Recession-busting revenue streams

As the recession forces media businesses to diversify away from advertising, Steve Hemsley reports on how agencies and media owners are devising imaginative new business models to beat the crunch

Recession-busting revenue streams
Recession-busting revenue streams

The ability to think up additional revenue streams when times are hard is a useful knack for media agencies and owners to possess.

There will always be a demand for traditional advertising, but there are times when creative business models can turn a poor year into one that everyone agrees was not as bad as it could have been, considering the economic climate.

MediaCom's restructure in April following the demise of its digital division Media.Com gave it the perfect excuse to consider new ways of making money. The Beyond Advertising business model that rose from the ashes allowed the agency and its clients to think differently about non-traditional advertising opportunities linked to gaming, word-of-mouth, search and social networking.

Chief strategy officer Sue Unerman says: "It is a media agency's job to increase its clients' business, so you have to give clients more than one leg to stand on. Media owners who would previously have contemplated only one form of trading are now more open to different partnerships, and there is more interest in sharing the risk."

One example of MediaCom's non-traditional approach was the July launch of an online presence for comedy club chain Jongleurs, involving a revenue-share agreement. The website incorporates live web streams from Jongleurs' venues and additional content available on a pay-as- you-view basis, with the aim of getting more people through the comedy club's doors.

Unerman adds: "We only get paid if people watch the content sold online, so this is a winning situation for both the agency and the client. The future has to be about more subtle ways of trading."

Jed Glanvill, chief executive at Mindshare, is another well-known advocate of diversifying away from pure advertising revenue. He points to Mindshare's non-media-related earnings from project-based business planning, where clients tap into its research and modelling expertise. Revenue from this stream increased 30% over 2009 and Mindshare is also being paid for creating digital and experiential content for clients including Ford, Nike and First Direct.

Another growth area for Mindshare is using digital PR to support social media campaigns, a revenue stream that is up 50% this year. Glanvill adds: "PR is a natural extension for us because Mindshare is all about increasing word of mouth for brands. In the digital space, these two marketing disciplines collide."

The recession has also meant hiring new skill sets and Mindshare has recruited technology experts as well as account planners and staff with management consultancy experience to provide the business planning skills it needs.

Kinetic Worldwide is also experiencing more demand for its non-core services, particularly around data, and chief executive EMEA Simon Crisp says clients will pay to access agencies' huge databanks. He explains: "We did some media intelligence work with Samsung, where our data was used to show the client's retail customers how outdoor advertising drove footfall to their stores, and this helped Samsung's relationship with its clients."

He adds: "Media agencies must start thinking of themselves as professional services firms. If the advice we gave clients was from McKinsey or KPMG, you would see a couple of noughts added on."


Revenue opportunities

Meanwhile, Engine Group has continued to collate marketing and media businesses during the recession, with planning agency Edwards Groom Saunders coming under the Engine umbrella in March.

Engine managing director Matt Edwards says communications planning was a gap in the agency's service it needed to fill, and that its business model presents many opportunities to gain extra revenue from clients. He explains: "There is a lot of cross-pollination where a client who is using us for one particular service asks us to help them in another area."

For example, News International asked Engine to arrange roadshow events to promote the News of the World's Fabulous magazine, and then asked it to run direct marketing campaigns for The Sun and the NoW without a pitch. Similarly, Engine's involvement in the Radox "Be selfish" campaign expanded into PR, as its specialist division Slice PR worked with an author to produce a waterproof book called All Steamed Up for reading in the bath.

But not every agency feels the need to diversify or cross-pollinate to such a degree. Simon Davis, managing director of Walker Media, says agencies should use the downturn to focus on their core strengths and develop existing relationships with clients to support each other through the downturn.

Davis, whose agency has a nine-year relationship with M&S and a six-year relationship with KFC, says: "It can be tempting to diversify and find new revenue streams, but we share our clients' challenges: some are still having a good time while others are not. We have to offer a better level of service to justify our fees."

For media owners, the need to find new ways of making money is just as strong. ITV has struggled to make new business decisions because of the uncertainty over its next chief executive, but it has run more advertiser-funded programming. For example, Morrisons' sponsorship of the 10-part Farm Camp for CITV was designed to encourage children to think about where their food comes from.

The broadcaster is also focusing on driving viewers to ITV.com, where it can promote additional advertising opportunities to clients. In October, ITV Studios Global Entertainment launched a direct-to-consumer Coronation Street online store, powered by online retail company Digital Stores. The site, which is part of the official Coronation Street website and also carries exclusive features and episodes, is selling more than 30 different Coronation Street products for Christmas.

ITV has devised a further revenue stream by allowing brands to tap into successful TV formats more creatively. Sainsbury's is providing The X Factor finalists with cooking lessons to help them live together, under a partnership between the supermarket, ITV and Fremantle, with content aired on The X Factor/ITV website. A similar deal is in place with L'Oreal, which is sharing make-up tips.

An ITV spokesman says: "This is all about finding ways to earn money from content on different platforms, and these bolt-ons will be extended to other shows such as I'm a Celebrity and Britain's Got Talent. What we do beyond that in terms of additional revenue streams will be up to the new chief executive."

At the Association of Online Publishers' 3C Summit in October, outgoing Channel 4 chairman Luke Johnson told delegates to remain innovative and imaginative during the worst recession in modern times, and C4 appears to have heeded his advice.


