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ProSiebenSat.1 gets serious about Ad Tech with Virtual Minds deal

July 08, 2015  | Subscribers Only

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European broadcaster ProSiebenSat.1 has agreed to acquire a majority stake in Virtual Minds, a holding group of companies in the advertising technology (ad tech) sector for an undisclosed sum. The acquisition is carried out by the broadcaster’s subsidiary ProSiebenSat.1 Digital. In the deal, ProSiebenSat.1 will hold a 51.0% stake in Virtual Minds. German internet firm United Internet Media will hold 25.1% and the remaining shares remain distributed among Virtual Mind’s founders and management.

Virtual Minds is composed of 11 companies, which are headquartered in different locations throughout Germany. These include: Supply Side Platform (SSP) Yieldlab, Demand Side Platform (DSP) Active Agent, Adserver Adition and Data Management Platform Adex. Key competitors are Improve Digital, Rubicon, Appnexus and Pubmatic. 

Our Analysis

ProSiebenSat.1’s foray into digital advertising technology comes 11 months after its main rival, RTL Group, set the pace by acquiring a 65% stake in SpotXChange, a leading video ad tech firm, for $144m. Earlier this year, RTL also invested in Clypd, a firm focussing on applying programmatic advertising models to TV. Underlying these acquisitions is a common logic: for media owners, control over advertising technology increasingly is a matter of controlling their digital destiny.

  • Firstly, the economics of technology-enabled advertising mean that value generation is increasingly moving away from media owners as providers of inventory towards specialized middlemen who apply and interpret data at scale. This is squeezing media companies’ margins.
  • Secondly, fuelled by M&A activity, these middlemen are increasingly scooped up by an array of different companies, from Google and Facebook over media agencies like WPP, online publishers like AOL, to telcos like Verizon, which in turn bought AOL. In particular non-US media companies have had trouble to compete in the buying game. Financing acquisitions of leading ad tech firms and amortizing these acquisitions either requires a large national market like the US, or a global footprint. With few exceptions, ad tech companies are also born and bred in the US. Despite their international footprint, acquirers need a US strategy to really take advantage of the acquisitions. This is especially given the price tag attached to world-leading ad tech companies. AOL in 2013 paid $405m for adap.tv, a video ad tech firm. This is more than it offered for the Huffington Post, which moved into the AOL portfolio for $315m.
  • Thirdly, Facebook and Google/YouTube have paired ad tech acquisitions with a vast global audience base and a video publishing platform. At IHS, we call them ‘companies formerly known as platforms’ because they are de facto becoming end-to-end operating systems for content creation, curation, distribution and monetization. In their comprehensiveness, they now rival broadcasters’ OTT offerings and increasingly eat into linear TV advertising budgets. While broadcasters have the content and an (often slowly eroding) audience base, in the digital world, they lack technology as the new connective tissue between brands, consumers and content. Broadcasters are hard-pressed to build a digital infrastructure with ad tech as its monetization engine.

Although ProSiebenSat.1 and RTL Group respond to the same macro-change in the market, their acquisitions could not be more different. With SpotXChange, RTL Group bought into one of the largest independent video specialists that had not yet been scooped up. At the time of acquisition, SpotXChange already had a strong global footprint and a market-leading position in the US. While RTL Group intended to help SpotXChange further penetrate the German market, it bought into a business that was already internationally scaled and established. SpotXChange also takes sides in the advertising value chain, serving only publishers, and not players on the demand side.

In contrast, ProSiebenSat.1’s Virtual Minds acquisition is much more contained in scale. The broadcaster has bought a German set of companies with a comparably limited international footprint. The companies subsumed under the Virtual Minds umbrella also do not exclusively focus on publisher monetization, but span across the advertising value chain, comprising of several components from the demand- to the supply-side. While Virtual Minds also offers video advertising, it is not a dedicated video expert like SpotXChange. The requirements of programmatic video advertising are very different from that of banner advertising and other formats. Few companies do everything equally well. Yet Virtual Minds still is a good fit for ProSiebenSat.1. The broadcaster’s digital strategy is much less video-centric than that of other broadcasters. ProSiebenSat.1’s ‘Digital and Adjacent‘ business segment contains weather, e-commerce and gaming companies alongside the video business that much closer to a broadcaster’s legacy. A specialist for video would not have allowed ProSiebenSat.1 to bring programmatic capabilities to its entire digital portfolio. The renewed merger talks between ProSiebenSat.1 and publishing group Axel Springer (announced 6 July 2015) add another component. Should this merger proceed, a diverse set of smaller ad tech companies with various capabilities would allow a better application to Axel Springer’s digital portfolio which includes e-commerce and classifieds, than a global video specialist.

In summary, RTL Group’s move into global ad tech through SpotXChange was an offensive move, enabling the company to strategically develop the programmatic business and become an internationally leading player. ProSiebenSat.1’s acquisition appears more defensive. Rather than acting on programmatic as a pathway into a new, global business, the Virtual Minds acquisition will primarily help to prevent other, predominantly international players, from colonising the German programmatic market.

Organization
ProSiebenSat.1 RTL Group
Research by Market
Media & Advertising
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