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Thoughtful analysis, industry news and best practices for digital signage, M2M and kiosk projects

Analyzing the RMG-Symon and CARE Media-Saddle Ranch Mergers

Author: Bill Gerba on 2013-04-26 12:27:17

This past week brought two more stories of consolidation (and potential growth, I guess?) in the digital signage industry: RMG Networks completed their long-planned acquisition of Symon Communications, and Care Media Holdings (operators of KidCARE TV, PetCARE TV and Women's HealthCARE TV) bought content production company Saddle Ranch Digital as CEO Phil Cohen took the reins of yet another network. While both deals are interesting for their own reasons, I think that in terms of strategic value, one has a far better chance of success than the other. And rather than wait to discuss these transactions in the context of a larger M&A roundup (see our 2008-2010 M&A list and our 2011 M&A list), I'd like to dive a little deeper into these deals while the ink is still fresh.

The RMG-Symon shell game

RMG was formed when IdeaCast (previously owned by probably the most profitable DOOH company ever, National CineMedia) merged with Danoo (which was funded by VC mega-firm Kleiner Perkins Caufield & Byers). The company quickly streamlined their operations, focusing on a suite of reasonably competitive digital signage products and services, and (more importantly, for now) the operation of several large though heterogeneous DOOH networks.

A few months ago, it came to light that RMG would "go public" by completing a merger with an already-public but not actively operating shell company (if you've heard the term "shell merger" before, that's what it means). While the more public and popular means for launching on the NASDAQ or another public exchange is to do an initial public offering, shell mergers let you bypass some of the costly mechanics while still achieving basically the same end result: the ability to raise money on the public market, and the ability to provide shareholder liquidity. Both of these are important for RMG, since their CEO Garry McGuire already indicated that RMG expects to achieve 100% growth through acquisitions (which takes cash or reasonably liquid stock), and also because VC firms like Kleiner Perkins really like to get their money back, as do management teams that get paid reams of stock while a company is still private.

Of course, going public has its challenges, perhaps the most important of which is that fickle investors can tank your share price if they don't like what you're doing. A low share price makes it harder to raise money or provide liquidity for existing investors, which of course defeats the purpose of going public in the first place. To that end, RMG announced a while back that they would be buying Symon Communications, a pretty successful (and by our industry's sad metrics, large) player in the digital signage software field. Symon brings a steady cash flow that will let RMG smooth things out as they continue to expand. This week, the newly combined company announced the merger was complete, and the company is trading at about $15/share as of this writing.

Cohen's gambit

Meanwhile, in what was probably a much smaller deal, CARE Media Holdings, a DOOH network operator, announced that they'd be acquiring Saddle Ranch Digital and also taking a controlling interest in AMHN. Saddle Ranch has provided content for CARE's networks for a while now, but was rumored to have few other profit-generating customers. CARE CEO Phil Cohen, being a content guy himself, probably picked up the company (or its staff and assets, most of which he was already using anyway) on the cheap. He then turned right around and made himself CEO of AMHN, which if I had to guess, will be able to make use of some of the same content creation services.

Two ways to integrate

The CARE-Saddle Ranch deal is a classic example of vertical integration, where a company can gain efficiencies by taking a critical function that was previously outsourced and bring it in-house. In this case it's unclear whether CARE intends to continue selling Saddle services to new customers or whether they'll just continue to service existing ones. But my guess is that between the CARE and AMHN networks (Phil Cohen's new digs), there were enough potential savings by bringing the creative talent home to make that a non-issue. Likewise, by taking the reins of another set of DOOH networks, Cohen stands to gain more efficiencies, even if he never formally brings them under the CARE Media umbrella. As we've learned from past WireSpring pricing and staffing surveys, DOOH networks actually scale up pretty well from a workforce perspective. So while it can be an expensive proposition to start a new network, growing it -- even significantly -- doesn't tend to require a linear increase in staffing expenditures.

