Month: August 2020

With more questions than answers at the moment, here is an attempt to answer some of the main questions surrounding Microsoft’s potential acquisition of TikTok, including how TikTok could help Microsoft become a bigger player in the future of TV.

Why would Microsoft want to acquire TikTok?

This is the biggest question at the moment. Microsoft still owns Bing’s search engine, Xbox’s gaming console and even MSN’s online portal, but it has become more of a business-facing tech company than a consumer proposition. That is why Microsoft’s acquisition of LinkedIn made a lot of sense, and why its potential pick-up of TikTok is so confounding. Microsoft’s interest is made clearer if you assume it signals the company’s desire to reinvigorate its consumer-facing business.

“Microsoft has historically always wanted something to be able to compete against Google, recently against Facebook and YouTube too, which is part of Google obviously. So this is kind of their potential way of getting in on that competitive set in a more meaningful way,” said Collin Colburn, senior analyst at Forrester.

How much might TikTok be dinged by the acquisition?

Microsoft is only exploring the purchase of TikTok’s operations in the U.S., Canada, Australia and New Zealand. While TikTok claims to have more than 100 million users in the U.S., the carving up of TikTok’s global service could seriously cap its growth and potential to attract ad dollars from advertisers looking to reach a global audience. “Every other social media app operates on a global audience. Young people today are so globally minded that it feels really strange to suddenly turn TikTok into an entity that’s only available in certain countries,” said Debra Aho Williamson, principal analyst at eMarketer.

There’s also the potential that TikTok could lose its standing among creators, such as Charli D’Amelio, Addison Rae and Zach King, that have helped the app become so popular among teenagers and twentysomethings. The talk of banning TikTok has already led some creators to redirect their audiences to their accounts on other platforms, like Instagram and YouTube, and spurred some brands to create contingency plans for influencer marketing deals earmarked for TikTok. Meanwhile, Instagram is rolling out its TikTok competitor, Instagram Reels, this month, and Snapchat is similarly planning to add a feature later this year for people to add music to their posts.

Additionally, Microsoft, with the exception of Xbox, doesn’t have a great track record with consumer-oriented media platforms. In June, the company announced it was shutting down its gaming-centric livestreaming platform Mixer less than a year after poaching top Twitch streamers such as Tyler “Ninja” Blevins to prop up the platform.

How willing will Microsoft be to continue to invest in TikTok?

Microsoft will likely have to spend tens of billions of dollars to acquire TikTok in the first place. But that’s just the cost of entry. ByteDance has been pouring billions of dollars into TikTok annually. In 2018, ByteDance spent nearly $1 billion solely on advertising to attract users, according to The Wall Street Journal, and the figure increased fourfold in 2019, according to MediaRadar. In addition to its advertising costs, TikTok has pledged to spend more than $1 billion over the next three years to pay creators for posting content to its platform, and that’s only for creators in the U.S. TikTok has said it will spend more than double the amount globally.

As of June 30, Microsoft had $13.6 billion in cash and cash equivalents on its balance sheet, and its total assets amounted to $301.3 billion. So the company wouldn’t necessarily need to go digging under couch cushions to finance TikTok’s growth. But Microsoft is also a big company with many other investment segments, meaning that TikTok will have to fight for its share. The continued growth of TikTok’s user base and advertising business could help the platform lay claim to a larger slice, but that’s assuming TikTok’s growth is not contingent on first having that investment in order to buy ads and acquire (or reacquire) users.

Is Microsoft planning a renewed advertising push?

Microsoft’s advertising business is not what it once was. Before the duopoly of Google and Facebook, Microsoft was one of the major players in the digital advertising industry. As the owner of one of the major portals in MSN, the company played a big role in the online display advertising market. And as the owner of Bing, it played an even bigger role in the search marketing world. But Microsoft’s position in the digital advertising ecosystem has diminished over the years. In June 2015, it effectively exited the display advertising business, handing over direct sales to AOL.

