SoMedia Networks Inc. CEO George Fleming on Video Ad Platform for Facebook Inc. (NASDAQ:FB), Google Inc.’s (NASDAQ:GOOG) YouTube

SoMedia Networks Inc.(CVE:VID) (OTCMKTS:SMDWF)(FRA:4OS) CEO George Fleming discusses his company’s video advertising platform for Google Inc. (NASDAQ:GOOG)’s YouTube and Facebook Inc. (NASDAQ:FB).

 

Midas-Letter-financial-radio-podcast-thumb[four_fifth_last padding=”0 0 0 20px”]Listen to the interview with George Fleming:

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Transcript:

James West: George, what is the opportunity for investors in So Media?

George Fleming: Well the opportunity for investors in So Media is to leverage the play that’s taking place around video advertising. In particular, the demand for video ad content by large platforms like Google and Facebook and soon to be Twitter, and is really transition on the web from static content to video.

James West: Wow okay, so then how do you make money at that?

George Fleming: Well So Media is about the scalability of video production. The company started focusing on video six years ago, and has built a complex and very sophisticated platform to be able to manage large numbers of video productions all at the same time, anywhere in North America, and be able to do that to the requirements of our clients. So in the process of developing a system like that, we had to focus on process and control and systems and management and organization and quality control and all those things, and as a result of doing that, we changed the process of producing video to turn it into a SaaS [Software as a Service] process married to an advanced crowd sourcing system that is possible. And as a result of that, we cut the cost dramatically. If you are a business and you need a video shot for the web, for your web site, for your marketing for whatever, and it’s a thirty second video, if you go to a local video production company, you’re probably paying $2,000, $2,500 or maybe more for that video.

And So Media works through – we sell wholesale through internet marketing companies and agencies and that same thirty second video, we wholesale generally for $799. And so that makes it radically cheaper than anybody else, but at the same time, because we’ve managed to suck out all the costs, our margins on that video are over 40 percent.

So its about volume, its about having become the lowest cost provider in the market, to be able to handle volume.

James West: That’s very interesting. So what are the proprietary aspects of the business then that act as barriers to entry to other competitors producing video?

George Fleming: The barriers to entry for other people to produce video, I mean certainly there are tens of thousands, hundreds of thousands of people out there producing video today. What we’re about is disrupting the traditional way of doing video, and to do that, as I said, we had to reorganize how video is produced, and   kind of turned it on its head. Where we manage the creative development part of the process through a SaaS interface directly with the client, and then translate that into requirements that are turned into production requirements, and then tasked with a crowd-sourced videographer locally. That’s a long complex structure, and to do that, we’ve had to develop all kinds of proprietary processes and systems. We even call our form of crowdsourcing ‘Crowdsource Workforce Management’, because its really an advanced evolution of existing crowdsourcing models.

So the proprietary parts of So Media are all in systems and processes, and organization aspects that would be very difficult for anybody to replicate quickly. As I said, So Media has been at this for 6 years, there’s been $20 million go into the company, and the production platform is into its fourth generation now, and that’s something that was evolved through iterations that continued to evolve and continued to advance the processes. Its like herding cats. Video production is like herding cats. And if you’re doing it in large volume, that means you’re herding a massive number – thousands of cats. And to be able to do that so you’re in control of them all, so that all of the outcomes are predictable, the timelines are standardized, the quality is always the highest quality and the costs are the lowest, you have to be able to build robust systems to be able to manage that.

James West: Hm. Interesting. Well then, who is your competition?

George Fleming: Our closest competition are what are called ‘marketplaces’ – the crowdsource marketplaces for video production. So to people know a bit about crowdsourcing, our competition are companies similar to oDesk and Elance. For those who aren’t familiar with the crowdsourcing space, they sort of would be familiar with Kijiji or Craigslist. And what those businesses all do is give you a place to push your requirements or your project onto a platform, where people can respond to you or bid on it. And what that means is they are great tools for discovering videographers, or production companies, but they’re not a tool at all for managing any of the process.

You’re left managing the process directly with the producer/creator – the same way traditional video is shot. So those are an advance compared to having to use the Yellow Page to find a videographer for sure, but they’re no advance at all in terms of scalability, standardization, be able to handling volume. You know a great example of how our competitors operate versus us, is if you’re an organization who needs video shot in multiple markets for a marketing campaign. So let’s say you needed the same video shot in Montreal, Toronto, Calgary, New York, Los Angeles and Boston. Well if you’re dealing with traditional videographers and production companies, the only way you could do it in all those markets at the same time, would be to hire someone in every market, and then manage them through each production. So you can imagine, if you have a different videographer or different video production company managing every project, then the outcomes are going to be different for every one of those videos. The quality is going to be all over the place, costs are going to be all over the place, and it’s a nightmare to manage that.

With So Media, if you need to order video in 5 markets, 10 markets, 100 markets or more, you can come into our platform, provide us with the requirements for that project, go through a process of answering questions for us that defines the creative requirements, and then we take that, and we turn it into an assignment for every market it needs to be shot in. We then assign that project to vetted videographers who work in our network in every single market, and then manage them to complete that project.

And therefore we can guarantee delivery in 14 days of video content in multiple markets, where the client doesn’t have to worry about the quality or the process – in fact, they don’t have to know anything about video.

James West: Okay . So are you profitable now?

