Nov 11 2021
Cameo Buys Represent and Content x Commerce B-B-P
Over the last few weeks we've tracked various Content x Commerce activations. From Cameo buying Represent and Fanatics exploring RSN acquisitions, to Walmart partnering with Netflix and Barstool, and Shopify partnering with Spotify and Mailchimp. Based on this activity, we explain three different ways Content x Commerce companies go to market via the Build-Buy-Partner framework, and which model we believe is best.Subscribe to our newsletter. We explore the intersection of media, technology, and commerce: sign-up linkLearn more about our market research and executive advisory: RockWater websiteEmail us: firstname.lastname@example.org--EPISODE TRANSCRIPT: Chris Erwin:So, Andrew, our team has tracked, over the past few weeks, a lot of different activations and partnerships within the content and commerce space. Have you been seeing this too? Andrew Cohen:Yeah, definitely. I mean, the convergence of content and commerce is definitely one of our core themes that we cover at RockWater that we help clients on, so always tracking those and definitely feels like over the past couple weeks, been seeing a few big news stories around announcements of deals, partnerships, acquisitions and everything like that. Chris Erwin:So, yeah. I'll go through some of the recent announcements, and then we could talk about what are the different structures that we're seeing in terms of building, buying or partnerships between content and commerce, and which ones do we think are best pros and cons, and then where it's headed. So, with that, let's get into it. Chris Erwin:Over the past few weeks, Shopify has partnered with Spotify to enable artist storefronts and has also announced a partnership with MailChimp and I think TikTok over the past month as well. We also saw Walmart partner with Netflix to create a Netflix branded storefront on walmart.com organized by IP. In addition, another partnership with Walmart and Barstool, which builds upon past kind of media brand partnerships with Camp and Tasty for BuzzFeed. So, a few stats on the Barstool partnership, sold 150,000 units of Barstool's pizza from the first 10 days of launch, and on Buzzfeed Tasty, I think they sold five million units of Tasty Cookware with just the first year of launch. We don't have any data, I think, on how much Squid Game product has been sold, but just to get a sense of that we think the numbers are going to be pretty eye-popping, sales of white Vans have increased by 7,800% since the show debuted, right? Pretty impressive stuff. Chris Erwin:We also saw that Cameo acquired Represent, which is a celebrity merch platform and that Fanatics, I think like a 15-year-old sports commerce company, is exploring the acquisition of RSNs or regional sports networks. So, it starts to raise the question, Andrew, of why is this interesting? What's one of the questions that stands out to you. Andrew Cohen:Yeah. So, what was really interesting to me about this is that it shows this kind of convergence between content and commerce happening through a few different models. You're seeing acquisitions. You're seeing partnerships and outright builds. It's interesting because it's something that we talk to clients and help them work through a lot at RockWater. We work, we specialize in this convergence of content and commerce. We often help commerce brands expand into content and content brands expand into commerce. The difficult question is always how. Do you do it via buy, build or partner? It's really, there's no one size fits all solution. There's no silver bullet. It's really case by case, and there's pros and cons for all. So, yeah. So, to me, I think it's interesting to see a couple different cases represented here. Chris, yeah, maybe we could just walk through it and break down in general the pros and cons of each model. Chris Erwin:Yeah, and even before doing that, Andrew, I think you're right that it is ... When we go to our clients and they're saying, "Okay, we want to enter this new market. Do we build by partner?" it's like, well, that's a decision that you're going to make a few times over a sequence over the next few years, right? So, for example, I think like in the beginning, we often say, hey, your goal is that you want to build enterprise value for the company. You want to drive outsize revenue and financial performance, but you also want to be capital light and lean in the beginning. So, from a sequence perspective, maybe doing partnerships in the beginning to learn, try things out that are low capital commitments, and then as you learn what's best fit and what's the opportunity for you, then you can think about maybe acquiring another company in this space or building out a dedicated team. So, I think that's one important highlight before we dive into this. Chris Erwin:Then, second, Andrew, I think like you said, it's very case-by-case specific. So, for certain companies and certain industries, there might be more acquisition opportunities out there than others. So, it's like, you know what, yeah, it makes sense to buy, but if there's not a lot of acquisition targets, you might say, "You know what? Really want to enter this new market or product category, and I guess we're just going to have to build the team to do that." So, it is very circumstantial. It's important to understand. Andrew Cohen:Well said. So, maybe we can go through it. We'll start with buy, the acquisition route. You mentioned a few. So, we see both content buying into commerce and commerce buying into content. The more common approach that we've seen is commerce buying into content. So, you mentioned Fanatics, the big sports e-comm and merchandiser. They're looking at acquiring some regional sports networks. Hasbro, the major toy company, a couple years ago, they bought Entertainment One, a major film studio. In terms of content buying its way into commerce, you had just mentioned Cameo. They bought merch platform called Represent, but we've also seen other examples of this like MeatEater buying First Lite. So, if we were to break down this approach, the buy route of acquisitions, how do you assess the pros and cons? Chris Erwin:A few quick highlights here. So, pros is buying is speed to market, right? When you compare having to build out a new business unit and hire a new team and really build all those capabilities from scratch, getting to market faster by buying a company that has this unique expertise and all the operations set up and allows you to