However, Microsoft is still in the advertising game. It still has Bing, though Microsoft is only expected to receive 6% of U.S. search ad dollars this year compared to 71% going to Google, according to eMarketer. Microsoft also has LinkedIn’s advertising business, and the company sells ads that run on its Xbox gaming consoles. Conceivably, Microsoft could attempt to sell ads across Bing, LinkedIn, Xbox and TikTok — as Facebook and Google do across their various properties — but it’s hard to imagine how much audience overlap there would be. 

Nonetheless, Microsoft’s experience catering to direct-response advertisers on Bing and LinkedIn could be applied to help TikTok develop its ad platform for advertisers who want proof their campaigns performed. For example, TikTok only offers a one-day attribution window for campaigns whereas platforms like Facebook and Snapchat allow advertisers to track ads against conversions, such as site visits, for 28 days after an ad ran, said a social ad buyer. “I don’t think they’re ready for primetime,” this person said.

Could Microsoft use TikTok to break into the streaming wars?

Stifle your laughs. If Microsoft planned to buy TikTok as a way to compete against Netflix and Disney+, it likely could buy Quibi for less money — and we could all laugh about that. Instead, consider how Microsoft could use TikTok to help Xbox compete against Roku’s and Amazon’s connected TV platforms. Microsoft had previously tried to establish Xbox as a CTV platform with the 2013 launch of the Xbox One that allowed people to watch traditional TV through the gaming console. Things didn’t pan out in Xbox’s favor then, but now could be different. 

With so much programming available across so many streaming services, one of the biggest opportunities in that market is helping viewers find what to watch. This has been one of Apple’s not-so-secret strategies behind the launch of Apple TV+ and roll-out of its Apple TV app across other platforms, including Roku. Now consider TikTok’s famed content-recommendation algorithm that powers its “For You” page and enables a video to go viral even if its creator doesn’t have many followers. Microsoft — which will be releasing a new Xbox console later this year — could follow Apple’s example and retool TikTok’s algorithm to recommend shows and movies from the various streamers distributed on Xbox’s platform. 

People are unlikely to spend hundreds of dollars to buy an Xbox simply for streaming. But take into account that Microsoft sold more than 46 million Xbox One consoles as of the second quarter of 2019, giving it a larger footprint that Roku or Amazon which each claim more than 40 million monthly active users. Assuming a similar number of people will pick up the newest Xbox, an improved streaming recommendation feature on Xbox could lead those owners to opt to stream through Xbox instead of another CTV platform.

Confessional

“We’re having conversations with talent about what they’re comfortable with. We have a show with a prominent talent who’s not willing to fly right now, so we have to figure out how we can drive them to different interviews.”

— Producer on returning to physical production

Stay tuned: College football’s return

How long Major League Baseball’s return will last is a huge question facing TV networks and advertisers. Also up in the air is the return of college football. Conferences including the SEC, Big Ten and Pac-12 said they will play games this fall, but that could change as coronavirus cases increase and players threaten to opt out of the season. “I can’t imagine that college football happens,” said one agency executive.

And college football’s fate may be cleared up by the time you’re reading this. The NCAA’s Board of Governors was slated to meet on Aug. 4 to decide whether college sports can be played this fall. Of course, the situation could change by the time the college football season kicks off or before the bowl games begin at the end of this year and into 2021. If college football were to be canceled or have its season shrunk, it could trigger a ripple effect.

ESPN would take a pretty big hit if the college football season were canceled, according to Bloomberg. Last season more than half of college football viewers watched games on one of ESPN’s properties, and college football broadcasts brought in $793 million in advertising revenue for ESPN parent Disney last year, the publication reported citing figures from Standard Media Index.

Ad buyers are already trying to game out the repercussions. If the likes of the SEC and Big Ten stick to conference-only schedules, “there should still be enough coverage for most networks” to hang on to ad dollars, said a second agency executive. But if no games are played, that would put a lot of money up in the air. That money could be redirected to other sports — assuming the NFL et al. don’t go on hiatus — but there may not be enough inventory for the TV and streaming ad market to hang on to all that money.

