January 27, 2010
AKA TV Interview with Matthew Stoutd
'Double your network overnight' - we speak to Matthew Stoudt –CEO of Outcast - the largest Digital Signage Network at the gas pump
January 27, 2010 –
What do you do and in what markets do you operate?
We operate the largest digital video network at the gas pump today. We have over 12,600 video screens, they’re interactive – by that I mean they’re consumer activated – the consumer walks up and lifts the pump handle - that starts the content playing. So you have a true one to one engagement with the consumer. We are in 15 in the top 20 DMA’s today and in Q1 we’ll be extending to an additional 5 DMA’s.
Can you talk a little more about your background and how you got started in the digital signage space?
I was actually an entrepreneur in residence at McDonald’s corporation. McDonald’s was at a point in their growth cycle where they were looking for a new idea to bring to the market place because they could no longer add restaurants without cannibalizing their existing market share. So they turned to a bunch of entrepreneurs to bring in-house as a swat team to go out and identify new ideas and concepts.
On the digital media side, we rolled out WIFI connections to all the locations and asked – now that we have this connectivity into the store, what are other consumer facing applications that we can put on to that that can be new revenue streams for the store owners?
So as we were looking around, we looked internally to see how Macdonald’s was starting to reallocate their media spend. We noticed that they had shifted about one third of it’s traditional broadcast media dollars into alternative forms. We thought ‘if Macdonald’s is doing this – there’s got to be a lot of other players out there doing the same thing’. At the same time we looked at McDonald’s from a distribution perspective and we saw that everyday 38 million Americans go to McDonalds – that’s over 10% of the US population. That’s larger than any network that you’d find out there in existence today.
So we said that this is actually a great opportunity for media value and we have a captive audience. And instead of having a TV in there where we’re promoting other brands that are competitive to McDonalds, why don’t we turn around and build our own captive audience network that can be good for the brand itself.
So based on that – I went and interviewed every single company that was out of the marketplace and was able to identify those I thought were good, those I thought were weak. And I saw opportunities to go out there and start my own company.
Who are your customers?
It’s an interesting question in the digital video network space because you actually have to serve multiple parties.
You have the advertisers, the consumers, and then you have your retailer partners. And depending upon on who’s funding it – each one may take higher precedence in terms of who you need to serve.
In our case, first and foremost it’s got to be the consumer. Because if it doesn’t work for the consumer, it doesn’t work for the advertiser and it’s not going to work for the retailer. So we view them as the one that we serve foremost.
Second has got to be the advertiser because it’s got to be a good platform, they’ve got to have a very good experience.
And the third one is obviously the retailer – you want to keep them happy. Those are our primary customers.
What’s your business model?
For the most part – we want to own our own network. That’s where you’re going to have the most control and you’re going to avoid the issue where potentially someone can come in and disimmediate you. So if you’re having someone else fund that network on your behalf, you’re only as good as the contract you have. And many times these contracts tend to be one or two years or three years for the services.
By owning your own network, generally speaking you’re locking in a long term relationship, you’ve got a much bigger opportunity to monetize and the margins you’re going to make are much greater than just simply doing a managed services business.
That said, I still believe in the fact that as you’re building out this infrastructure, if you can find ways to leverage it to do other things, then that’s a good thing, because with managed services you can bring in stable cash flow.
So we always think – start with building out your own network, own it – but then look for ways to leverage the core competencies that you’ve developed in house. That’s how we do it.
Given your investment banking background, what advice would you give people who are looking to secure funding in this industry?
Step back and say, what is really your competitive advantage in Digital Video Networks. At the end of the day, it’s the distribution that you have and the ability to get the accounts. If you can get capital to all of this – any of us could go out and build this. So you have go in and think about locking down as much distribution as you can and then that’s the asset that you’re going to have. If you can lock in a couple of advertisers at the same time as that – which is a very difficult thing to do - you’ll be able to fund your network all day long.
But the most important thing is having the contracts in hand – a lot of people think they need to go raise the money before they go get the contracts. I’d go the other way - lock it down in advance, then no one else can come in and get those from you and then turn around and get the funding for it.
How are you funded?
We’re funded through both a group of high network individuals and venture capital funds.
Should media sales be done through an aggregator, in house or pure play agency?
It depends on the stage of the company that you’re at. In the early days when you’re first building this network out and no one really has any idea of who you are, I think one of the best things you can do is actually reach out and partner with someone to do the ad sales for you. There’s no way you’re going to hire as many sales people as they have assuming they have a big team, so you need a good team to really get your name out there to the agencies.