On the other hand, while RMG can certainly grow through acquisitions, that strategy doesn't necessarily lead to the growth and sales numbers that shareholders in a new public company expect to see. To wit: picking up Symon made good business sense from a cash flow perspective, but it has little strategic value since RMG already has (and sells) a software platform. They'll now either have to do double the work on software maintenance, or do a rip-and-replace of one of the two platforms. And either way, digital signage software sales are not going to be enough to keep them in the public limelight. It's also unclear how successful their current DOOH strategy has been, or whether they'll be able to gain the necessary traction with agencies and advertisers. The market has been rough on media companies lately, and agencies have not been kind to the DOOH sector (or outdoor in general), so I don't envy RMG management for having to juggle the task of growing their small (by NASDAQ standards) business into a large and stable company, while still meeting quarterly targets well enough to keep shareholders happy.

RMG's approach probably has greater pure upside potential in terms of the raw number of dollars that might ultimately be generated, but from my perspective it's also much, much riskier and failure-prone. On the flip side, CARE's buy-and-integrate approach certainly doesn't work in every situation, but I think that given the unique dynamics of their current portfolio of networks, and the way our industry functions (and is wholly reliant on great content), CARE has chosen a safer path without sacrificing the upside potential.

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Why I Didn't Go to Sign Expo, and Maybe Never Will

Author: Bill Gerba on 2013-04-11 13:11:38

Dave Haynes, the DailyDOOH crew, and others have given a good deal of attention to the 2013 ISA International Sign Expo that was held in Las Vegas last week. As the world's largest show about signage, I'm actually a little surprised that there hasn't been more talk about it in our industry in the past. However, since the people who exhibit at that show have traditionally sold things like vinyl wraps or very large, expensive inkjet printers, most of us haven't spent much time focusing on it. This year, that seemed to change a bit, though to be honest, I'm not quite sure why.

Selling digital signage to traditional sign guys is harder than it looks

On the surface, the idea of a digital signage vendor exhibiting at the Sign Expo makes perfect sense. After all, you'd be in a huge pavilion full of throngs of people already well-versed in selling signage. They'd be ripe prospects for converting to digital, right? Right?

Well... not so fast.

There are a few reasons why the static signage guys haven't jumped into the digital signage industry with gusto, and a few reasons why they're not particularly likely to do so in the near future. Here are the big three:

Problem #1: Technology

This is perhaps the easiest challenge to see and understand. Traditional sign guys have real skills, whether they're painting pinstripes, brushing vinyl, or dangling from a cherry picker while hanging a new storefront sign. What many of them still lack, though, is a comfort level with technology. Consequently, a lot of us in the digital signage space have tried over the years to come up with solutions to make the tech side of our business more accessible, whether that means writing braindead-simple software, bundling in easy content creation capabilities, or offering integrated bundles that negate the need to buy screens, media players, etc. separately.

Still, for many, it's a problem. But it's not the problem...

Problem #2: Content

By now you've probably figured out how I feel about digital signage content. It's the single most important element of any network, bar none. So traditional signage guys, who for decades have focused on nothing but the execution of great signage content, should be able to easily transfer their expertise to the digital world, right?

Maybe, but maybe not. While plenty can use Photoshop or Illustrator to make great artwork, few have experience with motion graphics, and fewer still understand the nuances of making effective content for digital screens. Since most of these guys have been involved in selling signage content (since what are most static signs other than just a display of their content?), they're not going to be willing to outsource this element to production companies. And since many actually make money on content sales now, it's not like they'd want to. Which leads us to problem #3...

Problem #3: Money

Our industry's full of creative business people. So it's fair to presume that we can fix problems numbers one and two. Number three, however, is a tougher nut to crack. And the reason stems from my comments on content above. A traditional signage shop that specializes in, say, laminated four-color signs understands a cost structure that is dramatically different from what we in the digital industry know. These folks have to make a big, big capex to get their business started, by purchasing a four-color press or large-format inkjet printer. Once that's done, the cost of producing additional signs is quite low. Ink, paper, substrates and coatings make up only a small fraction of the cost of the finished sign, making each individual sign an extremely high margin item for the shop.