“If college football goes away, whatever ratings Auburn-Alabama would have gotten is going to be really hard for a media company to replace those … unless there’s an NFL game,” said the first agency executive.

Numbers don’t lie

60.5 million: Number of subscribers to Disney+, as of Disney’s latest earnings report.

$3.8 billion: How much advertising revenue YouTube generated in the second quarter of 2020.

102,000: Number of new pay-TV subscribers that Charter acquired in the second quarter of 2020.

2.9 million: Average number of people that tuned in to the NBA’s return across traditional TV and streaming on July 30.

10 million: Number of people who have signed up for NBCUniversal’s Peacock streaming service, which offers a free tier.

What we’ve covered

TikTok-Instagram rivalry for creators heats up:

• The threat of a TikTok ban is pushing some creators and brand deals from TikTok to other platforms, especially Instagram.
• The battle between TikTok and Instagram for creators will ultimately come down to the platforms’ ability to financially support creators.

Read more about the TikTok-Instagram rivalry here.

Proliferation of FASTs is causing headaches for media companies:

• As the number of free, ad-supported streaming TV services has increased, media companies are finding it more complicated to distribute 24/7 channels across the services.
• Pluto TV and Samsung TV Plus are emerging as the most popular streamers but require different distribution methods.

Read more about FASTs here.

TikTok turns up its branded content spending and profile with publishers:

• TikTok has begun paying publishers, including BuzzFeed, PinkNews and The Dodo, for branded content campaigns.
• TikTok is also encouraging publishers to spend money on the platform.

Read more about TikTok here.

What we’re reading

YouTubers pivot away from advertising:
The weak ad market has pushed YouTube creators to ease their reliance on advertising revenue, according to Bloomberg. The number of YouTube channels that make money from non-advertising sources increased by 20% between March and April, and there has been a 40% increase in the number of creators no longer generating the majority of their YouTube revenue from advertising.

TV upfront negotiations kick off:
Normally the annual TV upfront advertising market would be winding down around now. Instead it is just getting started, finally. Top TV network groups and agency holding companies have begun their negotiations, according to Variety. Meanwhile, Procter & Gamble has started to go it alone in striking upfront deals, despite having supported the Association of National Advertisers’ call for this year’s upfront negotiations to be delayed until the fall.

A non-profit organization, The 19th — named after the 19th Amendment which gave some U.S. women the right to vote — is monetarily supported by a mix of membership, donations and corporate underwriting, meaning it’s free from the worry of chasing advertising dollars for survival.

It still isn’t exactly a cake walk. “Corporate underwriting is anticipated to be a cornerstone of our revenue model,” said Emily Ramshaw, The 19th’s CEO and co-founder. “Obviously, the COVID pandemic and resulting economic recession has led to a depression in the corporate market; we’re hoping it rebounds in short order,” she wrote in an email.

Membership and individual donations, therefore, have become a significant piece of the puzzle.

Publisher and co-founder Amanda Zamora said that she and Ramshaw spent the better part of 2019 developing the business model and product plan as well as how to grow and audience and sustain it and by the end of the year, they both felt they had enough validation, financial support and a strong enough business strategy to take the leap and leave their jobs at the Texas Tribune. 

“We believed we needed $2 million in the bank to leave our jobs, and $4 million to make a serious go at launch,” said Ramshaw.

The 19th soft launched at the end of January, which made it easier for the founders to start hiring a staff — they brought on 22 people—and begin courting investments.

The plan was to fully launch The 19th at the start of August— it launched August 2—but once the coronavirus hit, there was uncertainty with that timeline if corporations couldn’t back the launch as much as they initially planned.

