Month: January 2022

Over the past eight years, Leaf Group (formerly known as Demand Media until 2016) has transformed itself from a SEO-focused content farm to a commerce-driven media company that sold for $323 million to Graham Holdings last June.

Much of that transition was done at the hands of CEO Sean Moriarty, who wanted to build a portfolio of expert-led content that readers turn to when making purchases. And now the media side of the business earns about two-thirds of its revenue from its commerce business, Moriarty said on the latest episode of the Digiday Podcast.

Moriarty joined Leaf Group after the media company acquired online art marketplace Saatchi Art in August 2014, where he had served as CEO for a year.

The addition of the artwork marketplace (and Society6, another marketplace Leaf Group acquired in 2013 that turns its network of artists’ designs into buyable HomeGoods) has taught the media properties in the portfolio a lot about e-commerce, he said.

Below are highlights from the conversation, which have been edited and condensed for clarity. 

How commerce became a dominant source of revenue 

We’ve roughly been about two-thirds commerce revenue to one-third primarily digital advertising on the media side of the business. The commerce businesses give us a deep understanding, about consumers buying products online, as a company overall. So you learn an awful lot about them. The opportunity in media is for us to take that knowledge, understanding, and best practice and bring it to bear as these digital media brands go further in their revenue diversification efforts, and bring intelligent, integrated commerce into the content that we’re creating. And so when you start from a base of having real knowledge because you operate separate businesses in the category, I think it helps you, as you start because you have some level of expertise in the organization that you can share. 

Adapting to a publisher-centric commerce strategy 

When you think about commerce for publishers, it is a bit different, because in many cases, the commerce experience is one that’s really integrated in the nature of the content itself. The efforts and mechanics behind that are a bit different than just straight up managing a catalog.

But I think the fundamentals are similar, which is, you want to make sure that you’re offering your readership products that they would be interested in, products that you know are of high quality, and if it’s done by way of third-party integration, [then it’s] from a partner who can execute well so that customer has a great experience. 

In the media world, the opportunity should be created, not just by [saying], “a lot of people on this article, let’s put an affiliate link up and see if we can pick up a quarter.” That’s not terribly interesting. It [should be], “can we use our knowledge and expertise in our ability to curate so that we’re providing introductions to a brand or a product that a customer who trusts our brand might never have heard of before?”

Getting into digital sales with NFTs

[NFTs] create a whole new way for art lovers and collectors to experience art, and [give] huge new opportunities for artists. That said, at the beginning of anything, there’s an awful lot of noise and hype and it’s hard for many people to navigate.

Saatchi Art [is] very much in the business of building a platform and a brand that serves artists and art lovers or collectors. So the right approach for us, given this new opportunity for artists and for collectors, and the best way through the noise, is to look at what we are really good at? Saatchi Art is characterized by [an] opportunity for emerging artists, and a high level of curation, and a trusted environment where people can go to discover art and artists.

That’s really informed our approach with the [NFT] collections that we’re doing. The Other Avatars is our project, which drops later in January, and we have brought in a bunch of participating Saatchi artists who are creating unique avatars [that are] all inspired by the self portraits of Van Gogh.

The operating business for the media portfolio owned by North Equity has averaged acquiring a media brand per month since last summer — giving them a total of 20 — and it wants to continue that streak through the first part of this year, CEO Lance Johnson said.

Recurrent’s modus operandi — acquire mostly struggling, legacy enthusiast media brands, centralize non-edit resources while preserving editorial departments — seems to be working so far. Johnson said the company tripled its revenue in 2021, and he expects a profit margin of more than 20% for the year, though he declined to share specific figures. 

The progress Recurrent makes, both this year and beyond, will help answer questions that sit at the heart of key conversations in media: Can this approach scale, as Recurrent rapidly integrates new companies into the fold? And could Recurrent be reshaping the reputation of private equity’s role in media by successfully boosting the growth of these digital brands?

These questions loom because money keeps flowing into media-focused private equity funds, which in turn have gotten more acquisitive. According to Preqin, a private capital and hedge fund data platform, global private equity funds (including those based in the U.S.) focused on telecoms and media raised $16.8 billion across 46 funds in 2021. The number of buyout deals by those funds grew from 28 in 2019 to 35 in 2021, and the number of add-on deals, where a private-equity or venture capital-backed portfolio company acquires a smaller company or its assets, more than doubled, from 22 in 2019 to 51 in 2021.

