The Digital Signage Insider

How Significant is the Danoo-IdeaCast-National CineMedia Deal?

Published on: 2009-07-14

Last week's big news was the one-two punch coming from hyperlocal advertising network Danoo. First, the firm announced they were buying IdeaCast, another network operator with screens in a thousand or so health clubs and a handful of amusement parks. (IdeaCast also runs the seatback TV services for JetBlue and other airlines.) Next, National CineMedia, the company responsible for all those pre-roll ads at your local movie theater (and perhaps the only profitable, publicly-traded digital signage company out there) announced that they'd be taking a minority stake in the new Danoo, along with longtime Danoo investor Kleiner Perkins Caufield & Byers. Bill Collins, a well-respected digital signage industry analyst, got in touch with Danoo's CEO Aileen Lee to find out a little more about the strategic direction of the new entity. In his article at DailyDOOH, Collins declared the deal a "watershed" event for the industry. But is that really the case?

Business as usual

It's been a big year for digital signage market consolidation. Health Club Media Network announced on July 7 that it acquired Alloy Fitness Network from Alloy Media + Marketing. Prior to that, Fuelcast and Bhootan merged to form the (questionably named) Outcast. And of course, Zoom Media & Marketing has been on a tear with acquisitions lately. In light of these events, which have seen a number of 1000+ screen networks merged, the Danoo acquisition/merger/investment doesn't seem at all unusual. And hey, we're in a pretty bad recession right now, so anybody with cash on hand is likely to find good deals. (Having KPCB in your back pocket is more or less the definition of "free cash on hand".) And believe me, there are a lot more deals going on right now, so we're not looking at some statistical anomaly here.


Image credit: Stinkie Pinkie
Much more noteworthy than a few companies merging, or some other VC injecting money into our market, is that National CineMedia is participating. NCM is one of the most solid digital signage networks out there (although they might object to being called a "digital signage network" in the first place). In the past, they have hesitated to expand beyond the theater base that they've held a stranglehold on for the past few years. But economic and market conditions apparently coalesced in a way that made the management team see dollar signs. If anything, that to me is a sign that this deal has real profitability potential, even if NCM is only a minority stakeholder.

Watch out!

Ripple TV, I'm looking at you. You haven't made any serious missteps. But all of a sudden, your smaller competitor has become a bigger threat, with cash and connections that could help them accelerate their growth and encroach on turf that might have been yours. Other big networks and even some of the newly-merged companies mentioned above should keep a wary eye as well. None of the companies involved in the Danoo-IdeaCast-National CineMedia deal are stupid or inexperienced, and I have no doubt they'd be happy to buy $10M of already-installed screens for $5M because some network management team couldn't manage their own budget.

ABC, NBC, and (most notably) CBS, you should pay attention too: the new Danoo will be able to leverage some of NCM's existing relationships with national advertisers, and won't require the upfronts and sales packages that you've been toying with for our industry. Additionally, if Danoo sticks with their focus on hyperlocal advertising, they may find a way to generate a considerable cash flow from the very consumers that they're trying to sell stuff to, which would be a true coup.

What'll happen next?

IPO. No seriously, stop laughing, it'll be an IPO. Forget for a moment that KPCB has had some success with that approach in the past (notably for the tiny, uneventful, completely unnoteworthy launch of a little company called 'Google'), and look at what's going on: a well-funded but not-yet-profitable company gets a cash injection and an already-public steward. Their CEO is a KPCB exec, there for the short term, and I'm guessing she'll soon be replaced by somebody with some serious public company management experience. I expect to see 6-12 months of both organic and inorganic growth fueled by VC cash, and then an IPO as we exit the recession and the markets get all giddy and stupid again. The timing is perfect. Sure, NCM could buy them outright instead. In fact, that would be a much cheaper undertaking today compared to some future point (if the new group is at all successful). So why didn't NCM go for a full acquisition? I'm guessing they view this project as a tangential business or even a hedge against cannibalization of their current revenue streams, rather than treating it like an entirely new business undertaking.

So, a nice deal for all parties involved? You bet. An interesting development? Sure, though not as groundbreaking as Thomson's acquisition of PRN back in 2005. But a watershed event? Nah, I don't think so. We've seen all the elements of this deal elsewhere in the past. And while the combination of them makes the new Danoo more formidable than some of the other mega-networks, I just don't think that the formation of this company is likely to create significant variation in my business or yours. If anything, it's nice to see our oft-backwards industry actually behaving in the prescribed manner: mergers concentrate strength, leaving weak companies to languish and (hopefully) die. That forumula gets accelerated in times of economic hardship. So from my perspective, everything is working exactly as it should. I, for one, am very much in favor of a little summer cleaning.

It's a battle of the Bills! Bill Collins says the Danoo deal is a game-changer. Bill Gerba isn't convinced. What do you think? Leave a comment and let us know!