To keep on schedule, goals shifted and fundraising had to be kicked into high gear, Zamora said. The in-person summit it was planning to hold as part of its launch and in centennial celebration of the ratification of the 19th Amendment was turned into a five-day-long virtual event that will kick off next week and is sponsored by Goldman Sachs and Intuit.

Since the soft launch the publication received more than 1,000 founding member contributions, which ranged between $5 and $1,000. Within the first two days of the hard launch, Zamora said that number increased by 800. According to the site, as of June 30, it had 174 patrons, who had donated $1,000 or above.

“We think about membership not just as a revenue program but as an audience program,” said Zamora. “We want to hear their stories and have that shape our journalism.” 

The 19th has a free republishing model where other publications are allowed to syndicate its content free of charge. The model was inspired by ProPublica and the Texas Tribune, both of which are Zamora’s alma maters.

Any digital publication, newspaper, community publisher or blogs can republish The 19th’s articles if it abides by The 19th’s Creative Commons license. Some of those guidelines are including hyperlinked credit to the author and The 19th, retaining a pixel tag that allows The 19th to track views of its stories on other domains, and not selling or syndicating the content elsewhere, such as aggregation platforms like Apple News.

Zamora said the goal is to figure out how to give its big publishing partners—the Washington Post, Univision, USA Today and the Philadelphia Inquirer— a more automated way for sharing its stories. 

Republishing partners are not currently corporate donors, Zamora said, but having the distribution is important for membership and for editorial development.

According to USA Today editor-in-chief Nicole Carroll, USA Today’s digital audience is 147 million people, including 78 million women. The 19th is “dedicated to giving a voice to women and we thought it was important to use our reach to amplify their coverage and voice through our platforms,” said Carroll.

“We see the partnerships and distribution as more than just pushing our stories out to people, but thinking about how we can engage those audiences proactively,” said Zamora, whether that is through driving them to its newsletter, virtual events or social media platforms. And down the road, knowing where these audiences are can help inform where The 19th should take its events, she said. 

In addition to hiring more copywriters — it now has four, and is hiring a fifth — it launched a homegrown project management tool to keep campaigns moving more quickly, expanded into events around its business-focused newsletters, and is hunting for partnership directors who will be charged with building revenue for Morning Brew in three categories: consumer, finance and a third, catch-all category that Morning Brew’s head of brand partnerships, Jason Schulweis, describes as “STEM”: software as a service, technology and telco, education, media and entertainment.

Like almost every media company, Morning Brew’s sales slid in the second quarter, with revenue down close to 15% year over year (It exceeded revenue targets set for the first quarter). But many of the advertisers that paused or canceled campaigns have come back, CEO Alex Lieberman said, and the company remains focused on its goal of balancing its revenue equally between direct response and brand advertising by the end of next year.

“It gave me a lot of hope in the resilience of our audience and the appetite for our audience, even in crisis times,” Lieberman said. “I think we’re going to be either close or hit our numbers for the remainder of the year.” Morning Brew expects to generate $20 million in revenue for 2020.

When Morning Brew began selling ads in 2017, it was purely reliant on direct response advertisers, partly because Morning Brew was just a few years old and hadn’t made inroads with many brands and agencies. “When you’re talking about performance, the legitimacy of the brand matters less,” Lieberman said.

But those advertisers largely kept coming back. The company has a renewal rate of more than 70%, Lieberman said, thanks in large part to Morning Brew’s large audience and strong engagement; it currently has 2.3 million newsletter subscribers across its products, and a 42% unique open rate, Lieberman said.

As Morning Brew has grown, it remains strongly reliant on direct response: 90% of its revenue came from direct response advertisers in 2019. Through the first half of 2020, DR represents closer to 80%; recent brand advertisers include E*Trade and Panera. Lieberman wants brand advertising to represent 50% of Morning Brew’s revenue by the end of next year.

So far, that has not changed the tactics of Morning Brew’s sales people, who are encouraged to close deals that hit every part of a client’s funnel, Schulweis said. However, the focus of the partnership directors will be to put Morning Brew more on the minds of agencies and brands, selling not just Morning Brew’s audience but the scale as well as a growing number of opportunities, including events.

