Mirriad Advertising — Myriad opportunities

Mirriad’s technology delivers inventory to brand owners and advertisers that was previously not available and is additive and complementary to their existing channels. Third-party research commissioned by the group from media intelligence firm Kantar Group has demonstrated very encouraging uplifts in perceived brand value, described below. For content owners, it offers a potentially substantial new revenue stream in a format more acceptable to consumers than traditional ad breaks.

The five stages of the process are outlined below.

The company’s core IP lies in its ability to identify appropriate locations for product placement or brand advertising to be inserted into content post-production. This approach has considerable advantages over linear advertising and traditional product placement:

A two-year exclusive platform partnership agreement was signed with Tencent in China, taking effect in July 2019. This provides for a minimum number of advertising seconds to be delivered by Mirriad to Tencent to then be sold on by Tencent, with an inbuilt minimum guarantee at a fixed fee. By the end of December, Mirriad had delivered 47% of the contracted advertising seconds, so were at that stage well on target, allowing for a ramp up. Early validation was gained with a campaign for C-Trip, where campaign research found that purchase consideration by viewers lifted from 41% to 51%.

Mirriad has sought to protect its IP at all stages and now has 29 patents and patents pending across the USA, Europe and Asia. These include protection on dynamic emotional targeting (see below). The 19 patents in place globally cover:

The technology is being developed beyond identifying suitable locations within content to a more sophisticated model that also identifies the emotional context. The principle of prevalent emotions influencing reactions to advertising is long and well established. However, further independent research commissioned by Mirriad indicates that the correlation of perception of brand value (“How much would you be willing to pay for…?”) is more significant for emotional intensity than it is for simple ‘positive’ emotions or ‘negative’ emotions.

Mirriad has showcased enhancements to its existing analytical tools that enable it to make data-driven judgements on the prevailing emotions shown in visual content. Getting this right – and automated – could lead to far greater usage of embedded advertising.

There are other embedded content offerings in the market and being developed, but none are yet at or near the level of technical achievement or commercialisation achieved by Mirriad, which is running campaigns with credible content and brand partners.

Ryff is at an earlier stage of corporate development, while Triplelift primarily works in native advertising, placing in stream advertising, which may be in the form of video. It has been developing a platform for product and brand placement for over-the-top/streaming content providers which is currently reported to be in beta-testing.

Branded Entertainment Network is an important player in the traditional product placement and influencer markets, increasingly using technology to identify suitable opportunities. Bidstack is focused solely on providing native in-game advertising to the global video games industry. 

Patterns of content consumption globally have shifted rapidly over the past decade, with the growth and proliferation of the streaming platforms. This has been partially at the expense of terrestrial broadcasters and the cable companies in the US, but also represents growth in the overall market. Zenith Optimedia estimates that the time spent watching online video globally has grown at a CAGR of 32% from 2013 and 2018 and that individuals watch an average of 84 minutes a day.

New platforms continue to be launched, with the global roll-out of lockdowns in the face of the spread of COVID-19 likely to have increased further the number of visits per month after the time frame illustrated in Exhibit 6 below. These names have since been joined by HBO Max, which launched in late May 2020, with Peacock (NBC/Comcast) slated for July 2020.

The subscriptions are not exclusive, with households typically stacking two or three streaming providers to cater for different tastes and requirements. However, the number of subscriptions is limited by household budgets and competitive pricing is crucial. The other differentiator is content. With new streamers such as Disney pulling their content from other platforms in order to drive traffic to their own, and the cost of producing original content very high (with additional marketing costs to aid discoverability), novel monetisation techniques should have good resonance.

For advertising supported video on demand (AVOD) and for advertising-funded linear TV and video, there are limits to how much advertising per hour of content will be tolerated by the viewer.

Management with client and agency credibility

Stephan Beringer, CEO, joined the company in October 2018 from Publicis, where he had held a series of key roles, including president of data, technology and innovation and CEO of Vivaki, its programmatic buying offering. Stephan was previously chief growth and strategy officer for the digital technologies arm of Publicis. He therefore brought with him a deep understanding of the industry structure and relationships. Mirriad at that stage was pursuing a global sales approach, which resulted in business that did not necessarily scale and that was not inherently profitable. Stephan carried out a review of the business and chose to focus on fewer, but key, markets, namely the US, the UK, China, Germany and France.

The CEO, chairman and Bob Head, a non-executive director, all have options that trigger at various share price levels, starting at 30p, then 45p, 60p etc up to 120p. These total 5.5m, 1.35m and 0.4m respectively.

Moving beyond the repeat trial

To build genuine traction in the market, it is necessary to persuade all the relevant parties to specify embedded in-video as part of the campaign package. As well as having partnerships with the platforms, therefore, it is also important that Mirriad has the necessary relationships with the brand owners and with the agencies that buy media on their behalf. The contractual relationships vest with the content owner or distributor, but there needs to be a ‘pull’ element from their customer as well as the ‘push’ element.