George Fleming: No we’re not profitable now. So media was built, as I said, to handle scale and volume. And I guess you could say the we’re probably a little bit early to market, where the problems created by needing video in volume or in multiple markets, weren’t significant enough yet to really drive growth for us. So we have continued to drive sales, we have continue to have quarter on quarter growth, but we hadn’t really hit an inflection point up until just recently. And so the company has not become profitable yet. We do expect to become profitable by the end of this year. That inflection point I’m talking about is the advance of video advertising. Companies like Google – I should point out that we just launched last week a special video ad production platform designed for Google partners. So we’re working with Google – in Canada and in the U.S. In Canada, Google is offering special incentives to internet marketing companies they work with to get them to start promoting video ads on YouTube…and that program is about to start in the U.S. as well.

What their problem is, is that ah yesterday – I should point out before I go on about their problem – yesterday, Facebook issued their results, and today Google is issuing their results. When Google issued their annual results last quarter, it was clear that YouTube was not profitable for them yet. Although YouTube is generating massive amounts of revenue, its not profitable as a result of, their not being able to penetrate the market with video advertising yet. And the reason for that is this:

If you go and look on YouTube today, you’ll see a pre-roll ad – almost everyone of those ads are by national advertisers: you know, Tim Horton’s, or CIBC or Ford, etc. Those national advertisers have large national advertising budgets, and they deal with video agencies who produce their ad content. A lot times, they’re re-purposing television content that they’ve had produced. So those ads cost 10, 20, 30, 50 $100,000 to produce. That’s a huge problem for Google, because Google’s largest client base are small to medium-sized businesses. That’s who are buying pay-per-click ads and banner ads on the Google platform. The problem is that the majority of their advertisers – the so-called long tail of the video market – does not have a solution for the production of video ads.

If they need a video item shot, they have to go to a video production company or an advertising agency, and its expensive, its complicated – for all those reasons I was explaining that So Media is different, they’re having to go to the traditional providers of video production services in order to get video ad production done. And that’s caused the barrier to growth for video advertising on YouTube for Google. And so, what they’re trying to do, is encourage their agency partners – these are the companies that handle running advertising for businesses on Google – they have 50,000 of them in the States, and almost 3,000 in Canada – they’re trying to encourage these companies through incentives, to start the production of video ads, and we’re working with them to provide that kind of a scalable solution nationally.

Well Facebook just came out with their results yesterday, and they’re talking about they expect to be able to challenge Google and YouTube for supremacy on video, in terms of volume of video watched, and ultimately in video advertising, and they are clearly stating that they expect video advertising to contribute a significant amount of revenue to them. Mobile’s been driving their growth, but they now need to monetize – one of the key ways of monetizing Facebook’s mobile and international growth is through video advertising – and they’re about to run into the same problem. Where large national advertisers are the early adopters of video advertising. They’re enabled. They’ve got the video content, but the massive part of the market does not have it yet. And that’s where So Media – our solutions are designed for. That we can enable the small to medium-sized businesses in their huge numbers, all over North America, to be able to produce video ad content inexpensively.

James West: That’s interesting. So then, what are the major milestones that we as investors should look out for in So Media’s progress that will signal shareholder value appreciation.

George Fleming: The first thing shareholders should look for is announcements and progression of our relationships with companies like Google. The development of programs by Google that they will begin to market that are designed to incent these agency partners. Our integration and partnership with other partners, or the completion of integration with platforms like Facebook. And the continued development of further video ad formats and features, and then ultimately, hopefully by the end of this year, the beginning of an international rollout. For us, that’s really important. Google plans to roll out internationally, and there’s an opportunity for us to work with them. So Facebook derives over half of their revenue internationally now. So to be able to enable international advertisers to leverage video advertising is a big big big opportunity for us.

You know, what’s driving this? Is the compelling advantage that video advertising delivers over any other form of advertising.

If you use video ads the click-through rates, the conversion rates, the retention rates –everything about video outperforms every other form of marketing and advertising by multiples. Google provided us with some numbers recently where to them, video ads receive 27 times the click-throughs than banner advertising. That’s shocking. That means the ROI of video advertising is so much higher than anything else, that businesses and agencies are compelled and looking for solutions around video advertising. And its sort of putting us in the right place at the right time.

I always joke with everybody and say, ‘After all these years, we’re going to be an overnight success.’

James West: Sure. Okay so finally, what are the things that keep you awake at night that could be catastrophic for So Media and its shareholders?

George Fleming: What has been our biggest problem, and its diminishing now, but what has been our biggest problem is the market understanding what we’re about. And the problem we’re solving, and the opportunity around video. And the march of time is dealing with that, because people are becoming more and more familiar with video. I mean they see it everywhere, they understand that mobile is driving growth, and its easier for them to understand that.

Together with that, has been – our biggest problem has been accessing enough capital to really tackle the opportunities we have in front of us. We think that’s about to change as well, and as long as we’re able to continue to access capital and jump on this international opportunity to lead the development of scalable video production solutions and video advertising growth, So Media can be very successful. So for us, its all about access to capital. We don’t have any direct competition yet, we don’t know of anybody who’s close to us yet. All the competition we have can’t compete with us, as I mentioned earlier, around scale and ease of use, and all those things and costs. So the opportunity is ours right now run hard with it, and the only barrier to doing so is really capital.

James West: Okay. That’s a great first interview George. We’ll come back to you in a couple of quarters and see how you’re making out. Thanks for joining us today.

James West

Editor and Publisher

James West founded Midas Letter in 2008 and has since been covering the best of Canadian and US small cap companies. He covers global economics, monetary policy, geopolitical evolution, political corruption, commodities, cannabis and cryptocurrencies. As an active market participant, James is not a journalist and is invariably discussing markets...
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