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The Danoo, NCM partnership: A watershed moment for DOOH media

For the U.S. Digital out-of-home media sector, Danoo's acquisition of IdeaCast and its new collaboration with National CineMedia is an impactful event.  

July 12, 2009 by Bill Collins

Danoo announced last week that it acquired IdeaCast, a provider of advertising in the rapidly expanding captive television category. As part of the deal, National CineMedia, LLC (NCM), operator of the largest digital cinema network in North America for cinema advertising, and Kleiner Perkins Caufield & Byers (KPCB), a venture capital firm, will each hold a minority interest in the new company.

This deal breaks new ground because, to date, National CineMedia has been the most profitable large-scale innovator in the U.S. Digital out-of-home (Digital OOH) sector. With this deal, NCM has found in Danoo a smaller, well-funded and innovative partner that can help the cinema-advertising giant expand outside of its very strong base inside movie multiplexes.

NCM has scale, growing revenues, a big market cap, and a strong sales force with six to seven years of experience successfully selling Digital OOH advertising in the U.S. market. According to the terms of the sale, both NCM and Danoo's leading investor, the Silicon Valley-based venture-capital firm Kleiner Perkins Caufield & Byers (KPCB), will hold minority interests in the new combined company. Both the venture capital (VC) firm and Denver-based NCM will have seats on the merged company's board of directors.  Mediaweek's Katy Bachman reports that  "Conveniently, Danoo's new New York City office will be across the hall from NCM."  Danoo's corporate office is located in San Francisco. IdeaCast is based in Chicago.

National CineMedia: Bringing cinema ads into mainstream advertising

For example, in its most recent quarter, NCM reported quarterly advertising revenue of $60.1 million, compared to $53.7 million in revenue for the comparable 1st quarter of 2008. NCM's national theater network includes approximately 16,800 screens in more than 1,325 theatres in 46 of the 50 states, reaching more than 660 million moviegoers in 2008. A publicly held company (NASDAQ), NCM has a market capitalization of $543 million. This market heft dwarfs the size of any other U.S. Digital OOH network.

For the overall U.S. digital-cinema industry (which includes NCM's chief competitor, Screenvision) total advertising revenue reached more than $571 million during 2008, according to the Cinema Advertising Council (CAC). The CAC reported last month that total revenues from U.S. cinema advertising has grown an average of 21.5 percent per year since 2002, with 2008 revenues reaching a level that is almost triple that of 2002.

Although for many years NCM has been seen by many industry observers as part of the emerging Digital OOH sector, up to now it has largely defined itself as a cinema-advertising firm. For example, although NCM was a founding member of the CAC in 2003, it has thus far declined to join the Out-of-Home Video Advertising Bureau (OVAB), the leading U.S. industry body which promotes Digital OOH as an advertising medium.  [Danoo is a member of OVAB.]

In the Mediaweek article cited above, it reports, "Aileen Lee, a partner with Kleiner Perkins [Danoo's VC investor] who has served as CEO of Danoo for two years, will head up the combined company until a new CEO is named. Jason Brown, president of sales and marketing for IdeaCast, will manage sales for the combined company. ‘It's an amazingly complementary fit,'" Mediaweek quotes Lee as saying.  

• IdeaCast's Health Club TV network which is installed in approximately1,000 health clubs across more than 100 local markets, 
• IdeaCast's Airline TV network, which in-flight airline passengers travelling on JetBlue, Frontier and Continental airlines can view on 7,800 seatbacks,
• Danoo's City Network, which is currently located in about 850 coffeehouses in Boston, New York City, Chicago, Los Angeles and the San Francisco Bay area, and
• Danoo's new Traveler network, which it is currently rolling out to newsstands and gift shops at about 25 major U.S. airports such as Atlanta, Los Angeles and San Francisco. 
• Danoo will have what the company calls "synergies with NCM's network in terms of technical infrastructure, operational support and sales staff.

To understand how and why this deal is a watershed, it first must be pointed out that Danoo, with less than 1,000 screens prior to this deal, still is not a particularly large network. Currently many Digital OOH networks in the USA and around the world beam content to audiences that are much bigger than Danoo's reach.

