10 Questions With RhythmOne About Last Week's YuMe Acquisition

Last week, the U.K.-based digital advertising technology company RhythmOne announced a completed exchange offer to acquire YuMe. Since the announcement was brief and the company isn't as well known on this side of the Atlantic, we spoke to RhythmOne chief operating officer Dan Slivjanovski about what his company does, why it targeted YuMe, and what their merged future looks like.

Tell us about RhythmOne for our readers who don't know the company.

RhythmOne seeks to provide connections between advertisers and audiences, primarily through a unified programmatic platform which we call RhythmMax. The company was founded in 2004, really in the space of internet video search and we've since grown. We're traded on the AIM exchange, or the LSE, in London, so we're a public company since 2007. Essentially, the primary value prop is to offer as efficient and effective a marketplace as possible for digital advertising.

As a bit of background, I think when we look at the digital advertising landscape and how it's evolved and where it's going, we are strong believers that the value chain, once upon a time, was simple. It then got somewhat convoluted and complex with the advent of ad tech, and we saw new nodes enter the chain with all of these intermediary solutions around SSPs and exchanges and BSPs. That stack is again simplifying where the landscape of the future will be fewer, bigger, better-integrated providers that draw material value-add for advertisers. We've engineered our stack to match that definition.

Again, we match advertisers and audiences at scale. We do it primarily programmatically, and through the platform we've both unified the entire supply chain taking out intermediaries and making that circuit as efficient as possible. We can also serve ads across audiences, across all devices, across all formats, and with some very unique material value-added features especially in terms of how we use data for audience targeting and proprietary filtering for brand safety, so eliminating fraud and encouraging viewability.

Why did RhythmOne decide to acquire YuMe?

You know, YuMe is a terrific company. I think it brings benefits in a few different places. If you think our solution as having an exchange component that's sort of the pulse of the programmatic platform with supply inputs and demand inputs, YuMe, essentially plugs in on both sides of the exchange. On the demand side, YuMe brings strong relationships with agencies and brands and so it's that demand component that we would expect to help drive throughput into the exchange, especially as we sell more and more inventory as packaged baskets or PMPs. Then, on the supply side, YuMe brings emerging high-value video and connected TV inventory, which of course are rising stars in the category. So again, benefits on both supply and demand sides and both their supply and demand additions are expected to increase liquidity through our programmatic platform, which again, is the core focus of the company.

What does YuMe bring to the table that RhythmOne lacks?

YuMe brings a significant global direct sales force and RhythmOne primarily through acquisitions has acquired a sales footprint, first through its RadiumOne acquisition and now YuMe. If you think of it, those two teams, or corps of sellers, represent performance advertising and brand advertising, leveraging relationships with agencies, which puts us that much closer to the buyer in terms of representing our inventory, which is tailored and packaged to fit specific campaign needs. That's one primary area.

The second is the inventory addition that we expect through YuMe, specifically around video and connected TV, including controlled supply by their SPK. All of that would net additive to the equation.

Are there synergies between the two companies?

There are absolutely synergies. We've quantified what we expect in terms of cost synergies. It's somewhere roughly in the neighborhood of $10 to $12 million on an annualized basis, primarily in the camps of eliminating redundant public company listing fees, eliminating or consolidating redundant vendor relationships, and then back office and staff costs, which are overlapping. We also do expect revenue synergies, although we haven't benchmarked those, so it would be selected disclosure at this point.

How will this benefit customers?

I think if you look at the way the industry is going, we're going from a place of more fragmentation and more chaos to a landscape where there's more simplicity and unification. The customer, at the end of the day, who underwrites the entire equation for the online experience is the advertiser. Agencies are a proxy for the advertiser in terms of selecting media, executing campaigns, and delivering KPIs. Today those agencies have multiple relationships with multiple DSPs, and exchanges, and SSPs, and direct publisher connections. It gets even more complicated because many agencies further segment desktop by mobile, video by display, and so forth. The art of executing a campaign is really one of working through multiple channels and then frankensteining together cogent KPIs for the advertiser.

The benefit of our combination is that we become a greater-scale player that can target audiences across channels and devices using a compendium of formats including display, rich media, social and native, video, CTV, track users across devices, and basically provide one unified KPI picture for that campaign. And so if you think that the world will go from chaos to order, agencies will likely start to consolidate relationships with a bias toward bigger, better, integrated providers that can track audiences across screens using formats and delivering on performance and brand KPI metrics. That is, I think, the biggest benefit of the combination is that is makes us that much more appropriate for that new paradigm.