David Nemetz, co-founder of Bleacher Report and Inverse, sees “a lot of parallels” between Recurrent and Bustle Digital Group, which Nemetz sold Inverse to in 2019. “The holding company model…[is] kind of filling the void that was left by the more traditional publishing companies and magazine holding companies like Condé, Hearst, Meredith and Time.” Those publishers were “struggling” with their business models and the transition from print to digital, meaning “they have been much more internally focused and [become] sellers more than buyers,” Nemetz said.

“The expectation building amongst my peers in the digital media world is that some [private equity] players would emerge and execute some of these rollups and be a new exit path for standalone publications,” he added. “They appear to have strong financial backing, which is important given the uncertain [special purpose acquisition company] market for the other major players. And their track record shows they understand how to support and grow niche media brands.”

Independent up front, shared in back

When media employees find out a financial firm is their new owner, it can feel like a death knell for their publication — and for their jobs. Hedge funds like Alden Global Capital have a reputation for gobbling up local news organizations, then cutting costs and firing staff.

But Recurrent Ventures has done the opposite so far, partly because most of the titles it’s acquired have little left to cut. Recurrent Ventures has 240 employees across its 20 brands, up from 100 a year ago, and Johnson wants it to get to 300 by early this year. Some of that headcount growth has come from boosting brands in its portfolio — BobVila.com, now 40 employees, had just four when Recurrent acquired the brand — though much of it will be driven by continued acquisition of small titles.

“200 people on 19 brands is a very tiny staff,” said Ava Seave, principal at consulting firm Quantum Media. 

Recurrent Ventures seems to be able to get away with running a lean team thanks to its pooled resources: when it picks up a digital brand, it leaves that brand’s editorial and audience teams alone, then beefs its other divisions up with its centralized sales team, tech platform, marketing, product and engineering, HR, SEO and commerce. “We have shared services where it makes sense,” Johnson said.

Sharing those resources fits Recurrent’s present revenue streams: programmatic advertising, direct advertising and affiliate commerce, which each represents about a third of the business, according to Johnson. 

In Seave’s view, the approach reflects the cyclical restructuring of traditional media companies that operate legacy titles with brand value but suffering businesses. The titles get consolidated under an owner, then sold off piece by piece to operate independently or by smaller owners, and then are scooped up by another parent company. 

Being able to share resources via unified teams “is what [Recurrent] should have done,” Seave said. She likened this model to the efforts made by megapublishers, such as the former Time Inc., trying to pull older brands into a digital future, or Condé Nast consolidating global teams to cut costs.

“Any company should be run as efficiently as possible. The fact that [at Recurrent] it’s PE money makes no difference at all,” Seave said. “To try as much as possible to make the fixed costs [at the company] as low as possible to be reimbursed for the investment — that’s absolutely normal,” Seave said.

In May, Recurrent hired a chief revenue officer, Matt Young, who helped build a centralized sales organization using its titles’ existing sellers; Task & Purpose, Bonnier’s titles and Domino all had existing direct sales teams when they were acquired, and they now work across Recurrent’s other brands — Donut’s sales team will be integrated in 2022. 

That centralization helped Recurrent nab direct deals with large advertisers including Verizon, Continental, CB2 and Crate & Kids; direct ad sales revenue “nearly doubled” year over year, Young said. 

Scott Mulqueen was hired in July to run the company’s programmatic ad stack, and has since signed up a number of new exchange and SSP partners, leading to about a 30% RPM increase since he started. 

Building better scale in select verticals — Recurrent operates brands in the automotive, military and defense, home and garden, science, outdoor and lifestyle space — makes Recurrent a more attractive place for advertisers to spend money, ad buyers said.

“Partners prefer going to one publisher with multiple verticals,” said Ashley Karim-Kincey, vp of media at the agency Dagger. “Recurrent is doing just that. It’s been paying attention to market needs and adjusting its offerings accordingly.”

Over time, Johnson wants advertising to make up less than 50% of Recurrent’s revenue — “Having been in the media business, where the advertising market deteriorated very quickly, we don’t want to depend on advertising,” Johnson said.