But if you think of the lifecycle of a media company, as you start to get a little mature, your name has been established, no-one should be able to do a better job of monetizing your network than yourself. You’re a media company at the end of the day, and that should be one of your core competencies.
How do you do your media sales?
At Outcast, we believe very strongly that we’re at a point that we need to own our own media sales. Having said that when we first started out we did actually leverage NBC to go out and act as a third party or upfront to help us build up our brand reputation and awareness of the brand and the product. That served us very well, but just this August we severed our relationship with NBC, and we started to fully build out our in-house sales team. It’s amazing how much more insight we have into the actual quality of the accounts that we have into the pipeline and our ability to go out and sell this as a pure play medium for the advertiser.
Where are the advertising budgets coming from and what are some of the barriers you face when you pitch?
Today the biggest budgets that you’re going to pull from – and partly this just because of the culture of being called digital out of home - is going to be from the out of home agencies. That said, in Q4 here which has been an incredibly strong, robust quarter for us, we’re actually seeing some of the budgets come from both broadcast and digital which I think is a great trend. The problem with pulling just from the out of home budgets is they are the smallest and they do tend to get hit some of the hardest when you’re going through a recessionary environment.
That said, the out of home agencies view this as an opportunity to come in and grab market share from the broadcast as well as digital. In fact we’ve had Horizon reach out to us and ask us to work with them in terms of positioning this more as a broadcast network and most some of the stats that we can tout
In our case in almost every sales presentation that we have we like to publish ourselves on a GRP basis -which is broadcast terminology. And when we compare ourselves, we’re a 4.8 rating which is roughly like a 5.0 rated Nielsen show which puts us on par with a Grey’s Anatomy.
So we already view ourselves that way – and now it’s a matter of getting the mindshare of the right agencies to start to view us that way as well.
And if you think about it – the broadcast agencies are also looking for a way to defend against the erosion of their market share. They need this in a sense to help maintain the budgets that they’re getting today. And the nice thing is with our platform, we get double digit CPM’s which are pretty much on par with broadcast and cable.
What size advertising contracts are you securing?
With targeted advertising, the smallest could be all the way down to an individual station –that’s the nice thing about having an IP based networks, you can target all the way down to individual ones. So you’ll see advertising contracts in the size of a couple of thousand dollars. And then the largest contracts would be multi month contracts with major players like the GM’s of the world and those are going to be multi million dollar contracts.
How do you go about choosing and securing locations?
In our case, finding distribution is not an issue for us – it’s finding the right type of distribution. We are partnered with Shell – we have an exclusive contract with Shell to go out and put this solution into every one of their locations if we so choose. At the same time we’re also with Conical Phillips and other players like that. So for us it’s not an issue to go out and start beating the bush and trying to find someone. It’s about where we want to go and do we have the capital and are we profitable enough that justifies expansion of the network.
Fortunately we’re at the point right now where we do want to continue to expand. And when we are looking to expand, we think about things such as traffic volume and the location. We think about what are the endemic products that are being sold there. And because this is location based, what are the surrounding retailers that might be national advertisers on your network.
So you have think about from the advertising side - who are the advertisers you’re going to go and get. If you’re thinking of targeting Best Buy as an example, think about a place where there might be a Best Buy within a mile and a half of your location.
What sort of capital does it take to open a new distribution or location?
I can’t give you exact details in terms of how much it costs – it is expensive. They way we think about this is what is our payback period and you want to have a payback period that’s generally going to be south of 14 months if possible.
How do you go about choosing suppliers for hardware and software suppliers?
The type of network that you’re building out will determine the type of suppliers that you go after. If you’re going to do something that’s in-store, that’s pretty off the shelf, then it’s a bit of a commodity product. So you do an RFP that’s going to find you lowest price for the technology set.
As you’re building out a network, there’s a couple of things you need to think about;
One is how commoditized is the product that you’re building out. If it’s going to be instore and you’re going to be using a 32 inch screen, there are hundreds of screen suppliers you can go to. So there you want to basically go out, identify the set of technology capabilities that you need the screens to have and then send out an RFP and find the best price possible. And you can really push them on that in this environment.
If it’s not a commodity product, if you’re doing something outdoors like ours which is a bit proprietary- then it is a much more in depth process. You have to have something very specialized for what you’re doing and there aren’t many players that can do that. So there it becomes more of a one on one negotiation to try and drive the best price and value possible for what you’re doing.