The broadcast and video entertainment markets are a significant target themselves; management estimates this aspect of the advertising market for 2018 was $133bn globally. However, there are other attractive markets in which this technology could prosper. These are summarised in the exhibit below.

The music video market could be particularly fertile territory in the current market conditions. Artist revenues from streaming are notoriously parsimonious and most of music artists’ income stream is made from touring, merchandising and licensing. With concerts and tours effectively off the agenda, artists’ incomes are under great pressure and artists and their management should be more open to new means of monetisation, particularly where they are able to control the brand partners. The band Kodaline has already incorporated Mirriad’s technology in its lockdown video promoting Unicef. This is part of a new, larger collaboration between Mirriad and record label B-Unique.

Revenue models

The group is at an early stage of its commercialisation and revenues are currently small, but with the potential for rapid growth, as outlined below.

Following the appointment of Stephan Beringer as CEO in late 2018, a change was implemented in how Mirriad approached its markets, which had previously been to look to sell as broadly as possible, on a project basis. The new strategy was (and is) to focus on the largest advertising markets: the US; China; the UK; France; and Germany. Revenue for FY18 was down on the prior year, with substantially lower revenues generated in China and in India. Gains in the US were offset by reductions in the UK.

As the new strategy started to take hold, H119 revenues at £429k were greater than those achieved for the whole of FY18. The new contract with Tencent (signed in June 2019 but running from April 2019 to March 2021) immediately benefited the top line. It carries a fixed monthly fee, with minimum guarantees based on volume and runs for 24 months on an exclusive basis. Looking at the H219 revenues for China, the uplift over H1 was £240k, which implies that the value of the contract on an annualised basis is between £0.5m and £1.0m. There is potential for considerable incremental growth as the methodology proves its worth and gains traction in the market.

While it would be to Mirriad’s advantage to negotiate similar revenue models with other clients, most of its existing contracts are on a straight revenue share model. We believe the share of advertising revenue under these to be around 20%.

In this model, the content producer (or distributor) charges the advertiser (or agency), and a percentage of this fee is then paid across to Mirriad. Mirriad’s customer is therefore the content provider, rather than the ad agency. However, it is crucial to build and maintain strong relationships with the agencies and the brand owners in order for campaigns to include this new channel in the mix and be greenlit.

Management has said that it is currently in discussions with multiple entertainment majors to incorporate Mirriad’s advertising solution into their content (ie to ingest and appraise the agreed content and suggest inventory which can then be sold). A positive outcome of any of these negotiations could lead to a substantial uplift in revenues, which could be of the order of $1m+ for each agreement.

The group is also looking to build its revenues in other forms of online content where the market and mechanisms for selling ad inventory are less sophisticated, such as music videos, games and influencer marketing. These areas would give Mirriad the opportunity for direct sales of inventory to agencies, with an obvious benefit to achievable margin.

Given the current revenue inflection point, forecasting is particularly subjective, and Edison is not preparing forecasts at this time. While there is no formal guidance, market forecasts of a doubling of revenue in FY20 looks very achievable, despite the COVID-19 impact on the market. A summary of consensus financial estimates is shown below.

The largest element of cost is staff. The group currently employs just under 100 people, with technology and R&D based in the UK (30 people in FY19), and production based in India (37 people in FY19), with offices in London, New York, Shanghai and Mumbai. Operating costs for FY19 were down on the prior year, but this partly reflects a lower amortisation charge after the internally generated software development costs were written off in the prior year. Employee costs were up 18% on average headcount down 6% at 95 people, reflecting a change in mix. General and administration costs were down 23% on the prior year at £4.4m.

As the degree of automation in the processes increases, personnel costs will decrease as a proportion and become a semi-fixed cost, building in operational gearing. However, there may need to be a greater emphasis on client account management. The market forecasts indicate a gradual reduction in the operating and pre-tax loss, but profitability is not yet in the forecast horizon. Should current discussions with potential content partners come to fruition, however, this timescale could shorten considerably.

Balance sheet strengthened by placing

Mirriad has raised additional funds at regular intervals to support its development, including £25.0m net at its listing in 2017. In FY15–19, it raised a total of £63.8m net from the issue of shares. The latest fund raise was a placing and open offer in July 2019 at 15p, which generated £15.3m net (£16.2m gross).

As at end FY19, Mirriad had cash of £19.1m on its balance sheet, with lease-related debt only (following the adoption of IFRS 16) of £0.8m. At 30 April 2020, this figure had gone down to £15.8m.

Sufficient funding until at least Q321

The current rate of the group’s cash burn is under £1m per month (average of £825k over the first four months of FY20). If it were to continue at this rate, then existing cash resources would support the group until Q421, so we would assume that there would be a further fund raise at some point in FY21 to support further growth and move towards achieving profitability. Investors may at this point need to see some positive revenue progression, with the company delivering on growth.