For the U.S. Digital Out Of Home media sector, Danoo’s acquisition of IdeaCast and its new collaboration with National CineMedia are watershed events writes Bill Collins, Principal, DecisionPoint Media Insights…
This deal breaks new ground because, to date, National CineMedia (NCM) has been the most profitable large-scale innovator in the U.S. Digital out-of-home (Digital OOH) sector. With this deal, NCM has found in Danoo a smaller, well-funded and innovative partner that can help the cinema-advertising giant expand outside of its very strong base inside movie multiplexes. NCM has scale, growing revenues, a big market cap, and a strong sales force with 6-7 years of experience successfully selling Digital OOH advertising in the U.S. market.
According to the terms of the sale, both NCM and Danoo’s leading investor, the Silicon Valley-based venture-capital firm Kleiner Perkins Caufield & Byers (KPCB), will hold minority interests in the new combined company. Both the venture capital (VC) firm and Denver-based NCM will have seats on the merged company’s board of directors. Mediaweek’s Katy Bachman reports that “Conveniently, Danoo’s new New York City office will be across the hall from NCM.” Danoo’s corporate office is located in San Francisco. IdeaCast is based in Chicago
National CineMedia Brought Cinema Ads Into the Mainstream of U.S. Advertising
During the last 6-7 years, NCM has leveraged digital-projection technology, satellite communications and the Internet to completely transform and rationalize the cinema advertising business in the USA. Prior to this digital transformation, cinema advertising was a stepchild in the U.S. advertising family.
Now cinema advertising is growing rapidly, delivering a highly desirable leisure-time demographic to advertisers much more easily than was done with old-style movie-house advertising which was comprised of slide advertising and 60-second Coca-Cola ads on scratchy, 35mm reel-to-reel prints.
By leveraging these new digital technologies, NCM created a Digital out-of-home network that counts annual advertising revenues in the hundreds of millions of dollars.
For example, in its most recent quarter, NCM reported quarterly advertising revenue of USD 60.1 million, compared to USD 53.7 million in revenue for the comparable 1st quarter of 2008.
NCM’s national theater network includes approximately 16,800 screens in more than 1,325 theatres in 46 of the 50 states, reaching more than 660 million moviegoers in 2008. A publicly held company (NASDAQ), NCM has a market capitalization of USD 543 million. This market heft dwarfs the size of any other U.S. Digital OOH network.
For the overall U.S. digital-cinema industry (which includes NCM’s chief competitor, Screenvision) total advertising revenue reached more than USD 571 million during 2008, according to the Cinema Advertising Council (CAC). The CAC reported last month that total revenues from U.S. cinema advertising has grown an average of 21.5% per year since 2002, with 2008 revenues reaching a level that is almost triple that of 2002.
This means that in 2008, this USD 571 million in U.S. cinema-based advertising revenue was greater than the total ad revenue generated by all of the other U.S. screen-media networks at retail and out-of-home which operate outside the multiplexes.
National CineMedia Steps up to Provide Leadership to the Digital Out-of-Home Sector in the USA
Although for many years NCM has been seen by many industry observers as part of the emerging Digital OOH sector, up to now it has largely defined itself as a cinema-advertising firm.
For example, although NCM was a founding member of the CAC in 2003, it has thus far declined to join the Out-of-Home Video Advertising Bureau (OVAB), the leading U.S. industry body which promotes Digital OOH as an advertising medium. [Danoo is a member of OVAB.]
With NCM’s minority investment in the Danoo/IdeaCast merger, and its green light to cross-sell ads on both its network and the Danoo/IdeaCast networks, NCM is clearly stepping up its involvement with the larger Digital out-of-home or advertising-based ‘Digital Signage’ media sector.
This shift started two years ago, in June 2007 when NCM invested a few million dollars in IdeaCast. In May of this year, NCM announced in its Q1 2009 conference call that it had acquired 100% of IdeaCast’s secured debt.
During that 12th May call with investors and analysts, NCM’s chairman and president, CEO Kurt C. Hall, explained how the company hopes to leverage the larger Digital out-of-home industry into what he called a “new growth engine for NCM in the future.”
