Nearly 60% of Americans own a smartphone. Moreover, tablets and laptops are more affordable and accessible than ever before. Not surprisingly, this increasingly mobile society has greatly impacted the advertising market. Fewer eyes are on 30-second television commercials, with the majority of viewers and targeted demographics watching video content on YouTube or through paid, streaming video services. Marketers are now focusing their advertising dollars on mobile platforms so much so that, by 2016, mobile ad spending is projected to comprise more than half of the digital ad market, totaling $100 billion.
With more mobile advertising dollars being spent, content creators and businesses are looking to host and monetize their content on all screens. However, options that allow for affordable hosting and monetization services while maintaining control of key copyright and financial concerns have thus far been slim. Yet, Adaptive Medias, Inc. (ADTM) , a provider of content syndication and monetization solutions, is looking to change this by providing a one-stop solution that will allow companies to achieve their mobile ad revenue goals.
To discuss Adaptive Medias’ innovative mobile video technology and how it will change the current video distribution market, Equities.com had the opportunity to speak with John Strong, CEO of Adaptive Medias, and Sal Aziz, Adaptive’s Platform General Manager.
EQ: Could you provide a brief overview of Adaptive Medias and its operations?
Strong: Adaptive Medias provides publishers, producers and advertisers with the ability to easily monetize all of their digital video content across all the screens and devices, especially mobile, in one system, including the proprietary ad server. The video player was designed for mobile first and is HTML responsive for mobile, smartphones, tablets...everything. It’s a turnkey solution for advertisers and content producers.
EQ: Adaptive’s Media Graph is really a game changer for the industry. Could you give a brief overview of the Media Graph and how it's closing the gap in the digital video industry?
Aziz: The Media Graph platform is what we call an “end-to-end” content management, monetization and syndication platform. It allows content producers and publishers to use one centralized platform to manage all their content so they can track where their content is running, including how many times their content plays, and how much revenue is being generated off the content. Publishers who publish that content on their site can then use the video player not only on their desktop website, but their mobile site as well. Their mobile application will run the content, manage the content, replenish the content, review content that is coming in from their own content library or our content production partners, and then bring in the advertisers using our proprietary app serving and programmatic monetization platform. This allows publishers to easily manage and make the most yield and the most revenue from any content and any advertising that they may have up and running at that point in time.
EQ: Video content and mobile monetization is, by far, one of the fastest growing markets on the web. What are some of the promising trends that serve as tailwinds for your growth prospects?
Strong: I think we're the only company that has actually released a video player that is up-to-date with all the specs of mobile devices. The trend has been mobile and the consumption of content on mobile devices has continued to grow. Primarily, most of that has been YouTube. Now, more and more publishers are taking on YouTube and catching up to YouTube's dominance in content consumption online. A lot of those top 10 developers are not releasing their content to YouTube. Companies like us, who have the comprehensive turnkey platform, are stepping in to help them in this age of mobile video content consumption. Our mobile player is truly HTML5 compatible and has no components of Flash. Our technology is going to be a leader as flash becomes obsolete, especially since Chrome and Firefox made the announcement that they're doing away with Flash in their browsers.
EQ: A Lot of content creators are distributing their content via YouTube. What are the issues of using YouTube as a sole distributor?
Aziz: When publishers hand their content to YouTube, they lose control over a few things, such as the economics of distribution as well as monetization. YouTube is the sole syndicator of the video content, and publishers don’t have 100% control over embedding their content on their sites. Additionally, a publisher can have the most successful channel on YouTube, but they still need to meet the minimum price set by YouTube to sell against inventory. Not to mention YouTube takes 45% of the advertising revenue.
Machinima, for example, which was depending on YouTube to generate all their revenue, ran into financial trouble. When the content producer is producing premium content and they put it on YouTube, chances are good that content could go up against racist content. It could run up against adult content. Everybody knows that YouTube has softcore pornography, has racist material, and User Generated Content (UGC) that is dominant on that site. Content producers are putting their revenue and their financial future at risk. A lot of the content producers now, like major studios for example, learn that you couldn’t rely on one large entity to drive revenue for you and to increase market share.
