We have gathered best learnings from senior media executives, fund managers, and from analysing 100+ media for equity deals across Europe. We compressed them into five lessons valuable to any business leader looking to align their organisation on a strategic direction for getting started with this investment model.
The biggest challenge with enabling airtime in exchange for equity is balancing business-as-usual (BAU). TV advertising is measured on KPIs and short-term financial targets – a CEO of a TV station or a TV show producer would always prioritise cash over outputs they cannot see. Squaring this requires a fundamental shift in the way media holdings are designed. A potential solution is to start at the top – where the C-suite looks after the core business and the investment unit is governed separately.
Transforming a business model requires a communication plan to engage internal and external stakeholders, demonstrate buy in and position the organisation at the forefront of innovation. Be clear if you want to align future investments with the company financial strategy or aim for early wins that accelerate your rate of learning. Consider introducing an internal process and a selection committee to help enable fast decision-making, meaning that a startup investment can be approved within days, not weeks.
Promising startups attract investors quickly and are less likely to cast a wide net to attract funding. As we’ve shown already, the right type of company for this model has already secured an initial round of funding and is looking to use advertising as a “bridge round” or complimentary to another fundraising round. Communication with stakeholders and partnerships with aggregate media funds and startup experts is essential to identify the best startup opportunities and expand return on investment.
While the natural instinct may be to build a fund internally, taking a collaborative approach may maximise the chances of returns, faster. One reason is that the Eastern European TV market is highly fragmented across national, regional and local platforms and advertisers where broadcasters are privately owned. This setup makes it difficult for a startup to achieve the best media deal possible, which impacts directly the return on investment for the broadcaster. Increase the chance of higher returns and de-risk failure by investing “airtime” alongside other media holdings and external VCs which will propel the company to achieve exponential growth which leads to higher returns and de-risk failure.
Take ProSieben’s SevenVentures and German Media Pool who together made a €39 million media for equity investment in FRIDAY, a leading German digital insurer. SevenVentures is providing significant media exposure across its TV assets, while German Media Pool is complementing that media exposure through radio, out-of-home, print and other television properties. In addition to the combined media investment, the Swiss-based Baloise Group, FRIDAY’s founding investor, invested an additional € 75 million in cash.
Traditional broadcasters are coming under threat from new business models, technologies and new ways of connecting with viewers. As a result, TV stations globally are exploring opportunities for revenue diversification beyond advertising, and some have placed their bets on “media for equity”. Whilst some funds may decide to tie in any investment with the financial and strategic goals of the parent company, most media funds that have started to cash in the first returns did not frame their investments as strategic investments. They have taken a leap of faith and started investing in startups that have a proven monetisation model, and that they’re new to television.