In an interview with Mediaweek’s Katy Bachman published 6th July Hall added, “Cinema is ahead in the Digital OOH space, but clearly two to four years down the road, we’ll be looking to add growth. We see this [NCM’s interest in merged Danoo/IdeaCast enterprise] as an incubation platform for NCM.”
National CineMedia grew out of Regal CineMedia, which was founded in 2002 as a subsidiary of Regal Entertainment Group, part of Denver billionaire Philip Anschutz’s vast holdings. Anschutz, with an estimated net worth of USD8 billion, ranked 36th on Fortune Magazine’s 2008 list of the richest people in the USA.
“We’re Getting to Real Scale,” Danoo’s CEO Says
In the Mediaweek article cited above, it reports, “Aileen Lee, a partner with Kleiner Perkins [Danoo’s VC investor] who has served as CEO of Danoo for two years, will head up the combined company until a new CEO is named. Jason Brown, president of sales and marketing for IdeaCast, will manage sales for the combined company” – “It’s an amazingly complementary fit” Mediaweek also quotes Lee as saying.
The article says that Danoo began discussions with NCM about one year ago. “We’re getting to real scale” Lee said.
That ‘scale’ as the Danoo CEO describes it, would include the following: –
- IdeaCast’s Health Club TV network which is installed in approximately1,000 health clubs across more than 100 local markets
- IdeaCast’s Airline TV network, which in-flight airline passengers travelling on JetBlue, Frontier and Continental airlines can view on 7,800 seatbacks
- Danoo’s City Network, which is currently located in about 850 coffeehouses in Boston, New York City, Chicago, Los Angeles and the San Francisco Bay area, and Danoo’s new Traveler network, which it is currently rolling out to newsstands and gift shops at about 25 major U.S. airports such as Atlanta, Los Angeles and San Francisco.
- Danoo will have what the company calls “synergies with NCM’s network in terms of technical infrastructure, operational support and sales staff.”
NCM scale + Danoo innovation + VC cash + Smartphone Interactivity: The Sum of These Parts Equals a Game Changer
To understand how and why this deal is a watershed, it first must be pointed out that Danoo, with less than 1,000 screens prior to this deal, is still not a particularly large network. Currently many Digital OOH networks in the USA and around the world beam content to audiences that are much bigger than Danoo’s reach.
However, when one takes a closer look at Danoo – its innovative use of user-contributed and interactive content, its 30-person team (both technical and creative) based in China, along with its very deep pockets and management expertise from its Silicon Valley-based VC firm – it’s clear that the Danoo/NCM collaboration is an emerging game-changer for the U.S. Digital out-of-home media sector.
Consider the following about National CineMedia and Danoo: –
- Last year National CineMedia (NCM) created a new consumer website, www.ncm.com, which engages movie-goers about the movies shown in theaters where NCM offers its ‘First Look’ content block of programming and advertising that is shown before the start of the feature films. This new website includes a list of movie show times, a chance to view special interviews and features about current movie releases, and a social-media component a la Facebook.com that allows movie fans to interact and socialize.
- On 3rd July NCM launched an interactive polling promotion called ‘r8 it’ – pronounced as rate it, Ed where movie-goers are invited to use their mobile phones to rate some aspect of the movie that they just viewed. This invitation to ‘r8 it’ is issued during NCM’s First Look pre-feature programming, on digital screens in the lobbies and also via print handouts which movie-goers receive at the box office when they buy their movie tickets. The results of the ‘r8 it’ ratings are posted on the new NCM website and on a new ‘r8 it’ smart-phone application. Winners receive free movie tickets for one year.
- More than any other Digital out-of-home network operator, NCM has developed significant expertise in simulcasting concerts and entertainment events, as well as in event management and sampling. As Digital OOH networks start to take more seriously the notion of “enhancing the customer experience,” these extra competencies that NCM brings to the table should play a more important role in the Digital OOH medium.
