eMarketer estimates that U.S. digital video ad spend grew 56 percent in 2014 to $6 billion. By 2018, eMarketer predicts that U.S. digital video ad spend will reach nearly $13 billion and make up 30 percent of all digital ad spend, up from only 22 percent in 2013.
Our team at Madison Alley has closely monitored M&A and other strategic activity in the digital video content and advertising sector for many years — mindful of the inevitable — that traditional TV content and advertising will inherently be digital — and that video tends to engage consumers much more effectively than static display advertising. Traditional TV has been the leading individual medium for ad spending by far — almost $69 billion in the U.S. alone in 2014 — but this is shifting.
Our insight at Madison Alley is deep in the digital video sector. We’ve been fortunate to work with many pioneers in this sector such as Silicon Valley-based Ooyala, the streaming video distribution and monetization platform which, last year, Telstra invested $270 million to acquire 75 percent, increasing its stake from 23 percent to 98 percent.
In 2014, most of the publicly traded advertising technology company stocks performed poorly, namely: The Rubicon Project (-8%), YuMe (-32%), Tremor Video (-47%), RocketFuel (-74%), and Millennial Media (-78%).
Aside from Criteo (+17%), the only exception to the poor performers was TubeMogul (+222%), which provides a platform for brands and agencies to buy digital video in real-time across all devices. TubeMogul IPO’d in July 2014 at $7 per share and ended the year at $22.55 per share.
TubeMogul distinguishes itself from other ad tech companies by offering a programmatic technology platform that drives higher engagement through video. Adap.tv (acquired by AOL for $405 million) has demonstrated similar success with its programmatic technology for buying video inventory that is now helping drive the growth of AOL.
Interest in digital video advertising is not just in the public markets. 2014 was also an active year for M&A in digital video advertising. As ad budgets migrated from TV to online and mobile video, large Internet advertisers have been completing strategic acquisitions to expand into video advertising.
The growing penetration of new video-capable devices, increased popularity of video streaming services and cord-cutting are fundamentally changing the TV industry as viewership migrates away from linear TV.
Below is a recap of some of the largest transactions last year. We expect the pace of deals in video advertising to continue in 2015. More attention will be paid to mobile video, which according to BI Intelligence is growing at 73 percent CAGR between 2013 and 2018, second only to mobile display advertising.
For video and other ad formats, mobile requires a different platform than for desktop. Specialized mobile video technology companies that achieve scale can expect active inbound M&A interest from large ad tech buyers.
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Notable Transactions in Digital Advertising
Comcast acquired FreeWheel for a reported $360 million
In March, Comcast acquired video advertising platform FreeWheel for a reported $360 million, over 16 times 2013 booked revenue of $22 million. Considering FreeWheel’s mission to unify television advertising wherever content is viewed, the acquisition highlighted the industry’s move toward addressable TV buys at programmatic scale, at the household or audience-based level.
Opera acquired AdColony for $75 million of cash upfront and up to $275 million in earn-out payments
In June, Norway’s browser provider and mobile ad company Opera acquired AdColony for $75 million in cash and potential earn-out payments of up to $275 million. The move strengthened Opera’s mobile video ad capabilities and highlighted its focus on engaging ad formats such as rich media and video.
Facebook acquired LiveRail for $400-500 million
In July, Facebook acquired LiveRail for a reported $400-500 million. LiveRail, a video supply-side-platform (SSP), helped premium publishers to monetize video inventory by optimizing revenue between ad networks, agency trading desks, demand-side platforms and direct sales. The combination of Facebook’s powerful targeting and brand relationships with LiveRail’s yield optimization technology and publisher relationships gives Facebook an edge in competing for video ad dollars.
Telstra acquired an additional 75% of Ooyala for $270 million
In August, Australian telco operator Telstra invested $270 million to buy an additional 75 percent of Ooyala, the streaming video distribution and monetization platform. The transaction increased Telstra’s stake to 98 percent. (It already owned 23 percent from its $61 million investment.) Now operating as a subsidiary of Telstra, Ooyala continues to serve its existing clients of cable networks, movie studios and major publishers.
Yahoo purchased BrightRoll for $640 million
In November, flush with a $9.4 billion windfall from selling its Alibaba shares, Yahoo bought programmatic video advertising platform BrightRoll for $640 million in cash. Brightroll is Yahoo’s second biggest acquisition after its $1 billion purchase of Tumblr. BrightRoll is a profitable business with net revenue projected to exceed $100 million in 2014. The acquisition is accelerating Yahoo’s advances into digital video, making its video advertising platform one of the largest in the U.S.