The other two areas you need to take into consideration are;
- The content management software that you’re going to use. The big question there is do you build, buy or rent. There are players out there like PRN who build it up themselves, there are other players who are just completely outsourced. We’ve outsourced the past, we’ve used Scala and Talentise but we’re at the point right now we’re trying to figure out what we want to do because as your network gets bigger, your advertisers are demanding more and more customization of the types of campaigns they run. And if you really want to make this an interactive network which I think most players do, you have to think about the time to market in doing it yourself, and the cost of doing it yourself versus relying on a third party to turn around and create the specialized software capabilities that you’re looking for.
In terms of the content which is the last piece here - that’s always the toughest issue for networks because of the cost. In many cases you’re going to start out and you’re going to have many only 5 or 10 or 100 locations. You need content for that type of network - it just doesn’t make any sense otherwise. You really need to go out there and try and sell this is a way to broaden the reach for the underlying content players, you can also pay for it but again when you’re first starting out that’s a difficult thing to do.
Taking an analogy from the ad sales side, to start off you probably just want to do as many barter deals as you possibly can and get a base level of minimum quality on the content. And as you start to build it out and you start to prove the efficacy of the medium, then you can start thinking about doing more unique content. And as you start to get advertiser demand and you start to get consumer demand, the content player s are going to follow down the line and want to be a part of the network that you’re building out.
So do suppliers go through a formal selection process?
So when we’re vetting different suppliers, we take a very rigorous approach to this. We try to pull together a list of our requirements and what we need the product to do. And then we go out and we do a pretty wide canvas of the space – I don’t believe in having a single supplier. Our mantra as a company is ’Always have a Plan B’. And if you go out there and you just have one player lined up if something ever happens that player has a hold up on you and you can’t let that happen as a network.
So you need to make sure that you’re rigorous about this – that you try to be as forward thinking as you can but also that you have multiple options to service your needs.
What was your business highlight for 2009?
As I look back on 2009, there have been some great moments and I think for the industry as a whole it’s been a great year. It’s a bit contrary to say that because you’ve seen a lot of companies go under, you’ve seen a lot of the cruelties of the marketplace, and the media industry as a whole has been facing some challenges. But that said, 2009 has really positioned digital out of home to be a great industry going forward.
So you have a couple of factors at play here.
One is that at the beginning of the year, advertisers didn’t know if this was going to be a recession, a depression. So they held back all their advertising dollars and said we’re not going to spend anything unless we know we’re going to be able to get a ROI. So that means you’re getting a massive shift from old school traditional media that has been on the decline for a little bit but this just accelerated everything.
Second, this has really cooled off the competition for distribution. So that means now people can use real economics to justify how much they’re going to pay in rent or rev share deals rather than how much their competitor is paying driving how much they pay.
Thirdly it’s forced consolidation in the market place and that’s been a huge thing. I think one of the biggest barriers facing us is the fact that very few players truly have a national network. And the thing that’s going to convert over into being mainstream media from new media is having that national footprint with the blue chip advertisers coming back on a long term basis.
Using us as an example in 2009 - we couldn’t go out there and continue to expand our network organically so we turned around and reached out to our competition and struck a deal where we actually took control of doing all sales and marketing with PumpTop tv. By doing this we effectively doubled the size our network overnight, we put ourselves in the 15 of the top DMA and eliminated 2 other competitors that we had and they were actually one of the lower price competitors. So that put us in the dominant market share position in the marketplace and gave us a much broader network at effectively no cost to the company.
The second thing big that we did was break away from NBC, and started to roll out on our own the in-house ad sales team. And that’s enabled us to now be in a position in Q4 where we’re actually sold out of our inventory, when the other players around us are still struggling to bring in ad sales.
Are there opportunities for consolidation and are you looking to consolidate?
I’m a big believer in consolidation in the marketplace. In fact when we first started out my company, the whole notion was to build a company that would ultimately be a platform to consolidate across multiple sectors.
The first acquisition we did was with Fuelcast, and we formed Outcast from that point going forwards. And we definitely are going to be very proactive in acquisitions and rollups here. Because a lot of these other players might have a great asset, but they may not have a good sales team, or they might have some additional core competences that we don’t have. So I think you’ll see that we’ll be a big player in 2010 and beyond.
Have you seen social media integration with DOOH done well?
We always follow the social media trends that are out in the market place. The two biggest ones are going to be social media and the second one’s going to be mobile.
The problem is you walk into an agency and if you try and reference any of this – they say ‘We love mobile, we want to do something with mobile’ and you ask what they’d like to do and they say ‘I don’t know but we want to do mobile’.
