Convergence Strategy Jettisoned By DG; Sells TV Biz To Extreme Reach

dg-extreme-reachSo much for convergence strategy #1.

A move that was long-rumored, publicly came to fruition at 9p. ET last night as DG (formerly known as DG Fastchannel or Digital Generation Systems) announced via a press release that it had sold its TV ads distribution business to its arch-competitor, Extreme Reach, for $485 million.

DG CEO Neil Nguyen and Chairman Scott Ginsburg have decided to re-focus their company’s energy on the online ad business – tentatively known as “The New Online Company” while the particulars are apparently sorted out by the lawyers.

In a remarkable sign of détente, not only will DG sell it’s TV assets to the company run by former Fastchannel executive John Roland, but DG will potentially take an equity stake in Extreme Reach.  Last year, Extreme Reach reportedly made an offer to buy all of DG for $550 million and it was only this past June that Roland predicted his firm would buy a “company or two” by the end of the year.

In addition, CEO Neil Nguyen seems to state in the release that the new online version of DG will go after the ad tech “stack” strategy:

“‘By concentrating exclusively on the digital market, The New Online Company can be laser-focused on meeting the challenges facing marketers due to the massive fragmentation of technologies and audiences,’ said Neil Nguyen, CEO and President of DG. ‘I am excited about the opportunity to build upon the past few quarters’ strong momentum. Our global footprint, market leading campaign management platform and analytics capabilities position us as a major player in the future of digital advertising.'”

MediaMind’s ad server is seen as a strong alternative to Google’s ad serving juggernaut and was chosen by WPP Group’s 24/7 Media, among others, as a “preferred vendor for third-party online ad serving” in 2012.

This deal clears $400+ million of debt that was sitting on DG’s balance sheet. The debt was borrowed to pay for MediaMind (was Eyeblaster) in 2011 and led to the eventual acquisitions of rich media firm Eyewonder from Limelight Networks (2011) and semantic ad technology provider Peer39 (2012) among other pickups.  Don’t forget that Unicast was an early-days acquisition of DG, too.

AdExchanger reported last week that during DG’s belated Q2 2013 earnings conference call DG CEO Nguyen said “that the company’s programmatic business has ‘nearly doubled over the prior year’ largely due to ‘the synergy of our data services, specifically [ad tech provider] Peer 39 as well as integration with the market-leading demand-side platforms.'”

In fact, Peer39’s Alex White told AdExchanger in May about his group’s momentum: “We’re at a point where we’re processing over 50 billion requests to our platform per day, and by Q3 that’s going to expand to 75 billion a day. That’s just out of need. Every six months we need to make some major adjustment to the platform in order to enable the scale of it. We know this from our history with this type of data and this type of environment.

Given Extreme Reach’s private company status and recent $50 million in equity investment, it would not be surprising to see the company attempt an Initial Public Offering in the next year.  Meanwhile, it appears DG will remain public.  As of market close yesterday, DG had a $285 million market cap.

DG and Extreme Reach’s TV ad distribution business was rumored to be $300 million combined in 2012 when DG’s online ad business under the MediaMind umbrella was believed to be generating $150 million in annual revenue.

Ironically, the new version of DG is much like the old version of MediaMind before it was acquired. Could DG’s new “pure play” digital-only focus make it an acquisition target? The new positioning should at least aid DG in the marketplace as its digital tools come into focus.

More to come. Call with analysts is at 8:30 a.m. ET.

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