In: Real Estate

The Shark Tank: ABC’s reality show about a room full of high-powered executives listening to ideas from entrepreneurs in exchange for a percentage of the company.  But what if instead, ABC offered some of its advertising inventory, maybe even a spot or two on The Shark Tank, in exchange for a piece of your company?  What would that be worth?  That’s the new business model emerging in Europe and Asia for media companies and entrepreneurs.  The Economist calls it, “air for shares,” and it’s proving to be an intriguing new way to monetize advertising space for media syndicates and television network groups, as well as venture capital firms that aggregate media space across multiple platforms.   


One such aggregator is German Media Pool, a firm that uses several different media partners, effectively managing a vast advertising inventory on consignment, everything from TV spots to billboards.  When a promising startup is identified, a deal is made for a piece of the company in exchange for use of the multiple media platforms at GMP’s disposal. This saves the start-up precious cash, while simultaneously boosting its market presence.  This approach has been taken even further by the Swedish company Aggregate Media Funds. Like GMP, AMF pools excess advertising space provided by 15 Swedish media companies that are shareholders in the fund and gives it to start-ups in return for the equity stake. Once AMF invests in a company, they launch an intensive marketing and consulting campaign.  This strategy has worked especially well for e-commerce startups such as Mathem, an online grocery store, and OutNet and BabyShop, which provides online sales of camping products and baby ware. After their successful launches through AMF, all of these companies recently received major second-stage funding from the prominent Danish venture cap firm Verdane.

The ad space for equity model is also being employed by major media companies directly.  German television syndicate ProSieben, which has 28 stations and over 62 million households, is probably the most aggressive operator in this field.  They have formed a subsidiary company solely in charge of their advertising-for-equity program called Seven Ventures.  The criterion that Seven Ventures lists for its program is that the startup has not appeared on any television.  At the time of ProSieben’s advertising-for-equity’s inception, they already had 10,000 orders requesting media space. As of 2010, they decided that their portfolio will constantly consist of at least 20 companies.  Such an innovative business approach has very successfully expanded the television company’s stake in other industries such as video advertising, digital websites, online dating, travel guide sites, and even music labels. ProSieben’s investment in startups in the digital sector has not only increased its online portfolio but has expanded the company’s bottom line as well.  In 2011, in a down market, revenues from Seven Ventures rose by 9.8% from the previous year. Currently, the advertising-for-equity program has become so relevant to the growth of ProSieben that they include it as one of their four main business pillars.

Although there have been numerous success stories as a result of this business model, the concept is risky and further raises a number of ethical questions for media companies.  Obviously not every company is as marketable as hoped for, and the incubation process can take years.  That risk, however, is fundamental to venture capital.  Even more problematic is the conflict between a network’s reputation as an unbiased provider of content, and neutral advertising platform, and its position as an owner of a portfolio of companies.  An example of how the strategy can go wrong occurred with Indian media conglomerate Times Group which runs an advertising-for-equity program through its subsidiary Brand Capital.  Over 6 years of existence, Brand Capital has helped launch over 400 companies, including a number of current industry leaders.  However, in 2009, Brand Capital ran afoul of India’s stock market regulations when it was discovered that a Times Group journalist was conspiring with investors to pump up the share price of an invested startup.  Absent transparency, it may be difficult for the general public to really know who is being invested in and who is not.  Networks engaging in venture capital activities may need to disclose their positions, both to the viewers of their programming, and to their customers who are paying cash for the network’s advertising space.

Here in the United States, the model seems to hardly have made an impression at all. The penetration of social media raises the question of whether the “air for shares” model may also be applicable to Facebook or Twitter. Wahooly, a firm based out of Minneapolis, has slowly been using this concept without being a big-time media conglomerate.  Through Wahooly, subscribers can gain a small percentage of startup companies by using social media to raise the profile of the startup.  If the company gets a certain number of Twitter “posts” or Facebook “likes” due to an individual, that individual can gain 1-2% of the startup at no cost. Wahooly chooses its client startups by surveying their market potential but after that, the power lies with its subscribers to spread the word across social media.

The idea of media companies acting as venture capitalists seems extremely promising, even considering the potential risks and conflicts of interest.  Newspaper chains facing a sharp decline in the value of their advertising inventory would seem to have nothing to lose and everything to gain from this model, especially as the model often involves the use of excess advertising inventory.  Similarly, distressed television syndicates, such as Tribune, could effectively barter air time to gain footholds in e-commerce ventures, thereby diversifying their business portfolio into the internet sphere. If this model can work for a company as significant as ProSieben, one wonders why it has not garnered supporters here in the United States.  Certainly, every possible avenue for growth in advertising revenue for media companies should be explored.

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