruptive years. Multi-platform, ubiquitous access to entertainment, programming, content, information, data — it’s the default assumption for the media consumer. The next generation of winners in the media business will be those operators who understand how to create and deliver content that engages the consumers, and who understand how to leverage that engagement into economic value, either through payments, advertising, or marketing services.

The stage is set for growth, for innovation, for new companies to emerge, for markets to consolidate. This flurry of activity will be sparked by profitable and sustainable business models, smart management and experienced investors.

I’d like to be in the center of that explosion, discovering new companies, helping identify successful models, advising companies, increasing value and rewarding the entrepreneurs, investors and operators who have the conviction and the creativity to tackle these challenges. The work at its core is what I like to do best.

DeSilva+Phillips was formed in 1996 by Reed Phillips and Roland DeSilva. The firm provides M&A advisory, corporate restructuring services and private placements of debt and equity to leading companies in the media industry. D+P has completed more than 225 transactions since 1996. I was one of Reed and Roland’s first clients and have worked with them on more than a half dozen transactions. D+P is squarely focused on the publishing, digital media, advertising, marketing services and information sectors.

I’m privileged to join Reed and Roland, their partners Jeff Dearth and Ken Collins and the rest of the professionals on the D+P team. Above all, I’m looking forward to bringing my skills, perspective and experience to a broad set of clients. It is going to be a lot of fun.

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