Indeed, in our experience, most small sign shop owners were unhappy with anything less than 65% or 70% gross margins on their sales. And what's more, to many this percentage was actually more important than the actual dollar amount. This makes selling a digital signage package tough, since the packages have to be very cheap to begin with in order to make the final sale price reasonable. Coupled with ongoing training (which many franchise companies require for franchisees), technical support and the like, that doesn't leave much for the hardware and software vendors putting the packages together. Software or content subscription services can alleviate this, but they can be a tough sell to a group not accustomed to service-oriented products. Finally, considering that digital signs are still pretty expensive on a per-square-foot basis compared to most kinds of static signage, many traditional sign shops are only going to encounter a limited number of deals where they make sense.

So when you combine a low volume proposition with limited desire to sell (due to lower-than-usual gross margins), a different content business model and the additional complexity of a digital system, you can see that penetrating the static signage industry is not quite as straightforward as it first seems.

All that said, I expect that some portion of static signage vendors will become successful digital signage salespeople. After all, they still have access to the one resource that matters: customers who need signs. But if I had to guess, it's still going to be several more years before even the largest franchise organizations have any kind of meaningful deal flow when it comes to signage of the digital variety.

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A Fresh Recipe for a Supermarket Digital Signage Network

Author: Bill Gerba on 2013-04-04 13:48:34

A while back, a colleague asked me to vet a business plan for an ad-funded digital signage network to be installed in a major US grocery chain. It had all of the "must haves" for such a network, including a good-sized pilot, plenty of screens in desirable DMAs, and a nod to social networking with some quasi-interactive content. In short, it looked like just about every other big-box or grocery chain network out there. That got me thinking: there have been lots of failures in the grocery space. LOTS. And there's currently a ton of mediocrity. But I have a hard time pointing towards anybody who has truly succeeded in making a great digital signage network for grocers. So when speaking with my colleague about past issues and my concerns about the plan, I laid out an alternate, best-case scenario that I thought would offer the greatest chance for long-term success. We've done these thought experiments with a number of customers over the years, in dozens of different industries. So if you find this sort of analysis useful (or at least entertaining), perhaps I'll make this type of article a regular feature on the blog.

If I were starting a supermarket digital signage network, here's how I'd do it

To begin with, grocery and big-box networks fall into one of two general categories. The first group is internally-funded networks, where the venue owner owns and operates the signage network outright, such as experience, branding and private label networks and private label merchandising networks. The second group is externally-funded networks that are monetized by advertising revenue, where a dedicated company owns (in whole or in part) and operates the network, even though it is physically located in another company's venues. There are numerous examples of both types of these networks, but for the purposes of this exercise I'm going to assume the latter case, since they seem to be more popular with the folks I talk to. In these scenarios, we know that getting venue buy-in is absolutely critical. Thus, the first things that I'd do prior to developing a new network would be to:

1. Get the grocer to pony up most or all of the funds to equip a statistically significant number of stores (at least a dozen, preferably 25 or more) with screens. Instead of blanketing the store, target one specific area for now, preferably one where the retailer has a good number of private label products in place.
   
   
2. Get the grocer to commit to providing data (ideally register receipts, but at the very least info on sales of the advertised products and average basket size) about those stores with the screens, and an equal number of similar stores that don't have the screens for a control group.
   
   
3. Get the grocer to select 5-6 of their private label products that are being sold near the area where the screens will be placed.

I, the network owner, would then:

1. Develop 2-3 different socially-enabled ads or featurettes for each of the products, as well as prepare any secondary content that may be necessary to support the usefulness or attractiveness of the screens. I'd obviously be working from our extensive list of content best practices.
   
   
2. Deploy the content to the screens, and prepare different experiments. For example, run one type of ad on half the screens, and another on the other half during the course of the pilot (ideally 3-6 months).
   
   
3. Gather the grocer-supplied sales data to determine if any product sales lift is evident, or if there was any change in average basket sizes.