Broadly speaking, brand advertising has had a rockier year than direct response advertising. And with marketers under intense pressure to prove their investments drive results, many publisher revenue lines that relied on brand advertising, such as branded content, are suffering as a result.

But this difficult stretch might be an optimal time to begin pursuing those kinds of dollars.

“Now is the time to plan what are you going to be doing 2021,” said James G. Elliott, the founder of an outsourced ad sales firm that’s worked for titles including Popular Science, Foreign Affairs and Yoga Journal. “It’s the time to let the buyers know you exist.”

On the face of it, those aren’t anywhere near blockbuster numbers for the first half of this year. But experts said more deals are bubbling. Already in July, London-based data management company Permutive raised $18.5 million in a Series B round and Zeotap, a customer intelligence platform based in Berlin, raised a $42 million Series C.

“What I’m seeing is a significant uptick in dealflow,” from Europe, said Eric Franchi, operating partner at Math Capital, the venture firm he founded with MediaMath CEO Joe Zawadzki in 2018. Math Capital has made two investments in Europe so far: Zeotap and ID5, a London-based company that offers a user identifier to publishers and ad tech companies. He expects the fund will make at least one more European investment in the second half of this year.

Franchi’s thesis is that ad tech businesses over the last decade or so were focused on programmatic and using data to drive marketing. While there were some successful European companies out of those early days, most big programmatic companies were located in the U.S. The new epoch of ad tech will be defined by a shift to privacy, he said.

“Europe had a head start due to GDPR,” said Franchi.

The European General Data Protection Regulation came into effect in 2018 and affects any global company that processes the personal data of people within the EU. A year earlier, Apple had begun tightening the Intelligent Tracker Prevention feature in its Safari browser. This year, privacy news came in waves. The California Consumer Privacy Act came into effect in January. That was followed by Google announcing it would remove support for third-party cookies in Chrome. Then this summer, Apple announced users would need to opt in to apps allowing third-party companies to track them.

“[Ad tech] businesses raising money now are businesses that have proprietary data protected some way through long-term contracts, exclusivity or doing something for a long time, successfully,” said Julie Langley, partner at M&A advisory firm Results International. Though she too added the ad tech M&A market had been “very quiet” in recent months.

Some investors are still leery of ad tech, having been burned in the past. Memorably Rocket Fuel, which had a $2 billion valuation at its peak in 2013, sold to Sizmek for just $122 million four years later, which went on to file for bankruptcy in 2019. 

“Ad tech is a topic that typically polarizes a lot of investors,” said Will Gibbs, principal at Octopus Ventures, an investor in Permutive. “The ‘don’t do it’ list is typically ad tech, gaming and pharma, which are seen as typically opaque industries where you have to have specialist knowledge to understand how the business can be successful.”

Nevertheless, there is still an interest in privacy-focused ad tech businesses with proprietary technology and intellectual property.

“If you can succeed in Europe — especially with GDPR and probably increased privacy regulation — it probably means it’s easier to succeed in the U.S.,” said Gibbs. For this reason, he added,  it’s probably easier to build a new-era ad tech company in Europe and expand it to the U.S. than the other way around.

For some European ad tech companies, the coronavirus crisis may have even helped to level the playing field with their U.S. counterparts. For one, with everyone stuck at home doing Zoom calls, high-profile customer targets and potential investors are easier to access, said Math Capital’s Franchi.

Not only has deal-making become more efficient, but “new kids on the block — often [private equity] backed or cash rich — see an opportunity to grab market share while the competition is distracted,” said Tristan Rice, partner at M&A advisory firm SI Partners. That includes the likes of new advertising groups such S4 Capital and You & Mr Jones; private-equity backed digital ad specialists like Jellyfish, Croud and Brainlabs and consultants such as Deloitte and EY, Rice said.

