Videology Declares Chapter 11, TTD Pops

Two events this week highlighted the trends unfolding in digital media buying. The first was Videology declaring Chapter 11 bankruptcy, and the second was TTD's earnings report. In this Lift Letter, we discuss briefly what happened in each and what this means for the industry.

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Bankruptcy in America does not mean the end of a company - that it's going out of business, or even anything of the similar. Briefly, a debtor (the company with more liabilities than assets) can declare bankruptcy using a relevant chapter of the bankruptcy code - this will define the proceedings. Chapter 7, for example, is conventional liquidation with a trustee appointed to oversee the sales. Chapter 9 is exclusively for municipalities. Chapter 13 is generally about coming up with a payment plan that the debtor can sustain while remaining viable. Chapter 11, which Videology filed, is about a complex reorganization of the company's business while it continues to operate, to restructure its liabilities. Companies like GM and United have filed Chapter 11, re-emerged, and still continue to operate. Creditors and the debtor work to define a viable plan that generally results in equity losing almost all of its interest in the company, debtors taking a cut in the amount they're owed, and the company emerging revitalized. 

As discussed above, Videology declared Chapter 11. Amobee, which bought Turn at what many considered a steep discount of $310M in early 2017, has an offer outstanding for $45M to purchase Videology. The company has raised at least $120M in equity financing, and it has at least an $80M line of credit outstanding. Bankruptcies are administered by the courts, and court filings are generally public. As a result, the creditors are part of the filing. It was thus evident that GroupM was among the largest creditors for Videology, being owed $35M. This is somewhat notable as the only two obvious explanations are prepayments for reserved inventory or rebates. GroupM also owned around 3% of Videology's equity. Amobee's purchase of Videology is not final, is subject to other bidders would could still come into the process, and would need to be approved as part of the bankruptcy. 

Videology was founded by Scott Ferber - a somewhat famous character in ad tech who had founded and sold advertising.com, which AOL ultimately purchased. Videology started in 2007 as a Hulu competitor, and pivoted to monetization in 2012, purchasing LucidMedia that year. The company has been aggressively repositioning towards programmatic TV ad buying recently, but it was likely ahead of the industry in this regard - especially as it relates to being a primary line of business. Videology is among a crop of video-focused companies that included Tremor, YuMe, etc that mostly started as video ad networks. In the early days of digital video, two characteristics defined the industry. The first was that the inventory was often premium, meaning it would sell out in advance, have less remnant, and frequently could command prepayments that would effectively be arbitraged by the ad networks. This also meant the inventory was expensive and, as a result, a common target for fraudulent actors. Like nearly all things in ad tech, video increasingly moved to be purchased programmatically. The notion of a stand-alone video DSP became less compelling as the larger DSPs developed omni-channel capabilities, including video. Assuming Amobee eventually acquires Videology, there would be no remaining independent scaled video DSPs. 

The Trade Desk, meanwhile, announced its Q1 earnings this past week. The company's market cap increased over 40% as a result and it is now valued at above $3B. TTD's 2018 Q1 revenue increased 61% over Q1 2017, with mobile and video ad spend doubling. The company continues to lay the groundwork for connected TV. This is ultimately speaking to the value that they're seeing in presenting themselves as and offering an independent and unbiased omni-channel media platform. This is the same approach we've increasingly seen on the buy-side throughout the industry - once Adobe bought TubeMogul, they began to build out its omni-channel capabilities. Turn/Amobee has historically lacked as effective a video-buying platform, which would be remediated with Videology. RhythmOne added video its display capabilities with YuMe. This increasingly appears to be the strategic path that is proving the most successful with digital marketers.