On media for equity.
Insights from a B2C mobile startup.
As some of you may know, at Groopify we recently raised an €800k round to accelerate our growth, further develop our technology + matchmaking algorithms and launch internationally (more info here). As part of the deal, some of the proceeds came in the form of media for equity, which essentially means a media company gave us advertising stock in exchange for shares in the company.
These days, media for equity is the talk of the town. Why? Incumbent media companies are seeing (or have been seeing for the past 7–8 years) their traditional advertising revenues contract and are looking for what they call diversification revenues (hence their backing of startups that can benefit from a boost from a media partner — air time, partnerships, licensing, you name it). Additionally, success stories such as Wallapop and La Nevera Roja are increasingly fuelling their appetite to come back for more of these deals. On the flip side, advertising on TV is a pretty interesting and effective way for a consumer-facing (mobile) startup to gain access to a mass market. In decline? Sure, but still a mass market. Our ads were seen by 27 million people. About 15 million saw them 3 times or more and 3 million saw them 10 times or more. Who doesn’t want that? ROI is key, sure. But so is visibility. These premises thus create a match between demand and supply. We have a market for media for equity. At what price though?
That will have to wait. Alas, this post is not really about the pros and cons (nor the negotiation recommendations) of a media for equity deal. That could take up an entire post (or maybe even a couple). This post is rather intended to shed light on some (emphasise some, possibly the most relevant for a startup considering a media campaign on TV) of the learnings we’ve had, as a B2C mobile startup (important to keep in mind) in planning and executing our most recent media campaign. Planning and executing a media campaign could seem like peanuts or part of one’s daily routine, especially if your name is John Doe and you’re a Senior Associate Creative Brand Manager with Coca-Cola or Procter & Gamble. But as a startup, spending so much money in such little time and with such limited resources to commit to the whole operation… It is a big deal.
Chronologically, one can identify 3 different phases in a media campaign as a startup: negotiation, execution and the aftermath.
- Negotiation.
[By negotiation I mean discussing and agreeing on the specifics of the campaign, not really about valuation, equity stake, terms, governance, etc. That’s relevant as well (pretty much so actually) but it’s similar to a negotiation with any other investor, so it doesn’t make much sense to get into the specifics (maybe some other post)].
a) Target audience and cost per GRP are key pillars even before you get the ball rolling.
Typically, the amount to invest (cheque) will be given and one of the first things a media for equity investor will commit. €250k, €1m, €5m, you name it. That doesn’t necessarily determine the number of impacts your campaigns will generate or how many eyeballs will see your commercials. One should rather take that sum as a given and focus on defining the target and negotiating the cost/GRP (a GRP — Gross Rating Point — is a metric reflecting 1% of your target audience impacted by a 20 second commercial). Defining the target audience should be approached as an exercise similar to that of a segmentation analysis in performance-based customer acquisition campaigns. Key drivers of this could be: i) What does your customer base look like today?; ii) Who are your target users?; iii) What are your specific objectives for the campaign? Are you looking to increase your breadth in age brackets or socio-demographic segments? Different targets have different rates and tariffs. In our case, our targeting efforts were directed towards young people aged 25–35. That target has a given rate, which is quite different to that of retirees or stay-at-home moms. But anyone with any experience in the media industry will know that standard rates are rarely those at which a market is formed. The media business is a volume business. The more you spend, the better market rate you’ll get and thus the more GRPs you’ll be able to run. As a startup, this really sucks because you’re essentially competing against any other advertiser that has a 10x, 50x, 100x budget vis-à-vis yours and is trying to impact the same target. But here’s the beauty of the media for equity deal. The media company selling the advertising stock is a de facto shareholder and hence has the incentive to offer market or better-than-market rates even if your campaign size (in € terms) is dwarfed by those of big corporates. That’s leverage to negotiate on price right there, incentives alignment. A major hurdle when negotiating pricing is access to reliable market information. The media sector is extremely opaque (probably one of the major sources of competitive advantage historically) and the only helpful data one can use as a benchmark is only accessible via subscription-based like services like Infoadex, Infosys, Kantar, etc. Luckily for us, a great friend from university (thanks again Ricardo) runs a media consulting company and gave us a bigger data dump than we could manage. This was extremely helpful to compare GRP pricing across campaigns launched by startups with similar budgets as ours and identify pricing trends over the last 2–3 years. That’s leverage to negotiate right there, market intelligence.
b) Divide and conquer.