Does this open the door for new products or services?

I think it certainly does, so we're big believers in programmatic, and I think the data doesn't lie. The audience-targeting benefits of programmatic trading are unequivocal, and I think that advertisers increasingly will use that channel for buying. Where we anticipate growth to come in programmatic is really in programmatic-direct and the packaging of PMPs that provide some additional value-add. We're essentially taking a commodity, timber, and turning it into tables and chairs through data, and brand safety, and so forth. The inclusion of YuMe inventory with our data overlay and our brand safety filters will create even better performing, competitive baskets of inventory that we can sell programmatically as PMPs, and I think that's where a lot of innovation will come.

Similarly, as we strive to create as unified a programmatic platform as possible, we have structurally unified the marketplace. So RhythmOne today has its own SSP, its own exchange, two DSPs, one for brand, one built for performance advertising, and then integrations with best-in-breed third-party DSPs.

An additional component that we want to insert into that value chain is creative development. We developed our own advanced creative platform that allows for the tailoring of creative based on data inputs, things like geo, gender, weather, et cetera. And so that would be yet another benefit that we could provide to advertisers buying through our platform is the idea that creative could be tuned to the scenario downstream on the supply side.

How will the two companies fit together? Will there be staff and other changes?

In the immediate term, YuMe is a wholly owned subsidiary. We expect full integration from a functional level, so the company will not have parallel CROs and COOs, rather there will be one across each of those executive functions. We would encourage all of our sellers ultimately to represent all of our solutions across performance and brand advertising with YuMe being that principal rising star in the brand advertising bucket.

From a go-to-market standpoint, YuMe is bringing a branded solution set to the table where we don't anticipate losing the YuMe brand. We think that there's strong brand equity there when it comes to video and connected TV, rather we would endorse it by RhythmOne connoting that YuMe is now programmatically enabled through one of the biggest programmatic marketplaces in the industry. So again, full structural integration, a little bit of brand separation, but connective tissue through endorsement and we would expect YuMe to be an integral part of what we're selling through the exchange.

What should existing YuMe customers know about this?

We've been fully transparent with the strategy that I just communicated, so all customers have received communications. They understand that their legacy business with YuMe will go on uninterrupted, that there is a broader bundle of solutions which can make their lives easier, and those agents that are working with the customers will be actively cross-selling and representing the broader solution set because there's efficiency in buying that way through our platform. That's one of the primary benefits that RhythmOne brings in the industry.

When will this acquisition close?

The acquisition closed on February 2nd.

What are the company's plans moving forward?

We are acutely focused on programmatic trading and on driving liquidity within the platform. There are a number of, I think, well-understood growth vectors when we look at both RhythmOne and YuMe. In order, one would be additional international expansion. Another would be continuing to improve and bolster what we can represent from an inventory standpoint, and so building our footprint of unique controlled inventory. Another is enhancing rising star formats like video and connected TV hoping to drive both pricing as well as fill rate because that inventory lends itself to private marketplace structures, and then continuing to boost demand. The closer that we can get to the demand source the better because then we can tailor our solutions in response to campaigns as opposed to open auction RTB buying. So we understand those growth factors and their impact that they would have on the business. They happen to be fully aligned with where the industry is going, which is toward consolidation, simplification, advertisers working with fewer, bigger, better partners, so we have a path of execution against that view.

I would say that as a combined company we will absolutely to continue to contemplate both organic and inorganic growth vectors. So the company is on a good organic growth path, especially around programmatic trading. That is the fastest growing area within the company today and has grown consistently year-on-year. I think given what's happening in the industry and the notion that intermediaries may increasingly find it difficult to be self-sustaining we would look for additional bolt-ons or even catalytic acquisitions that can change our fate.

While the last two have been very much on the demand side, you know, both RadiumOne and YuMe, bring a very strong demand footprint, which is meant to encourage throughput into our programmatic platform. I think anything further that we look at, at least in the immediate term, would be on the supply side, looking at inventory that is controlled through technology on page with a good scale footprint of supply. That would be very much additive to our formula. Those are the types of opportunities that we're looking at.

Troy Dreier's article first appeared on OnlineVideo.net