What works in television, radio, magazines and newspapers is starting to work on the Web, as a recent local merger on the new-media front shows.
There aren’t many Web rep firms in L.A. County in fact, as far as we can tell, there’s only one but that one got substantially bigger this month. It’s the leading edge of what is likely to be a wave of consolidation in the industry.
Advertising rep firms operate by serving as the national sales force for a group of stations or publications. A local TV station, say, that contracts with a rep firm gets people selling advertising time on that station in big cities across the country, supplementing the station’s own sales force in its local market.
Web reps do the same thing for Web sites, building up a network of content sites and selling ad space on them, taking a small cut for every ad placed.
2Can Media Inc. became one of the larger players in the industry by consolidating two existing companies Woodland Hills-based Eisenberg Communications Group and San Francisco-based WebRep LLC, into a single entity based in Woodland Hills.
The man behind the merger is Ryan Steelberg, co-founder of a company in Costa Mesa called Imgis Inc. that is a server and auditor for Web advertising. Steelberg is nearly finished raising $8 million in a private placement, and he paid $7 million each in 2Can Media stock to WebRep and Eisenberg Communications. He will be chief executive of the new venture, which is now Imgis’ biggest client.
The new company will serve its ads through Imgis, and it combines such WebRep sites as National Geographic, Entrepreneur magazine and Kiplinger Online with Eisenberg sites like Frommers/Macmillan Publishing, CitySearch and Motor Trend.
The combined company has about 25 employees, but that’s likely to expand a great deal. The $8 million being raised by Steelberg will largely go toward marketing the service and hiring a national sales force, according to Steelberg. He hopes to build up a sales force of 85 to 90 in strategic U.S. cities by the end of the year.
Web rep firms started cropping up a couple of years ago when people began to realize that advertising might actually work on the Web. But a shakeout is beginning. The industry’s best-known player, New York-based DoubleClick Inc., went public in February and its stock price has been soaring ever since. Meanwhile, a big competitor, New York-based 24/7 Media Inc., filed for a proposed public offering in early June, right after it paid $4 million to buy a rival Web rep firm.
These companies are trying to get big in a hurry through public offerings and acquisitions because in this business, size is critical. Advertisers hire sales reps because, presumably, they offer a bigger national sales force than the advertiser could put together itself. In television, two or three giant rep firms dominate the industry. Eventually, the same will likely hold true for Web reps.
The problem for these companies trying to become overnight giants is that it’s nearly impossible for them to turn a profit at this point. When DoubleClick filed for its IPO, a major Web rep’s books were opened to the public for the first time and its finances didn’t look promising. Company officials said in their filing that they didn’t expect to turn a profit until at least 1999.
But Wall Street doesn’t seem to care. Investors apparently believe that once DoubleClick reaches an optimum size, and once the Web is taken more seriously as an advertising medium, the profits will come rolling in. DoubleClick stock went out at $17 a share five months ago. Last week it was trading at around $36.50. Not bad for a company that has never been in the black in its two-and-a-half-year history.
Kent Valandra, executive vice president of the new-media division at media-buying agency Western International Media, thinks a few Web rep firms eventually will emerge as highly profitable entities. He likes buying space on Web sites from these firms because they can provide a one-stop shop for a network of sites, and they help buyers with various accounting procedures.
Will 2Can Media be one of the success stories? Valandra doesn’t want to speculate, although he speaks highly of one of its new partners. “Eisenberg is ranked pretty high on the list of (rep firms) with which we spend money, because they represent some big sites like National Enquirer,” Valandra said.
Steelberg says a public offering for 2Can Media may be down the road, especially given the success of DoubleClick’s offering. And Steelberg insists that his venture is more profitable than his big rivals.
“I want to go cash-flow positive by the end of the year,” Steelberg said and he’s convinced he can do it, because both Eisenberg Communications and WebRep were in the black before the merger deal.
Rogers on the rise
The list of P.R. agencies on page 54 demonstrates just what a great year 1997 was in that industry, with fee income for L.A. agencies rising nearly across the board. The fastest-growing agency in the county last year was independently owned Rogers & Associates based in Century City, whose fee income rose a whopping 57 percent over 1996.
Although the company has picked up some giant accounts in recent weeks like American Honda Motor Co. and Washington Mutual Bank it projects only a moderate fee income increase this year over 1997, to about $7 million. That’s because it lost its biggest account, a 10-month educational program on energy deregulation for the state Public Utilities Commission that ended in May.
“We were going to be very pleased if we could hold the line after losing that one,” said partner and Executive Vice President Lynne Doll.
Rogers has help-wanted ads out for three account executives and a vice president.
News Editor Dan Turner writes a weekly column on marketing for the Los Angeles Business Journal.