One of the things I believe we did pretty well from the get-go was to divide roles and responsibilities within the team. As CEO I lead all things related to deal terms (term sheet, amount invested, valuation, governance, etc.) and pricing (€ per GRP). All other aspects of the media campaign (such as channel mix and split of GRPs, prime time %, target definition, recruiting and leading our creative partners to put together the commercial, day-to-day monitoring of campaign performance, coordination with our other acquisition channels, etc.) were lead by Alex Coca, one of my co-founders at Groopify and the point person for all marketing and business development matters. In addition to dividing tasks and helping us execute a leaner operation, why was this intentional split so helpful in the greater scheme of things? It helped separate deal terms from media planning. Having two different people at Groopify leading each work stream (we didn’t even “cc” each other over email to emphasise this) meant that our counterparts couldn’t lump everything together into one sole negotiation (e.g. “if we agree to such and such terms related to governance, we need to modify the % of prime time” and stuff along those lines). Although both Alex and I were completely up to speed on how each of us was getting on (we do sit next to one another in the office) we wanted it to seem that we were as far apart and disconnected as possible. This gave us leverage in the negotiation and planning phases. We did this thanks to the advice from the guys at La Nevera Roja (Iñigo and José). Kudos for that guys.
2. Execution.
a) What you show is pretty (f’ing) important.
Duh. Your commercial will be seen by millions of people. For most, it will be the first impression they get of your product or service. So once channel mix, share of prime time, target, etc. have been figured out (or rather in parallel — there is no such thing as sequential operations at startups) one needs to bring the creative folks on board. We didn’t have the resources nor the experience to put the commercial together in-house so we outsourced it to a creative agency. Here, again, the market tends to be skewed towards big corporations with multi-million euro budgets. Therefore, the proposals one can expect to receive for a job like this can be all over the spectrum. Be ready to negotiate hard and try to cut down on as many superfluous line items as possible. One can definitely optimise on pricing, so don’t be shy. Why do you need a cast of 10 actors in the background if you can easily recruit your friends or people in the team to do it? There go €2k in savings. We received initial proposals in the €30k-€80k range (from 4–5 agencies) and ended up paying just over €20k. Another piece of advice would be that people in the creative industry tend to be as far apart from a startup’s modus operandi as can be. It can get very frustrating. Endless processes, brainstorming sessions and bottlenecks resulting from operational chaos. Make sure the person on your team driving the process can spend a considerable percentage of his or her time across a 2–3 week period on this, otherwise you’re in for a bumpy ride. In addition to the creative aspects and the development of the commercial, your messaging, how you present what you do (the problem you solve) and the aspirational elements of it all are very important. Be mindful of the fact that nobody knows you when they first see your commercial. Your logo should be all over the place (we had a banner across the bottom of the screen which was fixed across the whole 20 seconds), your name should be mentioned at least 3 or 4 times and at the end there should be a clear call to action. For apps such as ours, it’s easy: “download the app”. And put your logo next to the App Store and Google Play icons. Repetition, visibility and call to action. You can check out some of these elements here.
b) Affinity should be your priority, more so than reach and prime time.
Given how pre-internet TV stations and media companies tend to be, there’s no such thing as performance-driven marketing or tools that can allow for effective targeting of a specific audience (Facebook has totally revolutionised how we think and use targeting in performance ads). Targeting thus becomes more an art than a science when one launches a TV commercial. So one should consider the premise that it will be very hard for any of your commercials to be as well-targeted as your online/mobile campaigns. Nonetheless, that doesn’t mean targeting isn’t important — you just need to take more of a leap of faith than with other channels. Audiences and targets are thus defined in a broader way and tend to be correlated with age brackets and the way to target them is by placing your commercials at a specific time of day or within a specific content. For our target, La Sexta in the late afternoon/early evening and shows such such as Big Bang Theory, Modern Family, Two and a Half Men, etc. were a particularly good fit and we were able to get a great bang for our buck. Given the lower audience of these shows, we had to invest less GRPs but the decline in ROI was by no means proportional. Let’s take a step back. Why is this relevant? Typically, one could believe that conversions (app downloads in our case) are positively correlated with GRPs — after all, the more GRPs the bigger the audience will be exposed to your commercials. Our analysis shows that it tends to be the case but beyond a certain point (we found at 2.6–3–0 GRPs in our case) marginal returns begin to stall. So the ROI of your GRPs is worse if you run one single 6 GRP commercial vs. two 3 GRP commercials that are more targeted (and where you can benefit from a greater frequency of impacts — and this translates into better conversions). The thing with prime time and high-GRP slots is that there is a lot of competition (mostly consumer products/services from leading brands) and not only do prices tend to be slightly inflated (i.e. a given slot may get priced at 6 GRPs but is it actually that valuable or is it just inflated due to high demand?) but also it’s much harder for your startup to standout (especially if it’s a one-time thing and you don’t have the budget to maintain the frequency). In addition, one ought to consider retention. Sure I can get more people to download my app if I invest in a 6 GRP prime time slot but what will the uninstall rate look like? What is the 7–15–30 day retention curve going to look like? Maybe a prime time cohort can generate more downloads but the retention profile makes it a terrible idea. This is important for startups that don’t have a household name like Groopify, that are appearing in mass media for the first time and that have a relatively condensed age bracket when it comes to majority use cases. 90% of our users is in the 18–35 age bracket. Why waste GRPs on prime time or on the leading shows by audience share if our target audience won’t be watching or if our message will be diluted by the likes of Coca-Cola and Procter & Gamble?
