Deal Focus: Google Acquires Admeld

June 14, 2011

Google confirmed yesterday that it acquired Admeld, a New York-based company that helps large websites sell advertising. The transaction, Google’s 12th already in 2011, is rumored to be valued around $400 million, making it one of the technology giant’s larger acquisitions to date. Admeld is just one piece of Google’s latest effort to bolster its position in the display ads marketplace, where it competes with other internet powerhouses including Yahoo and Facebook. Three-year old AdMeld had raised $30 million in funding from investors including the Foundry Group, Spark Capital, Norwest Venture Partners and Time Warner Investments

Google says the Admeld acquisition is in response to comments from online publishers that ad management today is “mind-numbingly complicated and inefficient.” But the technology giant continues to invest outside its main search-advertising business as it believes there is huge potential in display ads. Neal Mohan, Google’s vice president of display advertising, has said he believes display-ad revenue could top $100 billion over the next several years. Google made nearly $30 billion in revenue last year, with 96% of that coming from advertising. According to SEC filings, aggregate paid clicks on Google and Google Network members’ websites increased about 16% from 2009 to 2010 while the average cost-per-click increased about 5%.

Admeld, which is known as a supply-side platform, will provide Google with ad inventory from some of the largest online content publishers, including Thomson Reuters, Fox News and the New York Post. The acquisition builds on other recent Google advertising purchases including Invite Media (demand-side ad platform) in 2010, Teracent (display advertising) and AdMob (mobile ad platform) in 2009 and Doubleclick (ad management and ad serving) in 2007.

We wrote last year that growth within the Internet/mobile advertising and analytics space would continue to excel. With major players like Google making significant investments in the advertising market, there are no sign of slowing. The Interactive Advertising Bureau and PricewaterhouseCoopers predict online advertising spend will reach $31.3 billion this year in the U.S., a more than 20% increase over 2010 spending. Coupled with the explosive popularity of increasingly capable mobile devices (mobile marketing and advertising is expected to grow at 40% CAGR through 2015), investors and acquirers will not hesitate to throw more money into the space over the next several years.

Google Acquisitions, 2011

(click image to enlarge)

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Posted by Signal Hill

Internet Video M&A Ignites During Q1 2011

March 24, 2011

M&A in the internet video sector ignited during the first three months of 2011. More than 17 deals have already been announced with little more than one week to go before the end of Q1.  That is a massive increase over the same period last year when only two transactions were announced. The highly successful IPO of Chinese video sharing site Youku at the end of last year set the pace for the 2011 market (it is currently up nearly 35% YTD), and there are no signs of the market slowing any time soon.

Many acquisitions in the space have been strategic, with media companies purchasing technology to build out or expand their existing video offerings. Transactions including YouTube’s purchase of Green Parrot and Next New Networks fall into this category as Google’s video site aims to improve and expand its content beyond amateur user videos. KIT Digital made four acquisitions already this year , which expand upon the video asset management provider’s ability to monetize and distribute internet video more effectively. KIT may not be done with its acquisition spree either. The company recently announced that proceeds from a December $110.4 million public equity offering will support a “prospective larger acquisition” that is expected to be announced in a few weeks.

Venture capital firms also continue to show their Interest in the sector as well. PPLive, a Chinese online video company, raised $250 million at the beginning of February from Japan-based Softbank, an amount larger than what rival Youku — often dubbed China’s YouTube — raised in its IPO at the end of 2010 ($203 million). Other video companies are also bringing in funding, but on a more modest level; video conferencing solutions provider Vidyo , raised $11.5 million at the end of January. 

We’ve written previously that global online video revenue is expected to reach $12 billion by 2012, and with the way companies are buying into the sector, it looks as though the market believes those estimates are true. Video traffic management firm Bytemobile recently found that 60% of all traffic on mobile Web devices is expected to be for video in 2011. New, more advanced mobile and tablet technologies are being announced what feels like every day, helping to drive the need for better video technology and further innovation. We expect M&A and investments in the space to continue torrid growth through the remainder of the year as the shift from traditional media to Web 3.0 is fulfilled.

