Month: January 2023

“In 2023, I don’t think the appetite for acquisition will change much,” said Zynga Chief Product Officer Scott Koenigsberg. “I think the targets will probably be younger companies in their evolution, and so we’re going to have to do more analysis to try to figure out what their long-term forecasts would be.”

The aforementioned smaller mobile gaming companies are likely to feel the squeeze of a recession earlier than the Zyngas of the world. Many rely on brands’ advertising dollars to stay afloat, and as those dry up, they are likely to turn toward acquisitions as a potential emergency exit. 

“Unfortunately, what 2023 is going to show is a higher-than-normal attrition for the mid-to-long tail of developers who just cannot get past this inertia of downward pressure with these existential issues. Now, VC financing has been a little bit curtailed, and so sources of capital are not as plentiful as they used to be, so you’re going to see a lot more mid-to-long tail attrition, and I would even say there’ll be some roll-ups,” said Petrovic, who currently serves as chief business officer for the mobile game developer FunPlus. “There’ll be some acqua-hires at that kind of sub-scale, as people look for capabilities and competencies that can complement their business — and they’ll come at attractive multiples, because the other alternative is that you kind of shut down.”

The numbers appear to support the idea that gaming M&A activity is not necessarily tied to the ups and downs of the broader economy. Even as broader market activity slowed down in the second half of 2022, the volume of acquisitions remained steady: 76 M&A deals were announced across the industry in Q4 2022, an increase over the 69 deals announced in Q4 2021, according to Drake Star’s 2022 Global Gaming Report. At the same time, the total monetary value of those deals was billions of dollars lower, indicating that most of the acquisition targets were smaller-to-mid-sized companies, despite the increased volume of deals.

“We’re very optimistic that the volume will continue to stay, and there’s going to be a ton of activity [in 2023],” said Michael Metzger, a partner at Drake Star and one of the authors of the report. “Because, also, a good amount of companies went public, and they’re all under enormous pressure to show some growth and profitability, even more so than a year ago — and there’s a lot of active buyers out there.”

As for those smaller-to-mid-sized mobile game developers, many of them are certainly aware of the market forces brewing under the surface — and they plan to take advantage.

“We are positioning our company and designing all of our company structures, from the zero, to be an attractive M&A candidate,” said Deniz Korzay, the CEO of the mobile game studio Fortune Mine Games, which Korzay co-founded in early 2021. “Of course, Zynga is one of the high potentials.”

In other words, the YouTube Shorts revenue-sharing model isn’t as simple as “advertiser pays platform, platform gives creator a cut.” Calculating how YouTube Shorts ad revenue will be split is more like doing taxes than basic arithmetic, as the video below breaks down.

Digiday has also reported on agencies using AI to innovate for clients and train machines to detect brand safety issues – from automating creative and segmentation processes to cutting down on tedious tasks that can save time and money. The creative work stream has been a popular area for agencies to test AI capabilities, some of which can help teams generate content and art within seconds.

Perhaps the larger question for agencies now is whether generative AI can adequately take on the work humans don’t really want to do. The tentative and early answer seems to be yes.

One agency, New York City-based integrated marketing shop Codeword, is currently experimenting with developing an internship program with two “interns” created by artificial intelligence. The AI coworkers have names (Aiden and Aiko), identities and managers to report to for performance reviews.

Codeword’s three-month internship program launched this month for the first time doesn’t train human interns. Instead, Aiden and Aiko help out the firm’s creative team of 106 people, with the equivalent of their hourly pay donated to pro-women in computing organization Grace Hopper Celebration. Codeword, which is part of WE Communications, said the goal is to explore what human and AI collaboration could look like in the agency world.

“Basically in late November, we were working on a big project and someone suggested maybe we can use generative art, because we were under a really intense deadline,” said Kyle Monson, founding partner at Codeword. “Is it taking away any jobs? No, it’s actually really helpful and saves everyone a lot of time.”

While the interns won’t produce client-facing work, they will start handling tasks machines are good at – producing content at scale. For example, they can create volumes of rough concept thumbnails for moodboards, do news and trend research or analyze voice and tone for the editorial team. The idea is to pass on this “grunt work” over to AI and integrate them to streamline the creative process, Monson added.

The internship program provides a learning experience for the agency. Aiko (left) and Aiden were designed to look androgynous and realistic, somewhat inspired by virtual influencers. Their names were the first to get generated based on names starting with “AI.” The trainees report to the senior art director and senior editor on the team, and both will get internal creative assignments and share their experiences on the company blog and social media. They will also get performance reviews over the course of the internship.

“I think [AI] is going to be the story of the industry for the next 10 years,” Monson said. “Clients are going to start asking for this, they’re not going to want to burn a lot of hours and budget on processes that can be automated. My hope is that they’re still committed to doing high quality work that only humans can refine and deliver.”

