Changes in consumer behavior are fueling growth in digital media and e-commerce, reported dealmakers at ACG New York’s Third Annual Digital Media & Technology M&A Conference on March 21. Among the trends explored at the conference were the proliferation of mobile devices, including smartphones and tablets, and the unprecedented power of the individual consumer.
“This sector of the overall middle market for M&A continues to see constant and exciting innovation in products, content, and programming,” said Tanya Marvin-Horowitz, managing director, Allegiance Capital Corporation, and event chair. “This translates into an exciting but sometimes unpredictable mergers and acquisitions environment with unique deal structures and company valuation metrics.”
“Everybody’s trying to figure out how to use the four screens: computer, phone, tablet and laptop,” said Melissa Stepanis, managing director, Silicon Valley Bank. The companies that create viable products and services combining all four devices have much to gain, says Stepanis.
"House of Cards," the new political thriller series produced by Netflix Inc. (Nasdaq: NFLX) was mentioned frequently by panelists as an example of the new-found control consumers wield. Netflix bypassed traditional television and cable TV, offering the series, which stars Kevin Spacey and Robin Wright, only on its on-demand service. Another clever aspect the "House of Cards" strategy: Netflix published all 13 episodes at once, encouraging binge viewing.
Companies that can leverage digital media in e-commerce will do well, said panelists. The trick will be to figure out a way for the user to make a note that he or she likes the shirt Kevin Spacey is wearing in "House of Cards" without interrupting the user experience and then provide that information to the user when shopping, said Ron Shah, vice president of Stripes Group, a New York private equity firm. Shah referred to the user experience provided by London-based Shazam, the popular mobile application for song identification, as a good model.
One company already succeeding in exploiting digital media to enhance the shopping experience is GSI Commerce, which eBay Inc. (Nasdaq: EBAY) bought for $2.4 billion back in 2011. EBay made the purchase as part of a push to grow the e-tailer beyond small, mom-and-pop shops to huge online stores. GSI Commerce provides a set of services for large online retailers, including customer engagement, conversion, delivery and retention. Clients include Aeropostale (NYSE: AERO), Dollar General (NYSE: DG) and Guess (NYSE: GES).
"You have to go where the customers go," urged Reuben Hendell, the chief strategy officer of GSI Commerce, in a Fireside Chat conducted by Mergers & Acquisitions editor-in-chief Mary Kathleen Flynn.
Throughout the discussion, several young companies were cited by panelists as examples of navigating the new world well, including: Outbrain Inc., a content-recommendation service used by publishers that recently bought Visual Revenue; Riot Games, which doesn’t charge customers to play its games but instead makes considerable revenue from selling in-game accessories and was bought by China’s Tencent for $400 million in 2011; Pinterest, the scrapbooking site that has raised $337 million in venture capital from backers, including New York VC firm, FirstMark Capital; and MyWebGrocer, which provides e-commerce tools for grocery stores and is backed by Stripes Group.
But don’t count out traditional media companies, advised panelists. “They have things that are important to us,” said Paul Cicanciolo, vice president at FirstMark Capital. “They have content.”
The New York Times, for example, recently set up timeSpace, an incubation program for New York digital media startups, pointed out Silicon Valley Bank’s Stepanis.
Lesson from the past: Back in the dot com boom of the ‘90s, brick-and-mortar businesses may have appeared like dinosaurs, but as Cianciolo pointed out, many of today’s top online retailers are traditional stores.