kind of enter the market and beat out your competition that isn't there is very valuable. Yeah, I think it's really hard to build these capabilities. If you're a content business, your DNA is in creative and building amazing content experiences for audiences. That's very different DNA than building out a supply chain, developing product and getting in the hands of your consumers and vice versa. Chris Erwin:So, I think some cons though to highlight is that there's often in M&A, there's an acquisition premium to take an asset off the table. You have to convince leadership, founders, investors, and the board that it's like, hey, the value that you're going to get from us buying you versus you continuing to run your company, you're going to have to pay up for that. Then, you can enter deal conversations, Andrew, and a deal, more likely than not, is not going to get done because you got to reach out to the target. You got to go through their representation. You got to line on a growth vision, agree on a price, get a bunch of lawyers and accountants involved, do your due diligence, see where the bodies are buried. At the end of the day, you might go through 18 months of talks, and then a deal doesn't happen. That's wasted time where you could have just said, "Should've just built this out ourselves." Chris Erwin:Then, in addition, once you buy the company, almost in a way, that's like the easy part. Integrating the operations where you're aligning on the growth vision, is the leadership going to come together? They're going to be like one leadership from just the acquisition target or from the acquire. How do you get the different teams and the cultures on the same page? Then, the un-sexy stuff like integrating offices and software, that's a lot to do there. That could be a lot of friction, and that takes time, and that takes money. Andrew Cohen:The next approach of build, building it out themselves. So, we see commerce building into content. Most famous example being Amazon building out Amazon Studios, Amazon Prime Originals, Amazon Live. Shopify, another example. They actually recently built out Shopify Studios, which is a film and TV studio. Mattel Studios, they are kind of emerging as one of the major traders of features with 17 premium films in development, but we're also seeing content building in the commerce. A couple weeks ago, we saw Netflix announce that they're building out Netflix Shop. Food52 has done a really great job of building out their owned and operated cookware line. So, Chris, we talked a bit about the pros and cons of buying a company. How about building into a new space yourself? Chris Erwin:So, some of the pros here, it can definitely be cheaper than buying. You're not paying that acquisition premium, right, but we've seen the examples where actually trying to build a team yourself can be more expensive so that's one that there's nuance too, but another pro is that you can build as you see fit. So, you can closely align the content team with the product development teams from day one, right, where the content team is building out content that is getting consumer feedback and intelligence, and also creating content that specifically highlights products that you feel are higher margin and are better for consumers and that flywheel for how that all works together. You can set that vision from day one of when you're building and execute against that exactly versus trying to put these two different teams together that have been operating independently for the past five or 10 years and getting them to align towards the same goal. Chris Erwin:I think some of the challenges though is that when you're building, the time to market can take a while, right? You're starting from scratch versus having a full-fledged operation from day one. Even though you're not paying an acquisition premium, the time value of that missed revenue can be very substantial. Also, I think there's challenges where if you're a commerce team, like being able to hire and enable content team members and to really understand that DNA and vice versa, that's really challenging, right? We've seen a lot of leaders and a lot of companies struggle with this when trying to reach across into new areas of business expertise east that is new to them, and there's a really big learning curve. Chris Erwin:Specifically, I think for a content team that's trying to build out a supply chain that is very robust, that can put product in the hands of consumers in a variety of different geographies in a timely basis, that's also really smooth and capital efficient like I was saying in the beginning, that is not easy to do. I think we're seeing in the current supply chain troubles that we're having that really nailing that is really key if you're a modern commerce company. Anything that you feel I missed there, Andrew? Andrew Cohen:No, Chris. I think that was well said. So, now, the last model in this five build partner scenario is partner. Last but definitely not least. Feels like it's the most common one that we see probably for a reason. You mentioned a few up top, so Walmart partnering with Netflix and Barstool, Shopify partnering with MailChimp, TikTok and Spotify. So, how would you break down the pros and cons here? Chris Erwin:Yeah. I think this is pretty straightforward, right? Looking at the partnerships, the process, just stick to what you know and what you do best, right? So, if you're a media company, you develop and you create content. If you're a commerce company, you develop product, and you have a supply chain to put in the hands of consumers. So, I think that can be very powerful where that's going to allow you to get to market sooner, and delight customers because everyone on that joint partnership team is in a lane where they have the experience and the pedigree and the focus that they're very comfortable with, right? I also think another significant pro is you're learning before future investment. So, again, you want to stay capital light in the beginning. You want to learn before you're putting more capital to work. Partnerships are a great way to do this to enhance your capabilities very quickly. Chris Erwin:I think some of the challenges though is that like if the long-term goal is driving enterprise value and outsize revenue and margin performance, you're not necessarily going to get that from a partnership in the beginning unless you're an amazing negotiator, right? So, on a typical licensing deal, a media company might only get like three to 