* In Nigeria + Africa
If you were thinking of spending your time trying to build an awesome consumer Internet company absent of paying customers (transactions) then you are in for a brutal journey. At least in Nigeria (and Africa). The rest of the world (RoW) approach to capturing hundreds of thousands (or millions) of eyeballs and then throwing up adverts to generate revenue simply doesn’t work. Advertising revenue generated from adnetworks alone in Africa, whether it’s mobile or web based, is marginal compared with the startup and operating costs of trying to build a business here. Wait, what is an adnetwork? They basically have a sales team who work with hundreds of brands / companies (so you don’t have to) to deliver their advertising campaigns across the Internet. They are usually coupled with a technology platform which you connect to and helps the adnetworks deliver and track the performance of their ads’ inventory across the network of publisher sites. Examples of these are Google Adsense, Tribal Fusion, SAY media and Yahoo-owned 24/7 Real Media. Without the adnetwork boom in the early stages of the Internet, the free and ad-supported Internet as we know it couldn’t exist. The millions of sites online today only have to apply to become part of an adnetwork and if accepted can, with a few minutes, start serving ads and generating revenue. This is the difference between making money online and selling to make money online. Without the existence of adnetworks, the ability to create free advertising-supported businesses online would be brutal to near impossible. You would literally have to build your own sales team and hit the brands up directly to give you campaigns-cash, which for 99.9% of websites out there would be impossible. In the US and Europe there are hundreds of adnetworks slicing and dicing audiences to help brands reach them more cost efficiently.
Outside of North Korea or Iraq; today in Africa you will see some of the lowest advertising rates (CPM’s) globally. What usually happens is dependent on where the GEO’s adnetworks are founded locally, to plug this supply / demand issue. This is totally lacking in Africa. There are a number of valiant efforts such as TwinPine, Bloovue and Adsbrook I have come across, but they still represent a tiny fraction of the ad ecosystem; an ecosystem which suffered the recent closing and exiting of mobile adnetwork InMobi’s Africa offices.
Feb 2012 I visited the San Francisco and NYC offices of YuMe (the worlds largest video adnetwork with a monthly reach of 100Mn uniques), they have raised $73Mn in VC cash to capture the hotly contested video advertising space. In SF they had mainly their engineering team. In NYC they had very large sales and account management teams working to bring in the campaigns which they could then parse out to publishers. Adnetworking is NOT a business for the faint hearted and definitely is difficult to scale initially.
So things are brutal, that is unless you are in a super sweet spot where scaling is relatively cheap and doesn’t require huge checks going to hosting companies such as Amazon Web Services (AWS) - iROKOtv and iROKING AWS web hosting bill is easily $150K+ yearly. Living in that sweet spot you will find new media sites / blogs (Naij, Linda Ikeji Blog and BellaNaija), forums (Nairaland and Naijapals) and mobile messaging apps like (Eskimi and 2go). They have boatloads of traffic and the brand recognition to be able to attract the ad agency cash and campaigns. Because their costs are so low they can generate a significant ROI. Therein lies the problem. Most of their money, I suspect, is generated with native advertising sold based on direct relationships with ad agencies. Remember 99.9% of websites can’t do this. For the free-ad supported Internet to really thrive and boom in Nigeria (and Africa), it is essential the low CPM rates are reversed. Local adnetworks are an ecosystem necessity. Outside of US and Europe, the Middle East, North Africa (MENA) have their own, Asia have a clutch of their own, Latin America have their own. Africa hasn’t anything. Yet.
Last month iROKOtv generated 480Mn ad impressions, which basically means our viewers were shown an advert 480,000,000 times in January 2013. Now even at pennies per thousand (CPM) views you can generate significant revenue this way and we have done a remarkable job at figuring this out. The issue is that’s across the world. US and Western Europe have the highest yielding ad markets for us and geo by geo those numbers can swing to zero. In Africa those numbers are terribly close to zero. iROKOtv’s global media team is 5-people strong across NYC, London, Lagos and JoBurg and they spend 100% of their time trying to measure, test and optimize these impressions so as to squeeze any extra $-juice from them. We are integrated with 17 different advertising networks (video and display), and have had contracts and / or conversations with another 20+ more globally trying to figure out the best way to monetize the traffic. Real time bidding, demand side platforms and trading are the complicated names you tend to meet in this strange digirati world.
The Africa media team for iROKOtv was different from the business development guy we had at KULUYA. In the end they ended up pitching to the same people in the same space, wasting time and resources which were best spent elsewhere. This is where adnetworks need to step in and cover the universal pitching for everyone. I believe this is so important that last year I was very close to either starting one myself and even reached out to a couple with a view to angel investing. It is possibly one of the biggest pain points we will have for the iROKOtv Africa business and which ultimately lead me to the realisation that we need to have transactions to fully capture the value of the Nollywood audience. Amongst other things, this precipitated the launch of iROKOtv PLUS. Our $5/month subscription business. I am totally in love with subscription businesses. They are difficult to build but damn, once you have them are even more difficult to break up.
Since its launch 8 months ago, month-on-month our PLUS business has grown to become our second largest and most stable source of revenue. Example; the advertising industry is super cyclical. Q4 (Oct - Dec) are the highest revenue generating months, whilst Q1 (Jan - March) are the lowest. Globally it’s not uncommon for ad-supported businesses to see 40-70% drops in revenue within these 2 periods. Credit to our global media team, we saw nothing in that region, but our media business for Q1 ‘13 will definitely be smaller than Q4 ‘12. No bother - month-on-month the PLUS business is graudually filling that gap and creating a difficult-to-replicate money generating beast. The media business is no slacker but I expect and hope for PLUS to surpass it in 2014. The future of iROKOtv is largely a bet on our ability to build a massive paying subscriber base. Especially in Africa. Subscription businesses have traditionally been valued higher than ad supported businesses, as investors find it easier to map out future revenues and there is an inherent stability of direct relationships and transactions.
Final thoughts. The other day I heard NTA has an audience of 90Mn people in Nigeria. DStv has 5.5Mn subscribers across Africa, adding ~600k yearly, their payTV business generated $2.5Bn in revenue, ~$700Mn in operating profit in their last annual report. The entire Nigerian TV market’s advertising value is approximately $250-300Mn, less than half of DStv’s payTV operating profit. This is just a sense of what a paying subscriber business is capable of achieving if you focus your efforts appropriately. I know what business I would rather be in.