Why this approach makes sense

By starting out focusing on just one area of the store, and by using the private-label products that the grocer controls all of the data for (including their profitability), I'd stand the best chance of getting information about performance early enough to make changes (since I certainly wouldn't find the most efficient mix of content on the first try). Also, by starting with private label products (which are much higher margin than name brand products), I'd stand a better chance of enticing the grocer to expand the pilot if the results are good. And finally, since the pilot is deployed in such a small number of stores, I know I would have a very hard time attracting third-party advertisers -- and it would be like pulling teeth trying to get any information back from them (or the grocer) about results. The grocer would have no such concerns in our hypothetical pilot scenario: they're not going to care about DMAs if it's their pilot, since they use their own internal groupings. And because they have skin in the game (in the form of partly or fully capitalizing the cost of equipment), there's a much greater chance that they'll contribute the necessary resources to make the pilot -- and any subsequent expansion -- a success.

Finally, if the results do look good, you can choose how you'd want to expand, either by outfitting the same specific area in the rest of their locations, or by adding more screens to the other areas of the pilot stores and doing a second pilot phase.

For what it's worth, if you or someone you know is planning a grocery or big-box project at the pilot stage, I'd be happy to give you a great deal on software and media players in exchange for getting access to the resulting performance data and being able to write about it here on the blog. (After all, my last article about a grocery store pilot was more than 7 years ago!) I love my research, you know, and seeing how a properly-run supermarket pilot progresses would help me prove (or disprove) a number of theories that I've been pushing around.

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Revisiting DOOH Pricing, Ad Sales Experience and Build-vs-Buy

Author: Bill Gerba on 2013-03-29 11:48:26

As many others (myself included) have noted in the past, you can tell when someone is really busy by the frequency of their blog posts and social media updates. Last year I tried to buck that trend, forcing myself to produce about one blog post per week for the whole year regardless of how otherwise occupied I was. This year I seem to be unintentionally going in the opposite direction, but that's OK, since when I do find time to write, I've amassed a whole bunch of things to talk about. That said, here are three topics I wanted to revisit that should be of interest to those working in the digital signage industry or a related field.

On the subject of DOOH pricing, CPM, etc.

My last post was over a month ago, but it was an important one, discussing the results of our most recent survey on DOOH advertising pricing. After publishing that article, I got a number of calls and emails from operators of what I'd consider to be fairly large DOOH advertising networks. All of them wanted a more detailed analysis of the numbers, and an opinion on whether they were reliable. However, none of them contributed to the results by filling out the survey in the first place. All seemed a bit... irritated on the phone (it's harder to pick out that nuance in an email). One possible explanation might be that our data suggests that some DOOH advertisers are overpaying for their current placements, which could theoretically drive actual pricing done. But if that were the case, I'd be expecting more holiday cards from big brands thanking us for helping them lower their ad spend.

Also, while the average (mean) price for DOOH ads sold on a CPM/Viewers basis fell 36% (from about $12 in 2011 to $7.65 in 2012), I don't think "the bottom has dropped out of the DOOH market" (partially because there wasn't much of a market to drop out of in the first place). However, I do think that many operators have lowered their expectations about what their screen time is worth, and I believe that this is actually driving growth in the industry by opening up the medium to a much larger body of potential advertisers. And the fact that both capital and operating costs for setting up and managing a DOOH network continue to fall doesn't hurt much, either.

"I have no idea about ad sales..."

Not one but two VC-backed startups called in recently to chat about their plans to launch the next world-dominating, advertising-funded digital signage project. Neither management team included any experienced ad sales people. One of them didn't even know what media buyers and planners were. But despite that, they both mentioned Coke, Pepsi, Apple and Nike as potential advertisers. Yikes. I've been saying this about once a year since around 2006, but not having ad sales experience is the #1 reason why DOOH advertising networks fail. Maybe it's time for yet another refresher article on the subject :)

Build-vs-buy, redux

Likewise, I had a build-vs-buy conversation with a pretty business-savvy group recently. Way back in 2010, I figured the market was mature and established enough to put this kind of inane discussion to bed, but I was wrong. And I see that Ken Goldberg was lucky enough to have a similar discussion (and blog about it) just recently. All I have to say is this: if you're thinking of writing your own software from scratch, you should probably pick a less saturated market.