Comments   

0 Jeff Atley 2009-07-14 19:39
Remember that NCM enjoyed their ride through their IPO stage a couple years back. The IPO popped at over US$700 MM.
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0 David Weinfeld 2009-07-15 15:14
Bill, Way to drop the gauntlet. To best articulate my position on the argument, I wrote a blog post in response to yours: http://bit.ly/nBoD3 My main question is this: How could you say this deal is not a "watershed moment" when you view its potential outcome as a Danoo IPO?
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0 Bill Gerba 2009-07-17 02:21
Jeff: Yup, they certainly did, and I don't have any kind of problem with that (if people are willing to pay that much for shares, let them buy 'em). And I certainly have nothing against the IPO process. It's just sometimes hard to tell if it's being done to raise working capital for the company, or just to let previous investors have an exit.
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0 Bill Gerba 2009-07-17 02:22
Hi David, It's not that Bill C said anything wrong - he was completely factually accurate. I just don't see this merger, or the future direction of the new Danoo, changing the way that anybody else in the industry does business. To me, a watershed moment is a critical turning point -- a sudden and appreciable change in the way things get done. Explain to me how the Danoo deal qualifies as one of those. We've seen every element of this deal before: - M&A: Yup, all the examples I mentioned and more - Public company taking a stake: There have been many, CBS buying SignStorey comes to mind. - Digital signage network IPO: national CineMedia, Focus Media and a number of others. - A VC spending lots of money, time and talent on an unprofitable company in an unproven market: Duh, that's pretty much their only purpose. Like I said, this is business as usual, which is a great thing in my opinion, because our industry often likes to take the path less traveled.
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0 Bill Collins 2009-07-17 02:24
Bill and David: Good afternoon. I -- no more than anybody else in the Digital out-of-home industry -- do not possess the ability to predict the future or even to completely understand the present. But, honestly, right now I am seeing this new dispensation between Danoo, IdeaCast and National CineMedia as a game-changer or a watershed event, if you will. Bill, in your note you point out that several features of this new dispensation are not new. You're right. Specifically you cited: * Mergers and Acquisitions: Yes, mergers and acquisition are not new in our industry * A public company taking a stake in an ad-based Digital out-of-home network. Again, not new * Venture capitalists investing lots of money in a company. That, too, is not new. However, this deal encompasses those three elements, along with a collection of features and innovations that, as far as I know, are new. If theyTMre not new, I look forward to hearing from the readers of this blog who will tell me about other examples. The way I see it, whatTMs new includes: * A well-planned workflow (Danoo) to recruit, process and post user-contributed content, * A well-planned and apparently well-executed workflow (Danoo) to enable content creation to be done via a cross-Pacific collaboration between creative folks in California and creative folk in East Asia, * A degree of localization (Danoo) that extends to hiring editors in the various cities (Boston, Chicago, etc.) to make sure that local culture and local mores are reflected on the screens, * A link between the most profitable ad-based network in our industry (NCM) and a newer entrant (Danoo) that has very deep VC pockets and process innovation propelling it, * Collectively two organizations (Danoo and CNM) emerging as leaders in our industry in the integration of Digital OOH screens with the web (www.danoo.com and www.ncm.com) and mobile phones. So, when you add this up, I think it's a game changer. In other words, this is an operational example that has big money behind it. Although it may not be perfect, my hunch is that it will point in the direction that many other networks in our industry will be studying and emulating in the coming months. Bill Collins www.decisionpointmedia.com
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0 Bill Gerba 2009-07-17 02:24
Thanks for the very thorough reply, Bill C. I'd expect nothing less from you :) Here's the statement I continue to have trouble with: "So, when you add this up, I think it's a game changer. In other words, this is an operational example that has big money behind it." Yes, it's a big deal, and it has a lot of money behind it. And I'll concede that the particular combination of business angle, technology, and venture structure may be unique in the industry. But to me an operational example that has big money behind it, even if it's successful, isn't a game-changer. It's just another deal. A game changer is something that changes the rules of the game for everyone. It changes how the game is played. And I just don't see what's so unique about the Danoo deal that that would be true for everyone else (or even a reasonable subset of everyone else). By this logic, the Thompson->PRN acquisition was a game changer. And before that, the Cisco->little startup they acquired. And before that, the 3M->Mercury Online acquisition. See my point? None of these deals has appreciably altered the rest of the market. Grew it a little, sure. Matured it a bit, perhaps. Gave it some more credibility, arguably. But the last time I saw a true game changer was when the price of plasmas dropped below $1,000, and that was merely a cost-based enabler that grew the market.
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0 Sean 2009-08-06 16:10
As a person with fairly good inside knowledge on Danoo, I can tell you that their concept really doesn't have much steam behind it. For one, it's a digital display with no sound. For an advertiser running a :30 commercial spot, how is that effective? Two, no one notices these screens. When you're at the cash register for those few seconds, you are fumbling through your wallet, looking at the chewing gum, etc...you're basically doing everything but pay close attention to what's going on the screen. Again, not exactly a great selling point to an advertiser. But most importantly, it's a company where no one has media experience. The content is terrible/uninteresting and it's just not engaging. So all in all, I just don't understand the hype around Danoo. It's electronic wallpaper at best.
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0 Bill Gerba 2009-08-10 20:35
Hi Sean, You wouldn't be hard-pressed to argue that Danoo's screens aren't the prettiest in the industry, that's for sure. But whether they're successful at grabbing eyeballs and selling ads I have no idea of, and that's what this deal is really all about. National CineMedia is pretty good at turning digital display content into money, though, so I have to imagine that if the screens aren't performing, NCM will help them figure out why.
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