In 2022, he’s focused on growing subscriptions and memberships (which currently make up about 10% of the company’s revenue), as well as merchandise, events and product licensing. 

Here, again, the company has resources to work with: JancisRobinson.com, Domino, Field & Stream, Outdoor Life and Popular Science all came with existing subscriptions businesses. Though Recurrent Ventures declined to share how many subscribers it has in total, Johnson said he will roll out more subscriptions with different tiers at the company, such as access to exclusive content or merchandise, and in-person events.

The challenges of a buying binge

There are “inherent risks” with Recurrent’s pace of acquisitions, both already made and planned, Nemetz said. It’s a “big logistical challenge to integrate those new companies that quickly.”

When asked about these challenges, Johnson cited virtual events, monthly meetings held by the audience division, quarterly all-hands meetings and lunch and learns as ways to help bring employees together while working remotely. The company is headquartered in Miami, with hubs in New York City and San Francisco, but employees live around the country.

“We have the challenges you would expect when scaling a business rapidly, but they’re good challenges and when you solve it, it means positive outcomes,” Young said, referring to bringing companies and new staff together under one roof. Kane Russell joined Recurrent in March as vp of integration and is responsible for making sure incoming brands connect with Recurrent’s shared service teams, a spokesperson said. The process takes several months. 

“The biggest benefit” of being attached to North Equity is that the firm is “entirely focused on acquisitions and fundraising,” Young said, so that “the executive team can focus on running the business, make it as profitable as possible, and make it a great place for employees to work — and we don’t have to worry about fundraising or deal-raising.”

While Recurrent could appeal to marketers “looking for a one-stop-shop for niche audience segments,” its ability to compete with other companies “really depends on how Recurrent packages its catalog offerings and if the value proposition for each category is clearly defined before going to market,” Karim-Kincey said.

Seave from Quantum Media agrees: “My assumption looking at this is [Recurrent] thinks they are experts in media — they are fixing the balance sheet so it works for them, and are using expertise across their different brands.” For both selling advertising or enabling SEO across brands in a large portfolio, that expertise “matters,” she said.

With that being the case, “moments like the Super Bowl [are] even bigger marketing tent poles than usual,” said Nancy Hill, founder of Media Sherpas and former 4A’s president, adding that she doesn’t believe the NFL will make changes to the Super Bowl schedule. “They’ve already proven their willingness to ensure that the ‘game must go on.’” 

This year’s Big Game will air on NBC on February 13.

As for live events needing to shift due to the omicron variant, like the awards shows that typically offer another outlet for advertisers to reach live audiences, it’s another example of marketers needing flexibility to manage the around on-going pandemic, according to agency execs and industry observers. 

“We have been doing multi-scenario planning for our clients going into 2022,” said Carrie Dino, head of media for Mekanism. “This means we are looking at 2-3 plan options that we can execute on depending on the current economic and public situation when our media is set to launch.” 

Hill echoed that sentiment: “With everything still in flux, ‘planning’ is almost becoming an oxymoron. Scenario planning is the norm now. ‘If not A, then B. If not, B then C.’  Brands and agencies have to remain flexible, vigilant and willing to move fast.” 

Aside from making the Super Bowl more important for marketers and needing to plan for multiple scenarios, agency execs say that the shifting nature of live events “adds up to much more last minute planning,” noted the first ad exec. 

Of course, that’s not the case for all marketers and agency execs. Dino noted that “for any in-person events or cultural moments that are reliant on in-person gatherings, we are proactively negotiating alternative media executions in the event that a broadcast or event is moved to a later date or moved to an online alternative.” 

“It is certainly more work upfront, but in the end it has really helped to avoid the scramble of last minute media cancellations,” Dino added.

3 Questions With Firestone Walker Brewing Company CMO Dustin Hinz

What’s Firestone Walker’s current marketing strategy and how has it changed over the last year?