Video M&A Transactions, YTD 2011
video M&A Q1 2011(click image to enlarge)

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Posted by Signal Hill

Market Still Betting On Internet Video Growth

December 15, 2010

The market and investors have been betting on an explosion in Internet video for the past few years. There is no doubt that Internet video has come a long way since the early 2000’s. As of December 12, people watched more than 700 billion YouTube videos and uploaded more than 13 million hours of footage. And most recently, a hugely successful IPO for Chinese video site Youku is reinforcing the fact that attitudes are still optimistic.

The market has been betting on explosive growth in Internet video for some time now. In 2006, bold projections stated that Internet video revenues would climb to $7 billion by 2010. However, recent data shows that worldwide online video advertising spending — which makes up a majority of Internet video revenues — has only reached about $2.2 billion through the third quarter of 2010. Still, IDC predicts global online video revenue will reach $12 billion by 2012, and with an explosion of new streaming and mobile video technology, that may not be too far off.

Last week, shares of Youku, a video site similar to the U.S.’s Hulu and YouTube, soared on its IPO debut, rising 160%, giving it a market cap of more than $3.3 billion — higher than former-Internet giant AOL ($2.7 billion). This IPO in particular is a sign that investors have quite a bit of faith in the future of Internet video; the IPO value after day one represented a enormous trading multiple of 94x revenue, as the company technically has no earnings.

U.S. Internet advertising revenue for digital videos hit $627 million during the first half of 2010, and will no doubt pass the $1 billion mark by the end of the year. However, this accounts for only 5% of the U.S. total. With total Internet advertising revenues expected to reach at least $24 billion at year end, and much of the revenues for Internet video companies coming from online ad spending, there is still a very large piece of the pie that could be reallocated, from areas including search (47%) and display banners (22%), as video technology improves.

While the market has not yet quite hit the industry’s lofty predictions for where Internet video revenues should be, there is still plenty of room for growth in the sector, thanks to new technologies aiming to pull Internet video from the computer and place it in your living room or the palm of your hand. We’ve noted previously that YouTube, privately owned by Google, is the world’s number two search engine, handling more than two billion views a day. Other video services, such as the formerly DVD-centric Netflix, recently started offering customers a streaming-only plan, exemplifying that Internet video is the where the future is heading. It is only a matter of time before advertising dollars start funneling more towards Internet video and away from the biggest areas such as traditional search and display ads, we expect to see continued growth domestically and abroad as broadband speeds continue to improve, mobile devices become more mainstream, and technologies eventually allow users to watch video anywhere, anytime.

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Posted by Signal Hill

In Hot Ad Market, Traditional Firms Make Buys

June 28, 2010

The Internet and mobile advertising analytics markets are on fire lately with one acquisition after another and venture capital funds continuing to pour in. We wrote in January that this sector of the market was ripe for growth. As the sector continues to blossom, many strategic combinations are beginning to occur — initially we witnessed these acquisitions and mergers between competing ad and analytic firms. However, over the past month, companies outside the traditional ad market, such as IBM and GSI Commerce, began buying up advertising and analytic properties to take advantage of the explosive growth and must-have technology.

On the M&A front, IBM agreed to acquire Coremetrics, a provider of web analytics software, while blogging software and services provider Six Apart acquired NaturalPath Media, an online advertising and media network. Earlier in June, Hearst agreed to pay $325 million for iCrossing, a search engine marketing firm, and GSI Commerce paid an estimated $40 million for FetchBack, an advertising startup specializing in retargeting.

There is no slow down of advertising and analytical start-ups bringing in venture capital cash either. Over the past few weeks VCs have poured more than $70 million into these companies including Marin Software, a provider of paid search management applications for advertisers and agencies; Brand.net, an online display and video advertising platform; and Apptera, a voice and visual mobile advertising network.