However, when one takes a closer look at Danoo – its innovative use of user-contributed and interactive content, its 30-person team (both technical and creative) based in China, along with its very deep pockets and management expertise from its Silicon Valley-based VC firm – it's clear that the Danoo/NCM collaboration is an emerging game-changer for the U.S. Digital out-of-home media sector. Consider the following about National CineMedia and Danoo:

Last year National CineMedia (NCM) created a new consumer website,www.ncm.com, which engages movie-goers about the movies shown in theaters where NCM offers its "First Look" content block of programming and advertising that is shown before the start of the feature films.  This new website includes a list of movie show times, a chance to view special interviews and features about current movie releases, and a social-media component a la Facebook.com that allows movie fans to interact and socialize.

On July 3, NCM launched an interactive polling promotion called "r8 it" where movie-goers are invited to use their mobile phones to rate some aspect of the movie that they just viewed. This invitation to "r8 it" is issued during NCM's First Look pre-feature programming, on digital screens in the lobbies and also via print handouts which movie-goers receive at the box office when they buy their movie tickets. The results of the "r8 it" ratings are posted on the new NCM website and on a new "r8 it" smart-phone application. Winners receive free movie tickets for one year.

Danoo – perhaps more than any other Digital OOH network serving U.S. audiences – is leveraging talent outside the USA. This talent based in Beijing, China – both technical and creative – is helping Danoo control costs and produce quality content with the localization and in the volume that the medium requires. Danoo employs 30 staff people in Beijing. According to Aileen Lee, five of those people are full-time creative people, working largely with 2D, FLASH and motion graphics. Three people in Beijing are program managers, with the remaining staff doing software development work (Danoo's network is controlled by its own home-grown software). In order to facilitate communication between the Beijing-based staff and the San Francisco-based staff, the Danoo CEO said that at least three people from Danoo's technical/creative team on both sides of the Pacific are bilingual and have experience living in both cultures. Lee herself is an Asian American who spent time at Fudan University in Shanghai.

Danoo's venture-capital backer, Kleiner Perkins, has a very strong track record in bankrolling successful companies going back more than 35 years. According to Lee, the VC firm vetted many investment proposals submitted by advertising-based Digital out-of-home networks before it decided to give its imprimatur to Danoo. Since its founding in 1972, Kleiner Perkins has provided early-stage financing and management assistance for well-known firms such as Amazon.com, AOL, Compaq, Drugstore.com, Genentech, Google, Lotus Development, Macromedia, Sun Microsystems Verifone and Zagat.  

Today, Kleiner Perkins (KPCB) is leading the financial sector in the funding of Apple iPhone-related technologies which potentially could speed the development of interactive features to enhance Digital out-of-home networks.  This year Danoo announced some significant initiatives -- which Aileen Lee said are producing "great results" – to encourage Danoo viewers to use their smartphones to interact with and download content from the Danoo screens. Recently KCPB created the "KPCB iFund," which the VC firm calls "a $100M investment initiative that will fund market-changing ideas and products that extend the revolutionary new iPhone and iPod touch platform." According to the venture-capital firm, the new $100M investment fund will target "location-based services, social networking, mCommerce (including advertising and payments), communication, and entertainment," which sounds like a snug fit for Danoo.

Danoo does not express much interest in developing networks where the viewing experience is more ambient (for example inside clothing stores). According to Aileen Lee, Danoo likes venues such as airports, coffee shops, movie theaters, and other places because viewers are clearly captive, and thus "have the ability to engage" with screen networks. Danoo, Lee said, prefers to serve what it calls a "consistent and high-quality audience" which targets "hard-to-reach mobile, urban professionals and frequent fliers."

Bill Collins is principal of DecisionPoint Media Insights (www.decisionpointmedia.com).  DecisionPoint produces custom audience research for Digital Signage networks. It also provides B2B go-to-market strategy consulting for companies that market B2B products and  services to the Digital Signage industry. Bill Collins can be reached atBill@decisionpointmedia.com.