8% of revenues that you're generated, yet you're doing all the work of building out that audience. I think that's okay for maybe the first couple years, but then thereafter, you want to think about revisiting that deal or maybe building or acquiring the functions that you need. Chris Erwin:I think a second con, Andrew, is that it's dangerous to become overly reliant on third party partners, where if you are a commerce company, for example, you may not be getting access to all of the audience data that you're looking for. As a media company, you may not be seeing all of the credit card, the transaction data of, and everyone who is actually making the end purchase. That's really valuable to understand your end consumer and how to better delight them going forward. I think another risk that's also part of this is you might see your partner start to invest in some of these capabilities in-house, and your partner today could be your competitor tomorrow, particularly as the content commerce landscape continues to consolidate. Andrew Cohen:Yeah. I think that's probably why we see partnerships as the most common route. So, then looking at, all right, which model will win out, it's probably not as simple as just picking one, but a dynamic that I've been thinking about is actually easier. This might be a broad generalization but for content companies to be successful at commerce than vice versa because it's really hard to make content that people actually care about. Once you've done that, selling them the products is actually the easy part although, and we'll get to this in a second, it's the actual business logistics of commerce that are really the hard and expensive parts. Andrew Cohen:So, if you look at Nelk, he's a YouTuber with seven millions subscribers. He generated $70 million in merch sale revenue last year. So, that is purely a product of him being able to market and to generate an audience. You're going to be hard pressed to find a commerce company who can just, in one year, merch sales get up to 70 million, but that's kind of the power of building an audience. When you look at the other way around, it's tough for commerce brands to just like flip a switch and build that muscle and start building audience. We have actually seen a lot of in-house media brands from commerce companies that have folded over the past couple years like MEL Magazine by Dollar Shave Club, but here is the tough part. It's commerce companies are usually the ones with the capital to actually expand an owned an operated verticals that content companies don't. Andrew Cohen:So, when these mergers happen, it's usually the commerce companies that are buying the content companies. Like we said, it was Hasbro buying eOne. It was Amazon buying MGM and Wondery and Audible and Twitch. Penn National Gaming buying Barstool. So, a lot of times, we do see these acquisitions happen because it's the commerce buying out content. I think a lot of times, it is because it's just really hard for those companies to start creating content that entertains and delights audiences. I think right now, it's such a saturated consumer ecosystem with so many endless options that to actually get attention, get fandom, and make someone seek out your brand, your content against all others, like you got to do it really well. If it's not in your brand's DNA, it's really tough to just build that out. Chris Erwin:Andrew, so to respond to a couple of your points there, I think, one, one of the toughest things to do in the modern consumer economy is to build and maintain audience. I think that some of these modern media brands and creators and influencers that have done that at scale is really incredible. I hear your point that for the content companies probably doing the hardest part of the consumer equation, that that's really valuable. Chris Erwin:I think something that has surprised us and is a real reality check is I think people assumed it's like, oh, yeah, creating product, that's a commodified approach or business. You just create product, and you could slap a logo on it and then just get in the hands of the consumer. I think a lot of that was assumed to be as pretty straightforward. Turns out, that's not the case, and we've covered this in, I think in some of our past podcasts where being able to deliver product in a timely way where consumers are and doing it in a way that's also really capital efficient is not easy to do. That's why we believe companies like Amazon and Walmart have a really significant advantage in this new content and commerce economy. Chris Erwin:The second thing, Andrew, that you said I think is really interesting is, yes, traditionally, the commerce companies have had more capital to invest in buying media companies versus the other way around, but I do wonder again with everything we've talked about with the IP wars and more demand for content from all the streamers and through licensing deals and co-productions, are these media companies start going to be having better balance sheets that's going to allow them to invest and acquire more commerce companies to support their overall stack? Might be something that we see flip over the next 18 months. Andrew Cohen:Definitely agree that the actual nuts and bolts of commerce is way harder than you might think, just getting into it. I think you look at that partnership with Walmart and Barstool, I think it's a perfect example of why partnership makes so much sense. It's really like only a brand like Barstool can have their first ever frozen pizza that is selling through the roof in the first week and only with a medium machine like that. Can you accomplish that? Only with an commerce juggernaut like Walmart could you actually fulfill the execution of that demand nationwide like they've been able to do so, yeah. It's definitely two very diversion expertises but that complement each other through a really unified customer journey and funnel. Andrew Cohen:So, overall, I mean, like I said, I don't think that necessarily one is going to win out. We'll probably keep seeing that's being taken on build-outs and acquisitions, but definitely, partnerships are most reliable. They will persist. Don't see them going away anytime soon, but what do you think in terms of where this all goes, and does one model win out? Chris Erwin:Well, I think, Andrew, I think we're at the end of our time here, so I'm going to have to say we'll probably need a follow-up podcast to kind of check in on this and until next time. Andrew Cohen:See you then.