Recent statistics on the growth of Internet and mobile advertising are no doubt fueling the fire. Mobile marketing and advertising combined is expected to grow at 40% CAGR over the next five years. Although total online advertising is expected to reach $25 billion for the U.S. in 2010, estimates show only $3.8 billion will be spent on the U.S. mobile web (up from $2.6 billion in 2009). The growth year over year, as well as the large disparity between mobile spending and traditional online ad spend, provides plenty of hope for the sector that funds will be begin to be funneled more and more into the mobile space. The growth on the hardware end of the sector, with the advent of the iPad and increasingly computer-like smart phones, make this is a pretty wise bet. The adoption rate has been truly rapid, which is surprising even optimistic analyst outlooks from a year or two ago.

The explosive growth of the Internet and mobile advertising and analytics space shows no sign of slowing and we expect growth to continue in the space well into 2011. As the economy slowly continues to climb back in recovery, companies will again begin investing in advertising and these start-ups and ad firms will be well positioned to take advantage of what could be hearty revenue streams.

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Posted by Signal Hill

Digital Video is a Bright Spot in a Dark Economy

March 31, 2009

Don More, Partner

Don More, Partner

Cheap Entertainment Will Go A Long Way In 2009

Even in the 1930s, amidst the worst economic disaster in modern history, Americans still went to the movies in droves. The escapism and entertainment that the theater provided was well worth the price of five cents admission. Back then a trip to the movies gave movie-goers about four hours’ worth of entertainment: cartoons, news, a B-feature, and then the featured film.

But movies in this day and age are not the bargain they once were. Here in New York City, one ticket to Watchmen on Friday evening cost $14 (plus $10 for popcorn and soda). For that you get lambasted by 15 minutes of eardrum-shattering commercials before the previews even begin for your two-hour feature. While the movie experience technology-wise is certainly better today (witness introduction of next-gen 3D in Monsters vs. Aliens), today’s film industry has to contend with high-quality home-based alternatives, from cable to Blu-ray – and increasingly, internet video.

So it is not surprising that, despite depressing news headlines, Netflix’s stock rose 24% over the past year, fueled by 13% growth in 2008 revenues over 2007, and 26% growth in paid subscribers. By contrast, Blockbuster, which was late to the rentals-by-mail party, saw its stock decline 77% over the past year. Netflix, with the introduction of its so-far immensely popular streaming movie service, is poised to further benefit from the recession as consumers tighten their budgets and look for low-cost forms of entertainment – the digital streaming service is free with any Netflix unlimited plan.

The (free) website Hulu is also experiencing notable success. Hulu, a joint venture of NBC and News Corp, allows users to stream popular television programming owned by the networks such as The Daily Show with Jon Stewart, Heroes, and The Office. In February alone, Hulu gained 10 million new users, according to comScore, making it the fourth largest U.S. video site.

Streaming digital video is where viewing entertainment is going. Broadband costs are decreasing and improving technology is making increased demand for professionally-produced video content a more palatable business venture for startups. Content brings viewers, which in turn brings ad revenues – eMarketer predicts that US online video advertising spending will grow 49% in 2009.

So far in 2009, several companies that provide video content or enable its distribution or monetization have recently received venture investment; they include the following:

  • Visible Measures, a company that tracks the behavior of online video-watchers, raised $10 million in Series C funding in March.
  • GoViral, a Denmark-based company that distributes branded video content, has raised $8.8 million (€6.5 million) from Kennet Partners in March.
  • Tremor Media, an online video ad network, raised $18 million in Series C funding in a round led by Meritech Capital Partners in February.
  • RipCode, a provider of a digital video distribution infrastructure solutions, secured $12.5 million in additional financing led by Granite Ventures in January.

We expect that companies catering to the production, distribution, or monetization of digital video content will be attractive M&A targets in the coming year. A good example of this activity would be Harmonic’s acquisition of Scopus Video Networks, an Israeli digital video networking solutions provider, which was completed in March 2009.

Based on this activity, it appears likely that internet-based entertainment revenue share will grow rapidly over the next few years. Now if they can only figure out a way to stream popcorn online…

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Posted by Signal Hill

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