One of the things that we’ve really focused on over the last couple of years is a very strong awareness. We have to use media that’s really agile and incredibly measurable. Because, like everybody in today’s age, I’ve got to show the efficacy of our spend. So right now, the goal is to create top of the funnel demand. So a large portion, about 40% of our media and marketing budget spend on demand generation, [is] at the top of the funnel. So that would be digital channels like Facebook, Instagram, Snapchat, etc. Also up at the top, some Trade Desk. We’re trying a lot of different things and measuring all that media to see what’s connecting, and then we connect all of those messages all the way down the funnel from a 360-approach.

Has the strategy changed, or how will it change, as we come out of the pandemic and people return to in-person activities?

One of the things that the pandemic allowed us to do is introspectively look at our strategy as a company and shed some of the legacy approaches that we had. We thought things were working, spending money in certain ways because that’s perhaps the approach the industry took for a period of time. During the pandemic, we were allowed to go real heavy on digital. We cut down on some of our other efforts. 

We went really chain driven, which then allowed us to focus on the on-premise bars and restaurants shutting down. When you lose 30% of your business overnight, you’ve got to get up the next day and figure out how you’re going to get that business back. That allowed us to focus on our chain partners and now we can really have a stronger partnership with them. What it allowed us to do was take everything back down to the foundation—take a breath, step back, look at it, build it back up and do it in a way that is really lean. Today, our marketing mix is the best it’s ever been because we’ve trimmed the fat from every category.

Your company has its own beer club. What does that mean for you team’s community building efforts?

The beer club is really just a way for us to speak directly to our most loyal customers and give them something special and unique that keeps that connection between us and them incredibly strong. — Kimeko McCoy

By the Numbers

Since the onset of data privacy laws, Google’s crumbling third-party cookie and Apple’s iOS14 changes, advertisers have been scrambling to find alternative ways to gather first-party data. However, new research from data discovery company Ground Labs reveals that amidst the growing demand for data privacy and security, many American shoppers are unaware of data protection laws. Find key findings from the study below:

• 71% of respondents either never or only occasionally read data sharing disclaimers to find out why their personal data is being collected and what it will be used for.
• 71% of respondents are unaware of consumer data protection laws like the California Consumer Privacy Act (CCPA).
• 23% have had their personal information or data compromised in a data breach and proceeded to use/work with the company as usual. — Kimeko McCoy

Quote of the Week

“Performance marketing is getting squeezed on all sides. Competition is higher than ever and marketers can’t just rely on low hanging fruit.”

— Laundry Service’s chief marketing officer Mike Mikho on why brands that had relied on performance marketing are diversifying now.

What We’ve Covered

• S4 Capital’s latest deal and Martin Sorrell on the current M&A landscape.
• How TikTok is working with SMBs.
• A deep, dive on Duck Duck Go and its pitch for more privacy for its users.

Significant experimentation occurred in this space in 2021, however, these new technologies and use cases are still in the early stages of development, so it is unclear how intensely the transition to the Web3 era might disrupt the way business is done. After all, when Web 1.0 became Web 2.0, it seemed to do so without announcing itself.

In all likelihood, the transition to Web3 will happen gradually and in stages. More users will begin investing in crypto, virtual wallets will be built and and businesses will enter the metaverse and adapt to follow their consumers’ lead.

What is Web3? 

Web 3.0, or stylized as Web3, is the label being applied to a decentralized version of the internet that would be jointly owned by the users and the builders. Essentially, this is the antithesis to what centralized platforms like Apple, Google and Facebook operate by monetizing data extracted from users do on a daily basis.

The term “Web3” was first coined in 2014 by Gavin Wood, a co-founder of the Ethereum blockchain, when referring to the concept of a decentralized, blockchain-based internet, according to a Wired interview with Wood.

In Web3, users own their data and online presences, and that information is shared with different websites and platforms that they access, thanks to interoperability. What’s more, users can monetize their data how they see fit.

For example, someone navigating to a publisher’s site could log in automatically with their crypto wallet that’s linked to their browser and offer up a predetermined set of information about themselves in exchange for a micropayment of cryptocurrency from the advertiser looking to obtain that information. In this case, users have a more proactive role in knowing — and agreeing to — what data is shared.

On Web3, “your access credentials are not based on a username or password, but is based on cryptographic proof of you are who you are,” and that proof is the same for any and all websites or platforms users access, according to Erick Calderon, founder and CEO of art-based NFT marketplace Art Blocks, who spoke in a panel about NFTs at CES earlier this month.