At the same time, many potential acquirers are currently hunting for bargains. LUMA Partner’s Kawaja said while there are some “very interesting identity companies coming out of Europe” in the identity space, overall the global ad tech market remains distressed.

“I always make a distinction between strategic exits and capitulation trades,” Kawaja said. “If I showed you the next four quarters of M&A trade, there’s a huge number of capitulation trades, which is a sign of a declining market, not a rising one.”

He added, “Those are just chickens coming home to roost.”

The product was launched with three goals in mind: To build a sustainable revenue stream, to change the mindset of agencies and clients that the publisher can be agile and to build a product that aligns News UK with a different competitive set, such as social-first publishers like LadBible and Jungle Creations, said Joanna Carrigan, head of commercial content for News UK. The publisher claims a social audience of 2.5 million viewers across all its publications. 

“We have audiences to compete with [social-first publishers],” she said. “We’re also proud of our heritage but we can be agile and evolve, and we have. This gives [Social Studio] a clear identity and lands that message with clients: Come to us if you’ve got a brief for social.”

All branded content briefs come through News UK’s branded content studio The Bridge, which has previously created campaigns that are distributed on social platforms, mostly starting out on its own site before being edited for social. While these campaigns will have the tone of The Times, the execution is different, all publishers now, for instance, have to use programs like Zoom while remote working. News UK wouldn’t share the headcount for The Bridge Studio, but the Social Studio product has one dedicated sales lead. The number of briefs containing Social Studio has grown but the publisher wouldn’t share by how much.

The first campaign from The Times Social Studio features a seven-minute makeup tutorial video where Estée Lauder makeup artist Emma Tillman offers advice via Zoom for Sunday Times’ Style magazine beauty director Sarah Jossel, shopping the brand’s new moisturizer product. The one-off video was first launched on The Sunday Times Style YouTube channel and pushed across its Facebook and Instagram channels. The video had 3,400 YouTube video views at the time of writing. In a good week, The Sunday Times Style YouTube channel reaches between 100,000 and 150,000 video views across all videos, according to SocialBlade analytics. 

During the pandemic when marketing budgets have frozen, publishers have experienced an uptick in shorter-form, quickly completed social branded content campaigns, with lower production costs and multimedia flourishes. While quicker to produce, they naturally fetch lower prices tags, typically below $25,000, according to sources. News UK would not say how much it’s charging.   

“All client spend is under a microscope,” said Charlotte Taylor, senior group trading director (publishing & audio) at Publicis agency Spark Foundry. “We need to ensure budgets are spent as best they can, [budgets] are all over the place at the moment, clients don’t seem to be looking the long term.”

The goal for Social Studio is a 10-day turnaround from campaign booking to going live, although Estée Lauder took 14 days due to delays caused by remote working. “The shorter the lead time, the better because budgets are so reactive for branded content,” said Taylor, adding News UK’s offer seems a good opportunity for the agency’s clients. “Ten days for sign off approval feels pretty fair.”

“When we have led with Social Studio as a response to a reactive or proactive proposal it’s landed really well with clients,” said Charlie Celino, sales lead for The Times Social Studio. “Across every campaign, it’s led to incremental revenue driven by further distribution, print execution or further existing on our digital platforms. It’s been a real door opener with clients we haven’t worked with in the past.”

Over 50% of the campaigns since launch have been with clients it hasn’t previously worked with. Campaigns that come in just for social video expand into other distribution. As such, it views this revenue stream as incremental to the existing branded content offering. Via The Sun, it’s run 14 videos. Going forward, it has three campaigns booked and two in the pipeline.

“As brands are starting to find their feet again we are seeing confidence return and briefs increasing,” said Carrigan. “The uncertainty absolutely resulted in a couple of months that were difficult across the entire industry, but we’re seeing clients recognizing the importance of continuing to invest in their brand at a time when people need reassurance from the brands they know and trust.”