Driving viewers

For example, when Tropicana wanted to engage with discerning, upmarket food-lovers, the broadcaster created an ident that allowed Tropicana to leverage the food site Channel4.com/food in a commercial break. The 30-second spot used footage from Tropicana's advertising campaign to drive viewers online, where they could win VIP passes to Channel 4 Taste festivals in London and Edinburgh.

Head of strategic sales Mike Parker says original commercial partnerships are "vital" and is working on further partnerships that he is not yet ready to announce. "We must make TV advertising more effective and use it to engage viewers with brands so it is about more than just encouraging them to make short-term buying decisions."

Of course, when money is tight, media businesses can always revert to the oldest form of commerce: bartering. Many brands and media owners have increased their work with media barter agencies during the downturn and Miroma, one of the UK's largest barter firms, claims to have increased its turnover 120% to £20.2m this year.

One film distribution company worked with Miroma to use its back catalogue DVDs to generate an advertising budget for new releases, while office space provider Regus gave excess space to Miroma to fund a poster advertising campaign.

Miroma chief executive Marc Boyan says: "This approach means a client that has had its budget cut can still have the campaign it originally wanted, and the media agency's fee and the media owner's earnings are protected. Barter is also a clever way to get rid of excess stock. It is not unrealistic to imagine the media barter industry will account for a sizeable chunk of UK advertising spend within four or five years."

Boyan is ambitious because the traditional ad market will be far healthier in five years' time, and the ancient art of barter will have to fight for position among the imaginative new business models that were hatched in the recession of 2009.

 

Stacking the shelves: VBS trades with retailers

Viacom Brand Solutions has earned more than £700,000 in incremental revenue since it launched its Force for Enterprise business model one year ago.

The initiative was designed to help start-up businesses and brands with no TV advertising budget increase their distribution and sales through exposure on the small screen.

VBS has worked with clients such as Little Dish, Random House, Nelson Pure and Clear, Halos & Horns, Ascentis, Casdon, Raleigh and Brit Chicks Productions.

Retailers are told that VBS, the sales house for MTV, VH1, Nickelodeon and Paramount Comedy, will guarantee airtime if its client's products are put on the retailer's shelf. The launch of Force for Enterprise follows VBS's Force for Good initiative, which used TV advertising to address social issues.

Managing director Nick Bampton says: "When the economy went wrong we wanted to get ahead of the curve and work with advertisers who, for whatever reason, had not used TV before. We are showing brands that TV advertising not only persuades people to buy a product, but boosts retail distribution over the longer term."

He adds: "This model works so well because we are completely aligned with our clients' objectives. Force for Enterprise is great for small companies trying to establish themselves because we want them to do well too."

Client Little Dish, which makes ready-made meals for pre-school children using natural ingredients, has almost doubled its retail distribution following news its products would be advertised to parents on Nickelodeon.

Managing director Hillary Graves says: "This is a creative business model that has been fantastic for us because we did not have a TV advertising budget. Prior to the campaign, Little Dish ranges were stocked in 260 Tesco stores, but VBS's involvement has pushed that up to about 500."

Overall, sales of Little Dish meals in the year to date are up 45% on the same period last year, while the total chilled kids meals category has been boosted 12.5% since the Little Dish campaign launched in May.

 

Cashing in: 10 money-spinning schemes

1) Product placement

Women's website iVillage has increased monthly revenues by an average of 17% since it started allowing product placement in its editorial content in July. This revenue stream - positioned under the "iVillage recommends" banner - will account for 10% of turnover next year.


2) Training courses

Arena BLM's digital offshoot BLM Quantum has earned £20,000 from a handful of digital marketing training courses sold to clients. Attendees to the Q Academy each pay £595 and the most popular course is "Fast track to digital marketing".


3) Till-roll ads

Following 20,000 bus ticket campaigns, Ticketmedia has diversified into till-roll advertising to allow clients to promote themselves and third-party brands.


4) Syndication deals

Virgin Media has joined forces with IPC to launch online TV channel Liv, offering free made-for-web content that can be downloaded via YouTube and Facebook. Further third-party syndication deals are planned.


5) Test drives

Auto Express publisher Dennis Publishing has teamed up with contextual lead generation company Dianomi to offer readers test drives. Magazine readers can book test drives while reading an editorial review of a car, and revenue is shared on a cost-per-lead basis.


6) Intellectual property

Independent digital agency Holler is moving from co-creating content to owning the intellectual property of its ideas. Founder James Kirkham will market the scheme through its broadcast clients, including Channel 4, and the first examples will be unveiled in early 2010.


7) Membership schemes

The Times and The Sunday Times have launched the membership scheme Times+ to retain readers and generate direct revenue streams. For £50 a year, members receive special offers and access to exclusive events.


8) Music partnerships

Euro RSCG bought a 51% stake in music label The Hours last year in the hope the label's artists will create original music for its clients' ads. If the deal works, the agency has the option to increase the stake to 100%.


9) Brand extensions

Bauer Consumer Media launched Project Tower, in association with Endemol, to extend its magazine brands into television and radio. Bauer has co-production deals in place and it has enjoyed success with various brand extensions. For example, Heat Radio hit an audience high of 623,000 in Q3 2009 (source: Rajar).


10) Publishing

UTV Media's TalkSport has produced a book in time for Christmas, chronicling the radio station's first 10 years. The book is on sale at £12.99.

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