To quote Warren Buffett: you never know who's swimming naked until the tide goes out. With online media growing year-over-year, it's hard to tell who has a really scalable and sustainable business and who doesn't.
There are hundreds of ad networks that intermediate between marketers and publishers. We've seen horizontal and vertical consolidation between display networks and video networks:
With Tremor raising $27 million and looking at everything from analytics to content -- but not necessarily more consolidation - it's clear that ad networks need premium content and a way to reach the audience that marketers crave. Whether or not they need to own it all was hitherto not a given. But, times have changed.
The Squeeze Play
"Let me guess Ash, everyone has to buy content assets, right?" Actually, no. Content is the solution for some buyers, but not all. For some, it could be analytics. For a few, it could be publishers with audiences (and not necessarily proprietary content). For others, it might be more reach via consolidation (though we've already addressed why scale for scale's sake is futile).
Greed is Good
I don't use facts and figures to tell a story that fits my agenda; I'm way too deep in the trenches to have an agenda. Yes, I'm bullish long-term on content, but only those with the time horizon, risk profile, right editorial and business strategy should venture into content.
While the Huffington Post (media), TechCrunch (content) and 5Min (video) acquisitions have made investors and ad networks salivate over the exit opportunities and commensurate multiples in media/content/video, ad networks are split up into those who:
a) sincerely believes that content is king, vs.
b) are interested into "getting into content" because it's the latest, sexiest fad.
But, greed is good, so all good.
Fear is Better
What is really driving the ad networks these days is not greed, but fear, which is better.
Fear Factor 1: Portal Blockade
Last week, AOL, MSN and YHOO hooked up to cross-sell one's inventory (disclaimer: all three portals distribute WatchMojo's video content). It's reasonable to expect the next phase of this plan to be
i) pulling ad exchanges and/or networks off the portals (likely), and
ii) possibly a massive roll-up of YHOO/AOL and MSN's online portals (unlikely).
Fear Factor 2: Super Premium Content is Leaving the Building
NBC is mimicking FOX and ABC by pulling content from the Web. What this means is that while ad networks push to expand the pool of content they can sell ads against by refining that whey mean by "premium" content, the amount of content that will come from Traditional Media Companies (what I call "Super Premium" content) will shrink. This makes "Premium" content (professionally produced but made-for-Web) all that much more valuable.
Fear Factor 3: Balance Always Prevails
At a time where more content than ever is making it online (48 hours of content is uploaded to YouTube each minute), most of it remains undesirable to marketers (it's largely UGC or pirated). While tech remains a zero-sum game, there's an insatiable need for content from both users and marketers: you will need a lot of content to please the masses.
But when it comes to Premium content, without the option of linear programming, you need to create a large pool of evergreen, brand-safe content that - when distributed effectively and transparently - will maximize its value over time. That's been our bet, in any case.
Fear Factor 4: Eroding Margins
The intermediation game that ad networks have been playing is on borrowed time. As audiences shift to the Web and ad budgets follow, it's illogical to expect there to be a premium paid online even if advanced targeting and tracking suggests that it could be warranted. Advertisers have forever held the upper hand and the Web will prove to be the platform where marketers try to do away with inefficiencies that media companies have been able to get away with offline.
Fear Factor 5: Transparency and Surety/Safety of Content
Online, transparency rises to the surface, and nothing provides better content surety than actually owning it and ensuring where a marketer's ad will appear.
Fear Factor 6: Defensibility Through Ownership
Ultimately, the critique leveled against ad networks by bankers, investors and analysts is a lack of proprietary assets (the tech is a common denominator across the industry, so not a differentiator at all). As the ad networks start to look for liquidity events, ad networks will use their war chests and balance sheets to move into new, proprietary and long-lasting assets to minimize the risk factors inherent in their businesses.