The Digital Signage Insider

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.

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!