While 65% of US ad spend has slipped from traditional media to the hands of Amazon, Google and Facebook, the Times of India has protected its market share on the subcontinent by investing in startups. The publishing group now wants to bring the model to the US.
While print newspaper revenues are falling off a cliff in many countries, the opposite is true in India.
Advertising revenues for print media in the world’s most populous country are growing — in single digits but still growing. Print media accounts for 19% of overall advertising revenue compared with just 4% globally.
One of the reasons for this is an astute investment programme put in place two decades ago by The Times of India. As the internet began pulling readers away from print media globally, the flagship Indian newspaper, through a strategic investment unit called Brand Capital, began backing startups that subsequently became household names, including Uber, Airbnb and Flipkart.
The flagship newspaper, owned by multimedia conglomerate The Times Group, gave startups advertising in return for a small part of their equity, allowing young companies to experiment with print advertising and build up relationships with them.
“It did something that we call stirring the pot. It allowed us to create new categories of spenders who previously had never spent with us, and it attracted competition within that category in the form of cash and equity. And many of these companies have since become our biggest cash advertisers,” says Piyush Puri, president of The Times of India Group, North America.
Through its strategic investment unit, The Times Group has has invested over $4bn of media assets in more than 1,000 companies. A recent focus has been Indian startup electric vehicle manufacturers.
The Times Group now wants to take this model to the US, where the bulk of advertising revenues (around 65% of advertising spend) has moved from traditional media to just three large tech companies: Amazon, Facebook and Google.
Last year, it formed Mercurius Media Capital, a $55m fund that takes equity stakes in startups. Instead of the fund paying cash for equity in the companies, the startups receive free advertising from the media companies that join the fund as corporate limited partners (LPs).
Traditional media companies such as TV broadcasters, radio and even print publishers are potential target LPs of the new US fund as well as digital media. Three broadcasters have joined so far: Sinclair, a television company; Televisa Univision, a Spanish language TV network; and Willow, a broadcaster of cricket in the US.
The fund targets traditional media that have been sidelined in the advertising revenue, and offers these companies a way to cultivate relationships with consumer startups that may one day become cash advertisers.
Attracting cash advertisers
The media-for-equity model has worked well for The Times of India, allowing it to remain one of the most widely distributed English language newspapers in the world. Many of the startups that began by using the media-for-equity model have gone on to become cash advertisers.
The investment model has also encouraged competitors of the investee companies to advertise in its print publications, too. “The model took off because as advertisers started experimenting with print in India, they realised that print works, but also their competitors started following suit,” says Puri, a founding partner of Mercurius Media Capital.
The revenue The Times Group makes from advertising has helped to keep subscription costs low for The Times of India and other publications it owns, one of the leading reasons that print has sustained itself for so long, says Puri.
Mercurius Media Capital is much smaller compared with Brand Capital, the world’s largest media-for-equity investment vehicle. But Puri aims to grow the US-based fund to $500m as it adds more corporate LPs. The fund is independent from The Times of India but is operationally supported by the group.
The fund partners, which include Satyan Gajwani, vice chairman of digital products company Times Internet, are looking for a variety of media companies to join as partners. “In the long run, our vision is to mimic the US media landscape. We definitely want more digital, and of course we want to focus on traditional media,” says Puri.
“Traditional advertisers are facing the digital onslaught the most. They’re the ones who want to see a churn in their advertising base, in the pool of advertisers that they have right now. They want to attract this new breed of advertisers that are startups.”
Media for equity is gaining traction in the US and elsewhere as more consumer startups and media companies try out the model. US consumer startups typically spend up to 50% of their budget on advertising. By giving equity in their companies in exchange for advertising, they can free up this cash to spend on operational expenses such as hiring or research and development.
Media-for-equity transactions also benefit startups because it can mean media companies are more motivated to help new companies succeed. “The publishers have skin in the game. They want to see these portfolio companies do well. The efficacy and efficiency of the media campaigns that come out of this relationship are better than the efficacy and efficiency of campaigns that are run without there being any direct relationship between the publisher and startup,” says Puri.
Mercurius Media Capital faces competition from other such funds in the US. Media company NBCUniversal has its own investment arm arm, for example, that invests in companies that advertise on its own channels.
Mercurius Media Capital’s hopes its strategy of pooling corporate LPs attracts companies that want to increase exposure to a broad range of startups.
Each media partner has a five-year commitment to the fund. It resets at the beginning of each calendar year rather than operating as a closed-end fund. Each new series of fund represents all the limited partners that have joined up until that point and allows it to keep adding LPs each year.
“When media companies try and make these investments on their own, they have exposure only to that one startup that they invest in, and they’re able to attract that set of companies that will work directly with their media assets. But, when you do it in the form of a fund, you have many different media companies and many different demographics you can reach with the help of these media companies,” says Puri.
Many cash-strapped media firms also don’t have the resources or expertise to invest directly themselves, preferring to learn from an experienced investor in the sector instead.
Way for startups to conserve cash
The Mercurius team’s experience in media for equity attracted Sinclair to join. “We felt comfortable with them and believe that we can learn from them in terms of our direct investing processes,” says Chris King, VP of investor relations at Sinclair.
Sinclair has already done several media-for-equity deals with advertisers. The model works well for companies that want to conserve cash or don’t yet have much money coming in, says King. “We have advertisers that are looking for an opportunity where they don’t have to outlay cash,” he says.
“Mercurius certainly gives us exposure to a much larger universe of interested parties that we may not have had the ability to reach,” he says.
The Times of India has a track record of media-for-equity investing in the US through two other funds it runs, Brand Capital International and Times Bridge. Both media-for-equity funds make investments in mostly US companies that seek to expand in the Indian market. It has made more than 40 investments in startups such as Coursera, a US online education provider, and Headspace, a meditation app.
In contrast to the company’s other US funds, Mercurius Media Capital targets investments in startups that solely want to tap the audience base of US-based media companies. It invests in early-stage and late-stage companies and will also consider investing a small portion in public companies.
It expects to invest in between six and nine companies a year based on its limited partner base. So far, it has invested in three companies: Deskera, a platform for small and medium-sized businesses to manage finances and HR needs; Edly, a fintech providing student loans with flexible repayment plans; and RVnGO, a RV rental platform.
It is also looking at companies that use AI as a primary technology in areas such as legal tech.
This year the fund had a smaller capital base to deploy because a lot of advertising money has gone towards political advertising given it is an election year in the US.
Next year, it hopes to invest in more companies along with adding more corporate LPs.
