Like many other media companies, Postmedia Network Canada Corp. is in a fierce battle to hold on to diminishing advertising revenues. Now, the country's largest newspaper chain is attempting to win over one advertiser with a simple message: We only get paid if you do.
On Monday, Postmedia announced an unconventional deal with Mogo Finance Technology Inc., an online provider of short-term loans that is looking to build a customer base among young people who shy away from traditional bank branches. The deal will give Mogo what Postmedia says is at least $50-million worth of advertising space in its newspapers and on its digital properties over three years. In exchange, rather than the usual transaction where the advertiser pays for that space, Postmedia will take a cut of Mogo's revenues, and will have the option to buy into Mogo's stock at current prices.
Essentially, Postmedia is making a bet that the company will be worth more in the coming years than the value of the advertising space it is giving up. It's not without risk: Mogo's stock price has fallen more than 65 per cent since the company went public last June. Currently, Mogo says it has just over 150,000 members.
So why take the risk? Startups such as Mogo are hesitant to advertise with legacy media, said Andrew MacLeod, Postmedia's chief commercial officer. This was a way to convince them that Postmedia was worth examining as an advertising vehicle.
"They were allocating the vast majority of their marketing budget to the new apex predators – as I lovingly refer to them – the Googles, the Facebooks, whatnot. … If we had just approached them with a vanilla, 'How much print would you like, how much digital would you like,' I would highly doubt we would have had much traction with that," Mr. MacLeod said. "It's a completely different way of looking at it."
The moment that the agreement comes into effect, Postmedia will begin drawing 4 per cent of Mogo's revenues. And there is a performance-based aspect: If Mogo makes more money, Postmedia will get 11 per cent of those "incremental" revenues.
Postmedia will also receive warrants giving it the right to purchase up to roughly 1.2 million common shares of the company over a five-year period, subject to various conditions.
If this experiment works, Postmedia may be open to other similar deals in the future.
"This is a new model where we can approach people and say we can both have skin in the game from a commercial perspective," Mr. Macleod said. "It's not necessarily something you want to do everywhere. We're co-mortgaging ourselves together and you want to pick the right players."
For Mogo, as a small company trying to build its brand, marketing is a big expense, which is part of the reason it has focused on cost-effective online advertising. Its advertising with Postmedia will include online ads, but could also encompass other Postmedia advertising such as print ads, newspaper inserts and what is known as "native advertising," or articles that are paid for by an advertiser with prescribed subject matter with which the advertiser wants its brand to be associated.
In media, there are also differences between the standard rates charged for ad space and the prices that big advertisers with long-standing relationships and deep pockets are able to negotiate. Postmedia has told Mogo that as it draws on its bank of ad space across Postmedia properties, it will receive rates that are consistent with other large advertisers.
"Because they really are incentivised to help us grow our business, that creates a more compelling partnership than a traditional media buy," said Mogo chief executive officer Dave Feller.
It's not the first time a media company has struck such a deal: In August, Metroland Media Group Ltd. took a minority stake in Nest Wealth Asset Management, an investing website. Metroland, a division of Torstar Corp., paid $1.5-million cash, but also included advertising support in the deal. At the time, Metroland president Ian Oliver said the more than 100 weekly newspapers in Ontario that Metroland publishes were not seeing much advertising revenue from so-called "robo-advisers."
Last week, Postmedia announced that it would cut 90 jobs as it merges competing newsrooms in cities where it publishes more than one newspaper. The company has been struggling under the load of more than $670-million in debt, while at the same time advertising revenues are falling.
"Our industry is in a difficult place," Mr. MacLeod said. "We need to be trying new things. We know what doing nothing will get us, extrapolating out the current trends. So there is an element of, it's okay to jump off the burning platform and try things. ... This industry genuinely has to transform. It's one plank in a larger transformative journey."