I’m going to stick with movies to explain important non-movie stuff. Today, black jack, synthetic CDOs, Selena Gomez, my brother, Univision, Nabisco, and losing 100% of the media you don’t bet.
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My man Danny W has been on fire recently. The beehiiv in his bonnet is that streaming video services charge too much for meh content that reaches too few people. He says ad buyers should play very hard ball.
He — of course — is right. But it was his line, “It could be smart to invest in a company's investments,” that blew my mind. It immediately got me thinking about the scene from the movie The Big Short when Selena Gomez explains synthetic CDOs.
Which — of course — makes no sense, because (A) I’ve never seen the movie; (B) I don’t read books; (C) I haven’t got a clue who Selena Gomez is; and (D) I wouldn’t know a real or faux CDO if it bit me. But, my brother, Ian, has told me this story so many times I feel like I’ve seen it. Ian synthesizes CDOs for a living. I think that’s what he does. When he talks, I generally nod and smile. He swears Selena’s explanation captures it. Learn up because we’re going apply it to betting bought media.
In the spirit of movie week, here’s the salient part of The Big Short script (edited for brevity).
Now, let’s return to Danny’s entirely logical premise. Don’t overpay to run ads. But, what if you did?
Your pixels still have to get me to salivate for your beer, click to buy your comfy shoes, or search your site for a low-cost beach vacation. Wile E. Media Co. will use those ads and the monies from those ads to better its product, land more ads, and get new investors.
People betting on Selena’s hand don’t change her cards. Danny’s ads don’t just change the outcome, they improve it. Danny can turn a lousy hand into a good one. But, he’s not a good Samaritan. He should get something for entering into a synthetic relationship with his vendor. He invests in them. He should be vested in the outcome.
I’m no pop star, so I’ll explain how this works using Bill G’s 1983 ESPN deal with cable. “Give me money. I’ll buy better media. People will want ESPN. They will subscribe to cable to get ESPN.” You notice how I can use this example to illustrate damn-near anything — good or bad. Here it’s good.
Cable lived on this model. If a new channel showed up, cable would carry it — in exchange for equity in the channel. In synthetic CDO betting terms, the cable company (COMCAST) bets on the channel (MTV). COMCAST gives MTV a chance to reach its customers. If MTV thrives, the value of COMCAST’s equity goes up.
I’m sure there’s a good reason ad buyers don’t synthetic CDO all the time. Like maybe it’s illegal. But, if you can bet on my black jack bet and someone else can bet on your bet and somehow all of this is legal, then Chand, get Angie on this.
Bill didn’t synthesize CDOs. But when he left ESPN to run Univision, he offered a deal to Nabisco that went something like this. Unvision would give Nabisco $1 million of ads for free. If the ads did what Nabisco wanted them to do, Nabisco would buy $1 million of ads at the regular price. If the ads didn’t work, game over.
Here’s the payoff outcomes for Nabisco. Pay $1 million for $2 million worth of ads that work. Good deal. Or, get $1 million of ads for free. Good deal.
Did Nabisco take the deal?
No. No, they didn’t.
But here’s a situation that did work. In 2017, WPP invested $5 million in the podcast companay, Gimlet Media. WPP is a big advertising holding company. At the time, Gimlet’s advertisers included: Alphabet (which you know as Google), Pepsi, and Ford. All of them were WPP clients. WPP believed in Gimlet. The ads they placed worked for their clients. WPP helped Gimlet thrive. Spotify bought Gimlet for “around” $200 million about eighteen months later. WPP won again.
The ads that WPP bought helped WPP make millions on their bet that Gimlet would win. That’s how ad buyers can play very hard ball.
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P.S. The good folks at Media Makers Meet published my first story! You’ve seen it, but it’s new to dozens of their global readers. Cobus, Jez, If you’re reading this, THANK YOU!