How do I access Web3?

Web3 itself doesn’t necessarily exist as a new browser. People can access Web3-based websites using the same browsers they use today. So while Web3 sites are being created using blockchain software, they are accessible just like Web2 websites, generally speaking. And crypto enthusiasts are already accessing aspects of Web3 when transacting via cryptocurrency and purchasing NFTs.

Web3 will also be accessed through metaverse platforms that companies like Facebook’s parent company Meta is building. So a Web3 version of Facebook will be accessed through Meta’s metaverse platform Horizon.

How is Web3 different from Web 1.0 and Web 2.0? 

The origins of Web3 are actually rooted in Web 1.0, which was the version of the internet in the 1990s and early 2000s that effectively limited users to searching for and reading content on static web pages.

“What Web1 ended up succeeding in doing was democratizing access to information,” said Amanda Cassatt, co-founder and CEO of Serotonin, a Web3-native marketing firm and product studio. “It lowered the threshold at which information could be available to everyone equally,” like Wikipedia, for example.

Web2 then came along in the mid-2000s, and if Web1 was the era of the open web, then Web2 was the era of the closed platform. Businesses using the Web2 model essentially co-opted the open access to information and turned it into an advertising-based business model, Cassatt continued. 

Web2 became a system of “closed environments that monetize individual people’s data and, in turn, advertise to them, manipulate their behavior and try to monetize them in every way possible, but in a way that locks them out of the cash flow,” which is what Web3 is trying to rectify now, she said.

In a way, Web3 heralds a return to the Web1 era but expands it beyond the browser-based web to the broader internet that spans mobile devices and connected TVs and gaming consoles and, yes, VR headsets.

A prime example of Web3 resurrecting elements of Web1 is payments. The original source code of the internet included the capability for transactions to users, but this capability was never implemented, according to Amanda Cassatt, co-founder and CEO of Serotonin, a Web3-native marketing firm and product studio. This means that people contributing information online would have been able to receive a payment for their participation — such as contributing to Wikipedian — but as we know, that never actually happened. (A record of this capability can be seen today as a “402” error in HTML code).

The missing payment layer from Web1 caused internet users to be cut out of the advertising cash funnel, allowing publishers, advertisers, retailers and all other members of this advertising funnel to retain all of the money spent in this market, Cassatt continued. Web3 is now working to add on this payment layer, which will reward users of Web3 for contributions to websites, engaging with content, shopping, viewing advertisements, and more.

“A user in Web3 expects to be rewarded and aligned with a product that they’re using. They aren’t at arm’s length anymore. They want to be part of it,” said Cassatt, who also previously served as the CMO of ConsenSys, a blockchain software company that helped bring the Ethereum blockchain to market. 

How is Web3 different from the metaverse? And how does the blockchain play into all of this?

Web3 is really a descriptor for the infrastructure that is being built through blockchain technology that in turn is serving as the foundation of the metaverse and the base on which metaversal platforms will be built.

The metaverse (in its current form and in future iterations, as it continues to develop) consists of multiple platforms, like Roblox, Meta’s Horizon, and Fortnite, and each of those platforms uses the decentralized, blockchain-based internet to underwrite the technology that these metaversal platforms need to connect its users with each other as well as connect with other platforms.

Read more about the metaverse here: 

• WTF is the metaverse?

What will this mean for the media and marketing industry? 

As Cassatt said earlier, the user is going to expect more from companies in the Web3 world. They will want to be rewarded for their interactions with a product, but they will also expect to have a say in the product itself and make decisions about the company’s growth, which is called governance.

The advertising model that is currently known to the media and marketing industry is also going to be tested. 

“Advertising is not going to be the core way that Web3 businesses make money. However, the idea that there will be advertising in some contexts in Web3 is perfectly appropriate,” Cassatt said, just on a smaller scale. “Individual users will have more control and the idea of psychological behavior modification by distribution platforms is going to be rejected.” 

How can a company establish a presence in Web3?

Companies could wade into Web3 door by buying an ENS domain, or an identifier on a blockchain that would give you access to a domain name on the blockchain that people can easily identify and find you. Similar to a URL address, this can be your company name that ends in .eth rather than .com.