3. The aftermath.
a) CP”X” and the impact of a TV campaign on other acquisition channels.
One could typically have an estimated or target CP”X” (Cost per Install, Cost per Lead, Cost per Purchase, etc.) in mind when launching a campaign on TV. Now take that number and multiply it by 10. That’s what it will end up costing you. TV is by no means as optimal from a marginal CP”X” standpoint as other performance channels. It’s a volume play. You can definitely (as we did) try to optimise as you go along and plan the following week’s strategy (where will your commercials appear?, how will GRPs be split?, where are you getting better ROI and retention?, etc.) based on the previous week’s performance (and the cumulative results since the beginning of the campaign) but it will be hard to maintain your marginal costs in line with your trajectory, especially if you have as much of an obsession over CP”X” as we do and are constantly looking to optimise it. Good news is that a TV campaign does have a positive impact on reducing the CP”X” of your other performance channels. Why? Think about, TV brings you eyeballs and visibility. It’s like a second, third or fourth screen for your ads but on steroids and for the mass market. So, when a potential user sees your ad on Facebook or on Twitter and has already seen you on TV, he or she is more likely to convert. [One could argue that such an outcome is purely a temporary gimmick and that overall your CP”X” is much higher. The latter is true, correct. But, on most ad networks, and on Facebook in particular, marginal cost reduction can be stabilised and sustained in the long run, thus resulting in cheaper conversions and better ROI going forward (even after the TV campaign is done). You’re, thus, kind of buying that contraction in lower long-term CP”X” by investing in a TV campaign. It’s not all that obvious from the outset and something we didn’t really expect or consider but it turned out to be a very positive outcome]. In addition to all that, when you’re on TV (still today) that means (in most people’s eyes at least) that you’re a big deal. That buys you legitimacy and greater propensity for eyeballs to click on your other ads (or even convert organically at some point in the future).
b) Post-TV effect and the importance of coverage and frequency.
When you’re riding the curve, everything seems amazing. More downloads, more active users, your servers have more work than ever before. Something like the below happens.
On average, we were seeing daily downloads (also leads, active users, etc.) grow 6–8x vs. our average levels for the previous 6 months. That’s great but once you stop pumping money into TV it’s relatively easy to fall into the abyss. We found a few things and metrics to be relevant. First, remarketing (so that the potential audience that reaches your site after seeing a commercial can still be shown ads online/one mobile 30–90 days after they demonstrated a certain interest) and maintaining pressure via performance channels after the campaign is done (at least for a 2–3 week period) will help contain the contraction in volume and hopefully settle your curve on a new-normal somewhere between the peak and pre-TV levels. In our case, we’ve reach it at c. 3x, with an even lower marketing budget than pre TV (a lot of our traffic now — and a greater proportion than before — is organic). If one just does nothing, the likely outcome would be to simply converge back to pre-TV levels. [This really depends on the type of product though. Marketplace/social apps like ours or Wallapop that benefit from the increase in liquidity on the platform — more products on sale to browse as a buyer or more groups inviting you to go out and meet at a local bar — will have a somewhat easier time adjusting for this as the added users/downloads/activity will generate network effects which may be harder to attain for other apps or startups. It is, therefore, easier for an app like ours vs., say, an ecommerce app to reach that new normal].
Second, frequency (or the number of times someone in your target audience sees your commercial) and coverage (% of your total target audience that you reach at least once) are two metrics that we’ve found to be pretty critical when planning for the post-TV effect. Ideally, one should aim for at least an 80% coverage and a 7–8x frequency for the commercial (and your product) to stay top-of-mind after you withdraw all media pressure from the campaign. Nonetheless, once you hit those frequency and coverage levels, don’t expect it to last forever. Even the most organic top-of-mind effect suffers from decay when it comes to marketing and branding in mass markets. On average, this brand awareness will last you about 5–6 months. Before then, one could probably expect exponential returns on follow-up campaigns. After that, maybe not so much and you could be starting from scratch. Does that mean we have something in the works for the near future? Possibly.
So what’s the verdict?
Would we do it again? I would say yes. Although we fell slightly short of optimal coverage and frequency levels, the overall returns were very positive. In hindsight I wish we would have done a slightly bigger campaign (in terms of budget) and over a longer period of time. Maybe 2x on both accounts would have resulted in optimal results. What we did conclude, though, is that TV is a very good acquisition and promotion channel for our product (social discovery mobile app) — similar to what the folks at Wallapop mentioned not long ago at TechCrunch Disrupt (more info here). Cost per install is higher than on performance channels and the retention profile of the cohort is slightly worse but it’s a channel that enables us to grow a lot very quickly and that allows us to get past the budget saturation paradigm many startups face on performance channels. Marginal returns stall or even decline when one increases daily/monthly budgets dramatically. Facebook and Twitter can only take so many Groopify ads (not the channels themselves but rather the audiences we target on them). TV is a way to diversify one’s marketing budget after all and to get all the PR in the world. This doesn’t buy you installs, conversions or revenue — but it sure does help in the long run.