It’s the same notion with social media. You walk in there and if you even bring up social media, they say ‘I love social media, it’s great, I want to use social media – what can we do?’
So you have a lot of people out there who are throwing a bunch of things against the wall and seeing what sticks. I haven’t seen a great implementation yet – that doesn’t mean it’s not out there, I just haven’t experienced it yet on my own. I definitely think it’s going to be a part of our fabric – mobile as well because everything is going to the handset. We just have to think about what is the relevance of it in each individual situation.
It’s got to be something that’s unique to the platform and to the consumer experience at that point in time. I think everyone – the networks, the agencies and the clients – they all say they want to say they’re doing something in social networking but no one’s really figured it out yet.
What differences between getting things up and running in the US versus Europe?
Back when I was in MacDonalds in the New Ventures Group, I launched a network in the Netherlands that ultimately expanded into multiple markets in Europe through the MacDonalds network. Europe seems to be a little further advanced than the US in many digital network aspects – in terms of the content, the growth of networks, the advertiser acceptance of this. So it was actually in some ways a lot easier to get things done over there. And also when you’re talking about the US – the way that advertising is purchased can be very decentralized. You have multiple markets you have to buy from, you‘ve got to worry about what DMA’S you’re in.
In Europe, because the countries are smaller, it’s much easier to get these national buyers without having locations in every single major city within each European country.
If you had to summarize 2009 in a few words, what would they be?
If I were to describe 2009 in a nutshell, I would say the best thing that could have happened to Digital Out of Home was the recession of 2009.
If you had to summarize 2010 in a few words what would they be?
2010 is going to be the rebound year, and actually I’ll go a step beyond that and say 2011 is going to be the banner year. We are very excited about continuing to build our network in 2010 we’re going to expand to the top 25 DMA, and have robust presence in multiple markets, and we’ll look to do additional acquisitions in 2010 – all positioning us for 2011.
Is DOOH Green?
I think everyone talks about green but that’s not why people are doing digital out of home. Green has nothing to do with this.
What term would you use to describe this industry?
Calling it Digital Out of Home does a terrible disservice to some of the networks, if not all of the networks, because it immediately pigeon holes us in the mindset of the advertisers as well as the clients.
So when you say that Outcast is the largest digital out of home provider at the gas pump, immediately we just said who should be talking to us. We actually call ourselves Digital Video Network because that’s what we are.
We’re a hybrid between broadcast as well as the internet. So you have the video aspect of it as well as the digital aspect of it. We have a media player at each and every pump so that means we can actually target all the way down to the individual station. It’s consumer activated much like the Internet – so you pick it up and that’s when it starts playing something. It’s a one to one measurement. And finally we have audio. If you look at digital signage as a whole some of it has audio some of it doesn’t. Some of it is when you walk into a mall – so it’s pure replacement of what was there before – from a static perspective. So it’s a pretty broad term and you’ve got to figure out where you fit in that and what’s the right name for your sector.
What are the critical things to get right in this economic climate?
The most important thing obviously is to figure out how you’re going to continue to expand your network. Because really a lot of networks don’t have a national footprint. So this is the time to reach out to your competitors and see if you can strike deals that makes sense.
The second thing is figure out what can you do from a value add perspective to the advertiser to differentiate yourself – make you a little more unique and stand out in the mindset of the advertisers. You have to find a way to create urgency. Because right now the advertisers still believe this is new media and they’re going to say to themselves ‘I don’t have to buy this today, I can buy this tomorrow or the day after that’. So you need to come up with a rational reason why the advertisers need to be on your network right now. And if they don’t they’re going to miss out on a big opportunity.
About Outcast
Outcast is a leading digital media company reaching on-the-go consumers while they fuel their vehicles. Outcast pioneered the first ever digital screen at the pump in 2004 and continues to drive innovation in the space. Today, Outcast has high-definition LCD screens with rich sound to entertain captive consumers creating a 1:1 communication platform for advertisers without ad skipping or channel surfing. Outcast’s patented pump-activation technology initiates the content loop and offers advertisers unprecedented precision and 100 percent measurability. Advertisers such as Red Bull, GM and VH1 reach a combined audience of more than 20 million consumers each month on 12,600 screens at service stations and convenience stores nationwide in 15 of the top DMAs on Outcast and PumpTop TV’s joint venture network. The Outcast platform also extends beyond the pump with a mobile platform that has delivered more than 35 million SMS coupons. The company is privately held and is headquartered in Santa Monica, Calif. with offices in New York City. For more information, please visit www.Outcast.net.
Dena Cook
Brew Media Relations
PH: 310 526 8567