Beyond “personnel”, agencies also have been using AI for brand safety and research. Because bots can be programmed to perform repetitive tasks, they help to flag fake accounts or content and spam. At independent media agency Good Apple, AI is used to monitor content compliance across the client portfolio. This means monitoring where ads run and the content they run next to, which is very time consuming.

“AI has been able to help automate this by providing a first line of defense by monitoring, interpreting and alerting the team when potential issues arise,” said Mark Sturino, vp of data and analytics at Good Apple. “AI bots allow us to go beyond basic viewability monitoring and read the content our ads appear alongside, determining at a specific creative level if that content conflicts with brand safety guidelines.”

Digital agency Barbarian similarly enlists AI to support analysts in detecting unusual social media activity. The automation is an added layer for their human reviewers, who are sifting through conversations and looking for spikes and other abnormalities.

“We simply need to try to keep an eye on it,” said Drew Himmelreich, senior analyst at Barbarian. “It remains an open question to what degree brands actually want to know what percent of their engagement is authentic.”

Just last week, Horizon Media’s ecommerce unit Night Market rolled out Neon, what it calls a proprietary AI platform that aims to grow advertisers’ revenue by crunching separate media and commerce data streams together to optimize media spending. It may fall into a more classic use scenario, but it’s yet another example of AI popping up across the media agency spectrum.

However, AI is not without its challenges, and not all bots are good. Social networks from Facebook to Twitter have been grappling with bot-generated content for years. But as digital marketing expert TJ Leonard explained it, AI may have the potential to change the business model of advertising as people actually change the way they interact online.

“Imagine if instead of typing questions into Google’s search bar, consumers pitched their most precious queries to chatbots, like ChatGPT?” Leonard asked. “Rather than companies like OpenAI simply using the tried and true business models of today’s web to monetize their audiences, it is much more likely that as new user interfaces emerge that pair better with AI, new business models will emerge.”

Color by numbers

After some slowdown across advertising last year, it looks like digital advertising might pick up again in 2023. U.S. digital ad spending is expected to hit $297.4 billion this year, a 13.9% increase from 2022 (which totaled $261.1 billion), according to Statista’s latest estimates. The global digital advertising market in 2023 is expected to reach $681.39 billion, accounting for 69% of the overall expenditure on media ads. And as Insider Intelligence predicts, the digital ad spend market will continue to grow exponentially, reaching $756.47 billion in 2024 and surpassing $800 billion by 2025. Ads on online devices include mobile, computers and other smart devices, and media ads includes email marketing, video content, search engine results and more. — AS

Takeoff & landing

• Stagwell for the first time will have a beach activation at the Cannes Lions, called Sport Beach — which aims to let brands mingle and platforms with athletes as well as its own agency brands including 72andSunny, Anomaly, Assembly, Code and Theory, Doner, Gale and others.
• Research firm Kantar launched a new offering, Vivvix, which blends its syndicated media coverage with Numerator‘s consumer intelligence data to create competitive advertising intelligence across digital and traditional media, including mobile apps, streaming, and social media. Andrew Feigenson serves as its CEO.
• Personnel moves: B2B marketing agency The Marketing Practice, which is expanding its U.S. operations, hired Jeff Johnson to be its U.S. general manager … Design/engineering agency/consultancy Engine Digital tapped Accenture Song’s Norma MacDonald as its vp of design, based in Toronto.

Direct quote

“NFTs 1.0. [were] focused on speculation, while NFT 2.0 [is more] focused on utility. That’s now resonating in the mind of marketers where they’re starting to understand we’re moving away from JPEGs of apes because people thought they would get rich by buying them. [Marketers now] really understand that you can use Web 3 wallets and tokens and spatial web experiences to drive a more gamified immersive engagement with your consumer, particularly with the digital, mobile-first audience.”

— Tyler Moebius, CEO of SmartMedia Technologies, talking about the evolution of NFTs into something that’s actually useful for marketers and agencies.

Speed reading

• Digiday senior ad tech reporter Ronan Shields and I reported out news that GroupM laid off more than 100 people across its North America and EMEA regions, part of the final process of agency mergers that were announced last year.
• Speaking of layoffs, Shields also explained how Google is recommending an approved set of resellers to its advertisers, as it lays off 6% of its own workforce.
• Digiday marketing reporter Julian Cannon outlined the savings P&G achieved in its fabric care brands unit by going in-house with its media planning and buying.

Asked what specific ad targeting capabilities from Hulu will be ported to Disney+, Ferro said, “it’ll be some of the basic stuff: age, gender, some geo-targeting. And then the full suite of targeting in July.” That expanded targeting suite will include the 2,000 audience segments available through the Disney Select first-party data platform — which spans 235 million monthly unique visitors in the U.S. to Disney’s media properties and more than 100 million U.S. household-level IDs, she added.

