Media for equity: A happy marriage

Advertising remains the lifeblood of the Indian television industry. While digital is driving fragmentation, forcing a rethink in the broadcaster business model, it still hinges on advertising as subscription across traditional and digital media continues to be still small.

For marketers, the premise of TV as a powerful communication medium that offers unprecedented reach and engagement remains as attractive as ever. TV channels, accordingly, are trying to figure out how best to serve their end customers better, while helping advertisers generate compelling return on investment (RoI). In parallel, media companies are experimenting as to how they can bring in more advertisers, to grow their top line and reduce dependence on select marquee marketers.

However, TV remains an expensive channel, with high concentration of large spenders. The top 50 companies constitute a significant share of the market. Smaller/emerging companies find TV economics challenging. This creates opportunity to explore new models on both sides. 

There are many businesses out there — big and small, established and fledgling — that cannot afford to advertise on TV. Startups are a classic example, with funds consumed in customer acquisition struggling for marketing dollars. This makes TV out of bounds and limits them to digital media, where the reach is still small. They also lack the experience of working with advertising agencies to produce creatives and the requisite understanding of how such content works on TV.

The MFE premise

So, is there an innovative way through which TV channels can diversify their revenue streams? How can broadcast reinvent for the numerous businesses looking to boost their brand at both regional and national levels?

Media-for-equity (MFE) is one such option — an alternative investment structure wherein broadcasters and media companies trade their unsold advertising inventory in exchange for equity in the advertiser. This is, in many ways, a win-win proposition for both sides. The advertisers gain access to the influential TV medium without impacting their economics while accelerating brand building and their business. The broadcasters and other media companies, on the other hand, are able to use the hitherto unsold perishable inventory with potential for upside through increased market value of these companies. Equally importantly, this can boost fill rates without diluting pricing, a concern often cited by leading broadcasters when considering expanding to smaller advertisers. 

Another factor to note is that companies planning to advertise for the first time on TV lack insights around how to best leverage this powerful medium. This is where broadcasters can play the crucial role of an enabler, partner-cum-mentor to such businesses, by using their deep domain expertise to provide customised brand solutions.

A global trend

It’s not surprising, therefore, to find the MFE concept gaining traction worldwide. Europe, which embraced the idea in the late 1990s, has seen more than 400 new and small companies accelerate their growth trajectory by adopting this model. Prominent German broadcaster ProSiebenSat.1, through its ProSiebenSat.1 Accelerator initiative, helped Zolando, a local, venture-backed online shoe retailer, post double-digit sales growth rapidly, by entering into media-for-revenue deal with the startup. The media group gave the ecommerce business unsold advertising inventory on its broadcasting assets, in return for a percentage of the latter’s online retail sales.

The MFE concept has also been tried out successfully in Australia (Ten, Fox), Singapore (MediaCorp.) and Mexico (TV Azteca), highlighting its universal applicability — irrespective of the idiosyncrasies of each individual market.

Creating an Indian template

What has worked in the MFE context in different markets around the world offers tangible, relevant clues for both Indian broadcasters and startups, as they contemplate adopting this unique model. However, in our view, a new template will have to be created, one that is unique in terms of factoring in the various intricacies and challenges of advertising in India.

It is worth mentioning in this context that the media-for-equity concept has proven successful in the Indian print media space. Two of the country’s leading diversified media conglomerates have been offering ads in their various print and digital properties in exchange for taking equity stakes in the concerned companies. In some instances, a cash component, alongside equity, has also been incorporated into the deal structure.

How can then Indian broadcasters devise an optimal strategy to harness MFE effectively, and grow revenues faster across a wider base of advertisers? Here are six key questions they should ponder:

• Inventory offered: Do broadcasters offer digital inventory as well, or do they restrict it to linear TV? Will a combined package make the proposition more attractive?
• Intermediary fund: Do channels venture independently to engage with start-ups? Or, should they establish so-called intermediary funds or cross-media funds that aggregate unsold ad inventory from different types of media companies (TV, print, radio OOH, movies), and trade this for shares in start-ups and other growth businesses.
• Active management: Should broadcasters play an active role in the investee companies, especially with regards to media planning and creatives? How will this work?
• Deal structure: What should be the optimal deal mechanism? Should their equity payout be linked to the financial performance of the portfolio company? Also, should the deal currency be purely equity, or a combination of cash and stock that embeds certain variable payouts subject to realisation of performance milestones?
• Risks and regulations: How do channels overcome the negative perception around trading branded media advertising space for equity in a for-profit business venture? 
• Build-out strategy: MFE, as a concept itself, would be something totally new for many broadcasters, who would be lacking the requisite skill sets for executing such an idea organically. So these TV channels could consider partnering with a consumer-oriented private equity fund or similar specialised investment vehicles to implement MFE.

As media business models continue to evolve rapidly in the digital age, Indian broadcasters will need to experiment with innovative ideas to diversify their revenue streams and stay relevant in a dynamic marketplace. Media-for-equity represents one a significant way in which television channels can realise that objective.

Jain is partner & director, and Jindal is principal, Boston Consulting Group