- Although many Digital out-of-home media companies talk a good game about creating localized content, Danoo actually employs local editors who are based in the cities where the network is deployed (San Francisco/Oakland, Los Angeles, Chicago, NYC and Boston). According to Danoo CEO Aileen Lee, these editors ‘curate’ local news, events and culture, harvesting local information to publish on the Danoo screens. Lee said that these local editors compile this information from user-generated content and via direct data feeds from local published sources which are cited on the Danoo screens.
- Danoo leads the Digital OOH sector in attracting user-generated content. This content, which Lee calls “user-contributed content,” is now ubiquitous on the web but still rare in Digital OOH. Danoo recruits these contributions by inviting its local audiences to post photos, videos and information about local events via the www.danoo.com/participate tab on the Danoo home page. According to the Danoo web site, contributions to its ‘Photo Gallery’ are published in 5-photo sets. User-contributed videos which ‘work without sound’ are limited to no more than 2 minutes in length. Danoo says that up to 25% of its on-screen content in what it calls ‘relevant categories’ is user-contributed.
- Danoo – perhaps more than any other Digital OOH network serving U.S. audiences – is leveraging talent outside the USA. This talent based in Beijing, China – both technical and creative – is helping Danoo control costs and produce quality content with the localization and in the volume that the medium requires. Danoo employs 30 staff people in Beijing. According to Aileen Lee, five of those people are full-time creative people, working largely with 2D, FLASH and motion graphics. Three people in Beijing are program managers, with the remaining staff doing software development work (Danoo’s network is controlled by its own home-grown software). In order to facilitate communication between the Beijing-based staff and the San Francisco-based staff, the Danoo CEO said that at least three people from Danoo’s technical/creative team on both sides of the Pacific are bilingual and have experience living in both cultures. Lee herself is an Asian American who spent time at Fudan University in Shanghai.
- Danoo’s venture-capital backer, Kleiner Perkins, has a very strong track record in bankrolling successful companies going back more than 35 years. According to Lee, the VC firm vetted many investment proposals submitted by advertising-based Digital out-of-home networks before it decided to give its imprimatur to Danoo. Since its founding in 1972, Kleiner Perkins has provided early-stage financing and management assistance for well-known firms such as Amazon.com, AOL, Compaq, Drugstore.com, Genentech, Google, Lotus Development, Macromedia, Sun Microsystems Verifone and Zagat.
- Today, Kleiner Perkins (KPCB) is leading the financial sector in the funding of Apple iPhone-related technologies which potentially could speed the development of interactive features to enhance Digital out-of-home networks. This year Danoo announced some significant initiatives – which Aileen Lee said are producing “great results” – to encourage Danoo viewers to use their smartphones to interact with and download content from the Danoo screens. Recently KCPB created the KPCB iFund™ which the VC firm calls “a $100M investment initiative that will fund market-changing ideas and products that extend the revolutionary new iPhone and iPod touch platform.” According to the venture-capital firm, the new USD 100M investment fund will target “location-based services, social networking, mCommerce (including advertising and payments), communication, and entertainment,” which sounds like a snug fit for Danoo.
- Danoo does not express much interest in developing networks where the viewing experience is more ambient (for example inside clothing stores). According to Aileen Lee, Danoo likes venues such as airports, coffee shops, movie theaters, and other places because viewers are clearly captive, and thus “have the ability to engage” with screen networks. Danoo, Lee said, prefers to serve what it calls a “consistent and high-quality audience” which targets “hard-to-reach mobile, urban professionals and frequent fliers.”
For any corporate merger, the devil often emerges in the difficult details of corporate governance, geography and cultural differences.
This new merger, too, will struggle with those issues. It could fail like many other mergers that we’ve seen in the media business (think AOL and Time Warner). However, because of the money, talent and experience that Danoo and National CineMedia bring to the table, this deal amongst Danoo, IdeaCast and NCM should be one of the best seen to date in the U.S. Digital out-of-home media sector.
This new collaboration may spur the entire Digital OOH sector to innovate and serve its audiences and advertisers in some very exciting new ways.