Channel 4 plans to invest between £20m to £40m in startups over the next two years in the belief that the best way to capture future advertising budgets is to target those companies that will be spending them.
To keep new business keen in what is one of the oldest advertising mediums around, the broadcaster set up a commercial growth fund 18 months ago, offering fast-growing startups access to advertising inventory in exchange for equity stakes or revenue share arrangements.
In that time it has done ten deals with startups valued between £10m to £50m, in sectors ranging from e-commerce and marketplaces, the most popular sectors for new business, as well as consumer fintech, SME and some adjacent media businesses which it counts as “strategic deals”.
Channel 4 has committed around £15m of ad spots as part of the programme, according to Vinay Solanki, head of the growth fund, of which “around half” has already been used by companies such as Eve Mattress and Readly, the ‘netflix for magazines’.
He believes if the broadcaster continues at this rate it will have invested between £20m - £40m in the next two to three years on startups looking to find their footing in TV.
The idea behind the fund is to prove the worth of TV to the digital consumer startup scene, targeting those companies which view TV as a nice-to-have rather than a must. These companies would rather spend their marketing budgets with the digital behemoths Facebook and Google, which require a fraction of the upfront costs than TV campaigns, and are highly targetable.
By comparison, TV’s big sell is its reach - over 97% of the UK population each month according to Solanki. It's also a fame-making machines, Solanki reasons, helping to make brands like Coca-Cola, John Lewis and Apple the giants they are today.
"We would love to be able to target as tight as Facebook and Google but the real power of TV is its reach," said Solanki, in an interview at Unbound London. "If you are getting more local and more targeted then you are offering something that is similar to what they [Facebook and Google] are already doing."
However, the issue with reach is cost; a primetime TV campaign will require about £1m to £2m in cash, per country. This is the root of the problem in convincing startups to part with huge sums of cash for a UK-only TV campaign, and why broadcasters are struggling to bring new advertisers in, instead relying on repeat business.
While TV is in good health, it is not immune to advertisers shifting ad budgets from linear channels to digital, and has a fight ahead in capping Google and Facebook’s hold on the ad market. It was recently noted that the two digital giants accounted for about 99% of the $2.9bn in digital ad growth in the third quarter of 2016, according to Jason Kint of the advertising trade group Digital Content Next.
“You could make the argument that TV is dead. Certain people in venture capital (VC) circles think that. If you don't watch mainstream TV, you can get the feeling no one is watching TV. But if you want to watch programmes about Brexit and Donald Trump, Netflix don’t show that,” said Solanki.
To counter this, the broadcaster has made its prime time assets available to a range of startups in sectors that are tipped for growth, as a means both to deliver insight on the power of TV early in a company's life cycle, and generate equity return for the broadcaster long-term.
The broadcaster acts as a “passive” equity holder in these businesses, aligning interests with the founders or the lead shareholder depending on who has the most influence. It doesn’t sit on the company’s board, and only takes a proactive position in the company’s marketing strategy; its core competence.
“A lot of the companies are very new to TV and are very cautious on TV. It is good for Channel 4 to understand what it is like, if they are dealing with Unilever all the time they understand how TV works, if you are dealing with a startup out of Dalston that is a different conversation,” claimed Solanki.
The way airtime is traded in the UK means that the majority of advertising inventory is sold in advance of the year. The more inventory that is sold in the initial round, the higher the prices get pushed up for remnant media, as demand increases.
This means that businesses in the scheme are limited to the number of prime spots they can access, since these breaks are very expensive, and so the companies’ credits would be utilised faster. The same is true to VOD campaigns; Channel 4’s most in-demand ad product.
“We can offer it but the numbers sometimes don't make sense. It is a very expensive option,” said Solanki.
Elsewhere, the broadcaster’s interactive ad spots, which are now available on both VOD and connected TV’s, are available if the businesses can support the creative cost, which Solanki revealed are down to a creative agency and not Channel 4.
It's a smart move from a broadcaster, with assets to allocate in more strategic ways, rather than relying on repeat business, a point Solanki believes solves a "big picture problem" of digital versus TV.
"If the digital consumer world thinks that the only way to market is to go to Google and Facebook they might be missing a trick. It’s not to say that TV is a panacea, it is not going to solve all your ills, but if we try to pick the right companies, execute well on TV, then you are still accessing the biggest medium for mass reach and that is quite a compelling proposition," he concluded.