“The targeting thing is probably big for them because they can better monetize the inventory as opposed to us just buying P2+ [the broad audience segment of anyone two years old and older] and there’s so much waste. Now they can make it more valuable. So that will definitely help. It’s important for us to have the same capabilities on Disney+ that we’re now accustomed to on most of the other streamers,” said an agency executive.

The extension of Hulu’s ad products and services to Disney+ is the latest showing of Disney’s push to unify its back-end ad tech operation as the company seeks to automate 50% of its ad sales — a goal that Ferro said Disney is on pace to reach this year. “We’re at 35% right now, and that’s before the full integration of all of these [ad products and services from Hulu],” she said.

Underpinning Disney’s streaming ad tech expansion is the Disney Ad Server, which stems from the company taking full control of Hulu and its ad server in 2019. Disney’s ad server already powers 100% of Hulu’s and Disney+’s ad platforms in the U.S., said Aaron LaBerge, CTO of Disney Media & Entertainment Distribution. “Over the next 12 months, [DAS] will be powering all of our addressable platforms,” he said.

The Disney Ad Server is “the heart of our platform,” LaBerge said, and it is complemented by Disney’s Yield Optimized Delivery Allocation product that balances direct-sold vs. programmatic vs. self-serve ad buys as well as the Disney Real-time Ad Exchange that sells Disney’s ad inventory programmatically (and yep, Disney has intentionally named the two ad tech products after Lucasfilm and Marvel characters).

“We’ve made significant investments in our technology platform to serve ads for the entire company,” LaBerge added.

Now, back-end technology, as the label implies, is typically behind-the-scenes work that can be hard to detect on the surface. But a second agency executive said they have noticed the impact.

“The big thing for them that we’ve seen over the past two years, accelerated over the last year and further over the last three months going into this year has been their pace in terms of getting organized operationally and unifying their disparate assets,” said the second agency executive. Specifically, this agency executive cited Disney’s ability to simplify the process of finding audiences across its ad inventory supply pool. 

That capability has likely come in handy when it comes to managing supply and demand dynamics for Disney+’s ad-supported tier. Ferro declined to say how many Disney+ ad-supported subscribers the company has accrued so far, but asked if the company has run into any under-delivery issues like Netflix has with its similarly nascent ad-supported tier, she said it has not.

“The unique thing that I think is different for Disney than Netflix in this particular situation is we have a whole streaming ecosystem beyond Disney+, so we’re able to manage that much more holistically,” said Ferro.

Translation: If Disney+ were to run low on slots for advertisers, Disney could reroute campaigns to Hulu or other inventory sources (with advertisers’ approval). 

Agency executives said they have not encountered ad delivery issues with Disney+, but the first agency executive said, “We have heard them saying things like they might want to shift spend off of Disney+ for certain advertisers to diversify and make room for other advertisers to diversify the creative ad rotation people are seeing.” This executive also said that Disney has not shared numbers with advertisers on how many ad-supported subscribers Disney+ has or how many people their ads have reached on the streaming service.

A Disney spokesperson confirmed the ad spend shift discussions. “Remixing is all normal for us. This practice all ties back to our commitment to a high quality viewer first experience. The beauty of our 100+ advertisers ensures that we have variety, volume and versatility of client categories and creative, which sets the stage for a better viewing experience – and essentially helps maintain our low frequency caps,” they said. A second Disney spokesperson cited the company’s ad tech stack as enabling this delivery flexibility and said the company does not share subscriber numbers outside of its quarterly earnings reports.

All of this will likely come to bear in this year’s annual TV advertising upfront marketplace. As part of its upfront pre-planning process, Disney held more than 120 meetings during CES with advertisers, agencies and tech vendors. Now it is following up on those meetings with the Tech & Data Showcase and, later, the extension of Hulu’s ad products and services to further automate Disney’s ad sales. And a pillar of Disney’s upfront pitch this year seems to be selling advertisers on campaigns that can be automated to go wide across Disney’s streaming portfolio — including Disney+ — and drill down to particular audiences.

“People have that expectation that Disney deliver across our full suite of products,” Ferro said. “And so we wanted to make sure we got that right. Disney+ is part of our full integrated first-party data offering, and so to be able to turn that on and really deliver against it the way we have on Hulu, that’s the plan. All the work has been done. And we’re going to be able to roll it out seamlessly as part of everything we do in this upfront for next year — full scope of scale of all of that as well as the ad formats and all the innovation that we will launch — we will publish it now to the full platform. That’s the beauty of having everything on the same ad server.”