In the digital signage world, the more things change, the more they stay the same. On the downside, that means that there are still loads of crazy people in our industry. But on the upside, it also means that costs continue to fall, and our approaches for identifying and moving past all of the crazy people remain relevant. And once we put the crazies aside, we find that the opportunities are bigger, more varied, and span a much larger swath of vertical markets than before.

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DOOH Average CPM Drops to $7.65: Survey

Author: Bill Gerba on 2013-02-22 12:20:26

Is it too late to still say Happy New Year? I've been on a blogging/social media hiatus since December, so it might be a faux pas, but I'll do it anyway. Fortunately, this first post of the new year for me should be a good one, as it's finally time to discuss the results of our most recent survey on DOOH ad pricing. I know these results proved quite popular last year, so hopefully this followup will garner the same response and thoughtful analysis. While we had fewer results to work with than last time (with just over 100 responses), I think the data still speaks to the top-line trends in the industry.

The 5 things you want to know

• Once again, advertisers and network owners alike sell on overall audience size or reach, with 57% of respondents indicating this to be their primary price and decision driver. Of these, most also take into account the number of venues and the number of screens involved.
  
  
• Interestingly, the number of buyers/sellers who suggested that "specific demographic characteristics" were important nearly doubled, to about 28%.
  
  
• Transactions based on CPM/Viewers are still king, with most buyers and sellers agreeing that the $1-10/CPM range is the sweet spot. However, the average (mean) price/CPM dropped to only $7.65 from $12 last year. While the number of respondents indicating they bought/sold media for less than $1/CPM fell to only about 4% this year, many fewer reported buying/selling for $16 or more, bringing down the average.
  
  
• I don't know if this is indicative of industry-wide practices, but only about 10% of respondents were able to answer a question about buying/selling media on a per-screen, a'la carte basis (versus buying across the whole network at once). However, 50% of those who did answer indicated that they paid the highest pricing -- over $140/spot/month per screen.
  
  
• Over half (52%) of respondents are now primarily buying/selling spots that are less than 15 seconds long. While this means that networks now have more inventory to sell, it probably also partially accounts for the lower price/CPM above.

How about a pretty graph?

I'll have more charts for you in an upcoming article, but for now, here's a look at how the responses stacked up in terms of CPM/Viewers pricing:



Loaded questions and answers

When writing up analyses for these kinds of surveys, I always include a section on caveats, and this time is no exception. For starters, while last year's survey produced over 175 responses, this year's only garnered 102, and many of those were incomplete (largely due to the inclusion of the a'la carte pricing question mentioned above). While that's still a pretty big number, with these kinds of surveys more responses do tend to produce better data.

Second, this blog skews pretty heavily towards hardware/software/service providers, integrators and the like. So almost 40% of the responses came from industry vendors, who may or may not have a clue about DOOH advertising pricing (though of course our screener questions ask about this). Fortunately, 26% of responses came from network operators, and those directly involved with ad purchases and sales accounted for another 24%, so I don't expect the numbers to be entirely off-base. (I'll try to provide a better breakdown of responses by job function in a future article.)

Finally, even though a reasonable number of respondents did identify themselves as media buyers/sellers, a quick perusal of their email addresses (for those who left them) produced a list of agencies and networks that I haven't heard much about, and several of the big names were noticeably absent. This could simply be because they chose to remain anonymous, but that wasn't the case with last year's results.

Despite these caveats, my initial analysis of the data and comparison with last year's results gives me enough confidence to at least present the top-line findings. I think there are some interesting results that will pop out of the questions about the media mix and who exactly is doing the buying and selling (and who wants to be) as well, but those will have to wait for another article.

A quick note about the DSE show

Like many of you, I'll be at DSE in Las Vegas next week, giving a talk on best practices for digital signage content creation. Feel free to drop me a line if you'd like to meet up.

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