Videology competing in crowded market as it weighs IPO or sale

Video ad firm Videology, which was founded in Baltimore, is considering either going public or selling itself.
Video ad firm Videology, which was founded in Baltimore, is considering either going public or selling itself. (Videology)

A couple of generations ago, advertisers could run a commercial on "The Ed Sullivan Show" and "everyone in the world saw it," said ad technology entrepreneur Scott Ferber.

Now it's not so simple to reach viewers, who are watching their favorite shows on DVRs, laptops, tablets and smartphones, and from nontraditional outlets such as Netflix, Amazon and Hulu. For Ferber and his company, Videology, it's a chance to take concepts that made him and his brother millions at Baltimore's Advertising.com a decade ago and apply them to helping advertisers navigate the fragmented world of video ads.


Videology's success so far has emboldened Ferber to suggest that he may attempt to sell the company, either on the public stock market or to a deep-pocketed suitor — paths the company's competitors have taken, with mixed results.

Observers say the company, which recently relocated its headquarters to New York but maintains a major presence in Locust Point, could well profit as advertisers look to capitalize on the huge growth in the numbers of people watching videos online and on mobile devices. Yet investors have been ambivalent toward some of Videology's peers, even as major online players such as Facebook, Google and AOL have been snapping up other competitors.


Still, the company could represent another local success story in ad technology. Millennial Media rose from a startup with ties to Advertising.com to a $152 million initial public offering, but the Canton-based firm has languished since, with shares losing 90 percent of their value since the IPO.

"Our growth is going to come from more people needing our help, and the overall industry growing," Ferber said. "We're all living the change in consumer behavior that makes this business opportunity so great."

Videology develops technology that helps advertisers target video ads to narrow demographic groups, placing those commercials across websites and in smartphone and tablet applications. It also gathers data on online consumer behavior and applies it to traditional Nielsen TV ratings to help advertisers get more bang for their buck with traditional TV spots.

It employs about 150 people in Locust Point, with 50 employees in New York and another 150 around the country and globe.

Videology's technology and reach are increasingly important for advertisers, said Rich Reiter, creative director for Baltimore advertising agency Planit. Consumers' attention has splintered across many more types of media since the days of Ed Sullivan, and that means ad agencies like Planit have to be creative in plotting out campaign strategies.

"You're just trying to make sure you're breaking through the clutter," Reiter said.

As a result, spending on online video ads is growing significantly faster than the traditional TV ad market — though it still accounts for only a fraction of TV ad spending, in terms of dollars.

Research firm eMarketer predicts that digital video ad spending in the U.S. will hit nearly $6 billion this year, up 56 percent from 2013, and will rise to $12 billion by 2018. Magna Global, another research firm, pegs those figures even more aggressively, forecasting growth from $8.3 billion in 2013 to $22.5 billion in 2017.

That compares with estimates of $69 billion being spent on TV advertising this year, and $79 billion by 2018, according to eMarketer.

But there is some uncertainty over how advertisers will divvy up their marketing budgets. Industry experts observe that many people skip video ads if they can, or, if watching on a computer Web browser, click over to another tab until ads finish running.

That is helping drive some of the spending toward mobile video ads, because they're harder to skip or ignore, said eMarketer analyst David Hallerman. But advertisers still have a lot of options.

"One of the things a lot of advertisers haven't quite gotten down yet is finding a balance," he said.


Those factors have translated to mixed performances for some of Videology's competitors.

Many have been the target of acquisitions from technology and media's biggest names this year. Facebook bought ad tech startup LiveRail this summer in a deal pegged at $400 million to $500 million, according to tech blog TechCrunch. Comcast paid $360 million for startup FreeWheel in the spring. And last year, AOL bought Adap.tv for $405 million.

Two other competitors went the IPO route. Rubicon Project made a splash with an $81 million IPO in April, but shares have slumped 25 percent since. And TubeMogul raised $44 million in July, only half of its initial fundraising goal, but shares jumped afterward.

Forbes columnist Alex Konrad suggested it was a signal the market "still doesn't trust ad tech very much."

The uneven performances, as well as just the sheer number of players angling for market share in video advertising, suggest uncertain success for Videology, said Kathleen Smith, principal at Renaissance Capital.

"Although everyone may be excited and it looks like an interesting company, I think the market is kind of a discerning IPO market," said Smith, whose company tracks IPO data and also manages IPO-focused securities. "Investors are going to be worried about competition."

Ferber said he was not tied to an IPO, though Videology sent signals that it is pursuing that option when it announced earlier this month that it had hired Kenneth Tarpey as its new chief financial officer. Startups frequently bring in financial experts when they are preparing to open their books to the scrutiny of the Securities and Exchange Commission and investors, and Tarpey has experience with IPOs and public companies.

And Ferber has been through this before, too. Advertising.com, a pioneer in online ad targeting and pricing strategies, had filed to go public when it announced it would instead be sold to AOL for $435 million in 2004.

"This could be a play for that," said P.K. Kannan, a professor at the University of Maryland's Robert H. Smith School of Business, of the chances that Videology could be angling for an acquisition rather than an IPO.

But Ferber said he sees value in three options: going public, mergers and acquisitions, or even independence.

"My objective in building a company is to build a great company," Ferber said.


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