A lot of content producers are now taking the major studios' lead and thinking of ways to diversify their content distribution relationships. As a technology provider and a platform provider, we play a role in the middle. We provide them the turnkey solution to manage it at scale.
EQ: Adaptive is projecting to swing to profitability and begin generating profit growth as early as the first quarter of 2016. How do you plan to achieve that goal, and how should investors follow, engage Adaptive success going forward?
Strong: There's a couple of ways that we feel like we're going to get to those goals. One of them is that our expenses have drastically reduced over the last few quarters. Now that Media Graph has been engineered and built out, we can cut down on engineering and development expenses for the product. It's functional and works well, so those expenses are drastically less. We have a pretty lean office. The staff consists of an optimal number of people, and they're capable of performing really well without adding staff at the moment. Our legal expenses are declining. Our revenue is increasing of course, as we have noted. Also, the margins that we make on the revenue – or the mix of revenue – are going to triple as we make the move toward decreasing our marketplace business and significantly growing our platform business in Media Graph.
EQ: In 2017, it looks like you're going to experience very robust revenue growth. Can you talk about the transition over from a marketplace model to a platform model, and how that is really going to serve as an inflection point for Adaptive?
Strong: We’re not giving up on that business. It will be ancillary to the platform business as those clients provide them the marketplace to us. As we change the mix of our revenues from the marketplace to the platform, those margins go up to as high as 80%. As we make that transition and the increase in revenues, it's a dramatic difference in our cash flow and our ability to be profitable. Those revenues are not seasonal. They won’t decline like you see traditionally in the marketplace in the first and second quarter and then rank back up towards the end of the year. As we build on them, they’ll be a lot more consistent throughout the year.
EQ: Adaptive recently announced a number of strategic partnerships and new publishing partners. What do these milestones mean for the company, and what are a few others that you can highlight for us?
Strong: We're interested in adding as many partners are we can, and we're continually working towards that. Some of our current partners include, Webisaba, based in the Middle East and LatinOn, based in Miami. These are real opportunities for us to scale up our business. We’ve just added a couple of newspapers that are doing a very high level of business. We won’t have any shortage of clients that we can go after, because a lot of these companies really need the solutions we provide. Our solutions make the most sense to them.
EQ: To close out the interview, could you give a brief summary of your background as well as other key members of the management team?
Strong: I’m a startup person and investor. I’ve invested in about 17 different startup companies, some of which have enjoyed great success. I like small, lean, fast-paced organizations that move quickly. I have funded companies, such as Scout Alarms in Chicago, Illinois; Storefront.com, which is the “Airbnb” for retail space; Boxbee, a storage logistics company; Matterfab, an investor in 3D Printer; ComboTrip, a group travel business; and Bombay Software Development, a company that makes artificial intelligence software for commercial drones. Those are the types of things that I have done in the past.
EQ: And Mr. Aziz?
Aziz: My background has primarily been in sales and marketing. The last seven years have been spent in the ad-tech space. I co-founded Adaptive Medias back in 2012. I have seen it grow from a three person company to where we're at today, with John leading us.
EQ: Is there anyone else on your team that you'd like to mention or highlight?
Aziz: We've got a very talented team of sales professionals and engineers. It’s not about any one individual. We’re very effective and very committed to the company.
EQ: Are there any final takeaways, or anything that we might have missed?
Aziz: As you may already know, most of the people that are possible competitors are continually getting snapped up by other larger companies. We’re one of probably the last independents out there in the marketplace that can provide a full staff for digital video and mobile advertising solutions.
EQ: Is it your plan to remain independent for the foreseeable future?
Aziz: We get offers to discuss acquisitions continually, but we wouldn’t sell any time in the near future, especially now that we're able to keep our feet on the ground, be nimble and quick and grow our business. I don't think we have to be in any hurry.
For more information about Adaptive Medias, Inc, visit www.adaptivem.com.
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