Mi9’s Mark Britt is trading equity stakes in start-ups for contra advertising.
Photo: Jim Rice
In the month when Fairfax finally erected paywalls around its metropolitan news sites, the boss of what used to be called ninemsn has boasted he will never need to do the same.
Mark Britt, chief executive of the joint venture between Channel 9 and Microsoft now known as Mi9, thinks he’s found a better way to supplement advertising revenue.
He’s trading equity stakes in start-ups for contra advertising. The hope is that audience and equity value can be grown quickly through exposure to the 10.3 million viewers or unique browsers Mi9 attracts to its platforms each month.
Britt’s contra advertising-for-equity portfolio has sold all but two of its investments, so he is now on the lookout for new companies and ideas.
Mi9 owns content syndicator HWW and half of personal finance comparator RateCity – a joint venture with CANSTAR. In the past month Mi9 has sold stakes in health insurance broker iSelect and group buying platform Cudo, and in recent years has exited investments in Quotify, a comparator of service providers, and Mathletics, an online educator.
Mi9 has an arrangement with Pollenizer, the start-up collective, whereby any business within that network can apply for a contra advertising deal worth up to $250,000 in exchange for equity in the business, or a loan that can be paid back in cash at a later date.
FlickGift, the online social gift-giving start-up, has signed up for the contra advertising deal. Its customer base is growing rapidly, Britt claims, thanks to the advertising it gets through the homepage of sites like ninemsn.
“Advertising can be so valuable in creating a business these days. You can make nothing into something quite quickly – Tom Waterhouse is a perfect example of that,” says Michael Maughan, a portfolio manager who covers media companies with investment manager Tyndall.
Mi9’s part owner, Channel 9, is as familiar with the concept as any other company – the 18 per cent stake it holds in Mark Bouris’s financial services firm Yellow Brick Road was paid half in cash and half in contra advertising.
“Using eyeballs to build equity is a good model,” says Pollenizer co-founder Mick Liubinskas.
“The challenge you have as a start-up is once you have a product, how do you get scale? One of the reasons you get funding is to get more customers. Using eyeballs to build equity is a good model,” says co-founder of the Sydney-based Pollenizer, Mick Liubinskas.
There are a handful of other Pollenizer start-ups in discussions with Mi9 to trade valuable ads for equity stakes, Liubinskas says.
Creating online communities
Britt is also looking beyond Pollenizer’s incubator to populate Mi9’s venture portfolio.
Concepts that create communities around areas of passion with interesting ways of sharing and distributing content will get the most benefit from Mi9’s audience, Britt says.
He points to content aggregator BuzzFeed in the United States as an example of a concept he likes. BuzzFeed aggregates news, views and entertainment under the headings WTF, LOL, OMG – next-gen acronyms ubiquitous enough these days they don’t even require explanation in this publication.
“Concepts that put the user at the heart of the experience,” he explains.
Britt says he believes integrating social media and community with financial services – giving individuals the ability to make investment decisions based on the recommendations of their peers or the broader community – is the next area to explode online in Australia.
The most successful of Mi9’s investments has been its stake and sale in health insurance broker and online comparator iSelect.
Although iSelect was as much a financial investment as a contra advertising deal, the mass exposure iSelect’s brand achieved because of favourable ad-buying rates helped the site multiply users and balloon its equity value leading up to its public market debut.
It’s understood Mi9 invested $41 million over six years in the privately owned iSelect, which it turned into $114.7 million when it sold its stake pre-IPO last month.
More recently, when Mi9 sold its stake in Cudo, the group buying platform had grown its database to more than 1 million customers. While BRW reported the sale price for Cudo was believed to be immaterial to Mi9’s earnings, Britt says the mass-market promotion of the site through the group’s websites put Cudo on a fast track to annual revenue of $60 million within six months of starting.
To fund its venture investments, Britt says Mi9 uses profits generated by advertising revenue to invest where necessary in new opportunities, feeding the proceeds of investment returns back to its parents in the form of dividends.
In the 2012 financial year Mi9 earned $37 million net profit after tax. Its advertising revenues were modest compared to the previous year and the broader online advertising market, but the returns it booked from its venture portfolio more than picked up the slack.
Bounding into a new investing cycle on the back of what is believed to be a more than three-times return on investment in iSelect, Britt appears to have more support than ever from his joint-venture parents to continue to explore equity-venture partnerships.
That’s not to say Britt is diverting his focus from capturing the advertising dollar. Last week Mi9 launched two new products to appeal to advertisers looking to create more tailored online campaigns for consumers online and offline. Postcode Clusters and TV Extend will enable advertisers to target up to 14 million active registered users based on their offline geographical location as they travel across the Mi9 network, according to the company.
“We have never been more bullish on advertising as a business model for content,” he says, adding paywalls are unlikely to work for a mass-market content aggregator like Mi9’s ninemsn.
Nothing ventured, nothing gained
The venture portfolio is important to Mi9, not just for its ability to generate returns, but also to keep the business from slipping behind.
Just like the start-up community is hungry for capital and audience, the media industry is hungry for exposure to ideas to keep up with what’s new and evolving, says Tyndall’s Maughan.
“With such low barriers to entry, the best way for media companies to know what’s happening is to be involved in the conversation,” he says.
A venture-capital strategy is a good way of doing that, Britt says.
“We need to evolve and change, so we use our investment strategy as a way to find smart people from outside the business who are thinking about things differently.”