Video ad delivery management service Extreme Reach’s $525 million purchase for competitor DG’s TV ad business unit is only the beginning of what is shaping up to be a shopping spree, according to its CEO John Roland.
Extreme Reach has three basic product lines that Roland wants to develop very quickly, perhaps by the end of this year. There’s the company’s primary TV business, it’s relatively new online ad management and workflow services business, and a commercial talent business.
“We’re looking for acquisitions in all three of those lines, as way to get greater scale,” Roland said. “We’re talking to a few companies in those areas right now, so these deals could be nailed down fairly quickly.”
Extreme Reach’s acquisitiveness comes at a time of frenzied deal making in the ad tech space — witness Millennial Media’s $193 million agreement to buy rival Jumptap — and the video ad space in particular. Companies are either going public, like video ad networks Tremor and YuMe, or they’re getting bought, as with AOL’s $405 million purchase of programmatic video player Adap.tv.
While Extreme Reach has dispatched a rival to its main TV ad business, Roland doesn’t feel it will automatically be hegemonic by the time the deal clears in the first quarter of next year. For the most part, DG’s TV assets tend to overlap with Extreme Reach’s similar ones across geographies and in technology.
“We compete against Comcast, against Deluxe Entertainment Services, and six or seven internet companies and six or seven intermediaries,” Roland said. “This is a very crowded space and it will remain so for some time. There are a lot of efficiencies we can take advantage of now in our TV business unit, which will allow us to further integrate the volume of DG’s ad deals with ours.”
Even as Roland turns Extreme Reach’s view toward ramping up the online ad delivery business the company started in mid-2012, managing the process of TV and IP video convergence remains top of mind.
“It’s all going to come together within the next five, 10, 20 years,” Roland said. “What’s core to every screen, whether you’re talking about a laptop or a PC or TV, the 30-second commercial, which is the primary way of engaging the consumer with sight, motion and sound, is going to remain an expensive line item for marketers.
“If it’s high quality, you’re talking about $300,000 to produce a commercial,” Roland said. “Our central theme is that dynamic isn’t going to change. That’s why workflow is the key to our business.”
In the meantime, like DG, online is emerging as the fastest growing area of Extreme Reach’s business. Unlike its rival and current deal-partner, online represents a small amount of Extreme Reach’s revenues (DG has seen online comprise about half of its revenues these days, up from a mere 8% three years ago).
Even so, Roland doesn’t expect massive amount of TV budgets to suddenly shift online. “TV works best for driving brand and that’s not going to change in the near term,” Roland said.
The deal between the two comes a year after Extreme Reach failed in its attempt to buy digital ad management company DG’s TV assets in a deal valued at $550 million. Why did it work out now? In part, Extreme Reach received continued support from its investor, Spectrum Equity, which took a minor stake in the company in exchange for $50 million earlier this summer.
Roland said, “Simply put, deals get done when both sides are ready. That was the case here and now.”
