For the U.S. Digital Out Of Home media sector, Danoo’s acquisition of IdeaCast [1] and its new collaboration with National CineMedia are watershed events writes Bill Collins, Principal, DecisionPoint Media Insights [2]…
This deal breaks new ground because, to date, National CineMedia [3] (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 [4] 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 [5] (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 [6] (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 [7], 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 [8], 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 [9] 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.
5 Comments To "A Watershed Moment For DOOH Media"
#1 Comment By J. Woolsey Jr. On 13 July 2009 @ 14:36 @650
Bill – you have been lead astray as this artical is a smoke screen for DOOH.
NCM successfully selling and leading the DIGITAL OOH advertising market for the last 6-7 years is just plain not true. This artical makes me question DOOH reason for reporting as this artical is “Yellow Journalism at best”.
J WOOLSEY
#2 Comment By David Weinfeld On 13 July 2009 @ 16:38 @735
Bill,
You have captured the internal and external dynamics at the heart of Danoo’s acquisition of Ideacast. This analysis is both thorough and engaging. Not only have you cited the significant reach and experience of National Cinemedia and how the company can support a network’s development, you have articulated the reasons why Danoo is positioned for long-term growth and success. I am in complete agreement of your view toward what this deal means for the whole of the digital out-of-home media industry.
In combining the principles and practices that support NCM’s success in the cinema advertising field with that of Danoo’s content and network growth strategy, the potential exists for the development of a digital signage industry paradigm from which all others will draw inspiration and knowledge.
Sincerely,
David Weinfeld
#3 Comment By Bill Collins On 13 July 2009 @ 17:50 @785
David:
Thanks for your note. I really do feel that this Danoo-IdeaCast-National CineMedia deal is a major development for the industry in the USA and Canada. As for how it will play in other parts of the world, I would not speculate, and did not speculate in my piece which Adrian Cotterill was nice enough to publish.
Since my piece was posted yesterday (Sunday, 12 July), here is what some of the skeptics of this analysis are saying:
1) They say that Danoo’s content model is weak, and that it has not been successful at selling advertising, and
2) They say that National CineMedia (NCM) is not representative of the Digital OOH industry because of its focus so far on cinema advertising.
To answer these folks:
1)
* To be honest, I have not seen any of Danoo’s content. I live in Cincinnati, Ohio, and their network is not visible anywhere near here. What impresses me about Danoo’s content is the production model for it (i.e., utilizing lower-cost talent in Asia to produce some of that content, recruiting content from contributors in an organizing fashion, and having a real plan and workflow to localize the content.
* As for Danoo’s ability to sell advertising: I would expect that any new, VC-funded network (it started in 2005) that is based in San Francisco (not a big center for media sales) that has not reached scale yet would be challenged in selling advertising. That stands to reason.
However, the beauty of this deal is that the ad sales for both Danoo and IdeaCast will now be managed by the former ad-sales manager of IdeaCast (based in Chicago, which is a traditional center of ad-sales talent). Also, with NCM people now sitting on the Danoo board, it’s clear that NCM’s sales staff will soon be trained re: the Danoo offering and start to sell it. Of course, sales by the NCM sales staff will not skyrocket immediately. But, these folks are now selling advertising at the rate of $US 200 million–plus per year. So, they obviously do know something about building a new digital media network and selling advertising on it.
2)
NCM is a success story. They revolutionized cinema advertising in the USA using digital technology to do it. For folks outside the USA, I feel a need to point out that cinema advertising here was very undeveloped and weak, as compared to other countries, before NCM (actually, Regal CineMedia, the root of NCM) grabbed digital-cinema technology in 2002 and started taking cinema advertising to the next level.
Now NCM is saying that they want to develop a new advertising revenue stream, to be realized fully in 2-4 years, from the wider Digital OOH sector outside of cinema. That impresses me, because they are so good at what they do and because I’m sure that many different advertising-based Digital OOH network have tried to court them.
But, I have to point out, who won that courtship? Danoo — with all of its process innovation and commitment to interactivity and localization — won it.
– – – –
Now, you may ask, what comes next? I don’t know. But, I think that this merger sets the new Danoo/IdeaCast organization and NCM off on a good course. From here, they will decide when and if to make the mid-course corrections that they need to make in order to be successful.
My hunch is Danoo and NCM will provide, on balance, some useful leadership to the industry in the USA (again, outside the USA and Canada, I would not speculate). And, the way I see it, that’s good for all of us.
Bill Collins
[2]
#4 Comment By anon On 14 July 2009 @ 13:06 @587
Jason Brown is based in NYC. Ideacast has a HQ office in Chicago (but I bet we’ll see that evaporate quickly).
I’m more of the wait and see viewpoint. When Thomson bought PRN, the thought was to leverage Screenvision to synergize the ad sales. The two platforms and audiences were so different that it was a lot tougher than planned – and pretty much fell apart. Jason Brown actually ran sales for Screenvision, and he will know the score.
Danoo targets what they call captive audiences. But not really so. Their screens are quite easy to avoid in most of their coffee shop venues. And many do as I noticed in one of their locations in SF last week. That has led to their poor advertising track record I think more than coverage. Gas Station, Elevator, CHeckstand all equate far more to in-theater than does Danoo.
But anyone investing real money and leadership right now is a good thing for all of us.
#5 Comment By Bill Collins On 14 July 2009 @ 14:18 @637
Anonymous:
Thanks. I did not realize that IdeaCast’s Jason Brown was based in NYC. Thanks for the correction. Also thanks for pointing out that Jason Brown at one time also ran sales for Screenvision. This information about Jason Brown helps explain, even more, why National CineMedia (NCM) felt comfortable in making this connection with Danoo and seeing Jason Brown elevated to lead sales at both IdeaCast and Danoo.
In reviewing some of the transcripts of NCM’s recent quarterly analyst briefings, it was interesting to see the attention paid to the question of who will acquire Screenvision. According to these transcripts, NCM is hopeful that, after Screenvision is picked up by a new owner, NCM will be able to negotiate some sort of cross-selling agreement with that new owner of Screenvision. Again, this Danoo/IdeaCast connection to Jason Brown dovetails with this notion.
– – – – –
I agree that, for NCM, the audience at Gas Station, TV, for example, might mesh better — in terms of short-term advertising sales — with cinema than Danoo’s audience. However, I get the impression that NCM is thinking more long term about this question.
Why do I say that? Well, in the interview July 6th with Kathy Bachman of Mediaweek cited in my article, NCM’s Kurt Hall says “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.”
So, as an ‘incubation platform’ and with a 2-4 year time frame, that gives this new relationship between NCM and Danoo time to mature. During that time, it would seem that Jason Brown could play a key role in helping these organizations work together and “build synergies,” to use the corporate cliche.
– – – – –
As with many of these kinds of VC-led deals, it seems likely that Danoo’s current CEO, the Kleiner Perkins partner Aileen Lee, will probably return to Kleiner Perkins in the coming months. So, if that’s the case, then clearly the success of the Danoo/NCM partnership could be greatly enhanced if the Danoo board (which will now include a least one representatives of NCM) recruits a strong new CEO to replace Lee.
As you said, “Anyone investing real money and leadership right now is a good thing for all of us.” I agree.