Corporations Startups

DTC Brands Need a Publishing Arm

Why is a publisher model appealing to brands? An emerging crop of companies with recurring revenue and large customer bases have discovered that “owning” audiences is better than “renting” them according to CBInsights and ultimately a way to reduce CAC and build more loyalty.  Over the last few years, a growing crop of financial service and SaaS based firms have been acquiring media companies – JPMorgan bought the Infatuation, HubSpot purchased the Hustle and Robinhood snatched up MarketSnacks. Make no mistake – this was a play to decrease CAC (customer acquisition cost) and drive up LTV (lifetime value).   A recent CEO said “Every company should go direct to its audience and become a media company.”  While the noise has mainly been centered on businesses with subscription economics, another cohort that would benefit from this trend are the emerging crop of DTC lifestyle brands that have been growing rapidly over the last 5-10 years.  This isn’t unchartered waters; brands have been acquiring media companies for years. Going back to the days following the bubble, J&J purchased Baby Center in 2001 for ~$10m with the goal of providing more content to expecting moms. Flash forward to today and the pandemic has created another opportune environment for brands to snatch up media companies. Since the spring of 2020, we’ve seen ecommerce sales skyrocket, digital advertising costs increase precipitously and LTV become paramount leading to the newfound realization that paying to advertise won’t have the same ROI as owning an audience to market to.  One of the largest blights these newly public DTC companies have is that they aren’t profitable – the primary reason being the amount of money spent on marketing. 

Marketing as % of sales (latest quarter)

Allbirds – 19%

Peloton – 31%

Casper – 22%

Smile Direct Club – 71%

For example, Allbirds currently spends ~$18m/quarter in media ($72m/yr). If they were to buy a media company doing $20m/year in sales for say 2x/revenue ($40m) it would immediately be accretive. The acquisition price would ultimately be offset by dollars earmarked for advertising that would have been spent on similar platforms anyway. For instance, Baby Center had a reach of nearly 100 million users under J&J – that’s a massive addressable market that they didn’t have to ‘pay’ to advertise to.  And that doesn’t even take into consideration the other value adds (1st party data access, richer content for their customers/subscribers, native advertising environment and even a possible boost to blended GM$). Peloton, which by some estimates has a CAC as high as $800 is finally coming to the realization after a tumultuous year of continued losses, that their real strategic value isn’t in hardware like many thought initially – but rather in media.  Outside of the M&A route, a less complicated way to become a publisher is to identify a key influencer in your industry and hire them as a fulltime employee, make them editor and chief of all your brand content and leverage their reach vs just paying them for one-off engagements. I’ve found consistently that the vast majority of brand marketers aren’t typically adept at creating scalable content for audiences like influencers. Having this skill set in-house is a fundamental advantage. 

There’s too much arbitrage now in the advertising world; it’s time DTC brands seriously consider the value of becoming a publisher to augment their owned media strategy. 

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