Scott Cohen, CEO of Dimestore Media is doing some pretty interesting things with video advertising. He’s also one of the key guys behind 24/7 media and Live Person. One of the highlights of the interview is when he talks about the process of taking a company public. He was involved in taking two companies public. Scott talks about the IPO process, how the money goes from the investor to the company, and what happens to the company’s shares.
Full Interview Audio and Transcript
Hobbies and Interests: Cooking, Chess, Remodelling 100-year-old House, Swimming, Some Camping, Travel, Music Festivals.
Favourite Sports Teams: Not a sports fan, but his wife is a huge fan.
- Kane and Abel by Jeffrey Archer
Favourite Entrepreneurs: Dave Moore from 247 Media, Rob Locassio from LivePerson, Richard Branson.
Company Website: http://www.dimestore.com
Adrian Bye: Today, I’m talking with Scott Cohen who is the CEO of Dimestore Media. Scott has quite an illustrious past in many online businesses. Scott, why don’t you introduce yourself and tell us a little bit about what you’ve been up to?
Scott Cohen: I’m originally from Rochester, New York. I am married and have a daughter who is going to be 19 years old.
In the time since I was a kid, I’ve been in nine different industries. I left Rochester when I was 17 years old. I traveled across the country and lived in the San Francisco Bay area for about a year. Then I moved back to Rochester and started a real estate company. I also had an opportunity to earn an MBA (without an undergraduate degree) from the University of Rochester.
I moved to New York in 1988 and joined a management consulting practice at a Big 8 accounting firm. The culture clash was pretty significant, so I moved back to Rochester. I started another company that did work for the RTC, which was doing the bank workouts for the failed S&Ls. I built and sold the company. Then I moved back to New York and went into television media and then into the Internet in its early stages.
I took over Dimestore Media about 16 months ago. Dimestore has created a game show on the Internet using TV commercials in a quiz format. People watch an ad and then answer questions about it.
Prior to Dimestore, I was the owner of an Internet consulting practice with Scott Ehrlich, who is from News Corp and RealNetworks. Our clients were media and technology companies. I was also President of Game Trust, which was an infrastructure for online skill games. We built a multi-player platform and negotiated the deal between Game Trust and America Online. That company was sold to RealNetworks.
I was also integrally involved in two companies that went public. The first one was 24/7 Media, which sold to WPP last year for about $650 million. The other company was LivePerson, which is still trading on NASDAQ as a public company.
Adrian Bye: What did you do at 24/7?
Scott Cohen: 24/7 was formed by three companies that were all trying to raise money. One was an Internet company that had been funded and was running out of money. The other two were interactive divisions of large media companies that decided the Internet wasn’t going to be anything significant and wanted to sell the businesses they developed.
One was Petry Interactive, which is where I worked for Dave Moore. It was the largest television rep company. The other was Katz Millennium, which was a division of Katz Media. Katz Media was the largest cable rep company in the United States.
We were all raising money at the same time. A couple of VCs said, “We don’t know who is right. Your business plans all looked different. Your numbers all looked different. We will double the amount of money you’re asking if you agree to merge.”
We ended up with a lot of senior talent and people. We had to figure out how to blend it all together. We had three different cultures and three different management teams. At the end of the day, we sat in the room. We figured out how to divide the roles. We tried keeping everybody. Then, it was all about the execution.
Adrian Bye: What was your role at LivePerson?
Scott Cohen: I left 24/7 less than a year after the IPO, and I ended up bumping into a VC named Ed Sim. He said, “I know exactly what you did and how you did it at 24/7. I have the perfect deal for you.” Ed brought me in to meet Rob LoCascio, CEO of LivePerson. I joined the company, and we did another IPO.
I was the Executive Vice-President at LivePerson. When I first joined, I was in charge of the sales and business development group. Pre-IPO I took over the client services group. Between the two, probably more than 75 people were reporting to me. We had sales offices in New York, San Francisco, and London. We had a fairly large client services group.
Adrian Bye: What can you tell us about getting ready for an IPO and actually going through? How do you get started and what you do?
Scott Cohen: You go through a selection process of picking bankers. Each one is going to tell you why they are the perfect one. Then you’re going to make a decision on a banker. The business people are going to sit and talk to the bankers until they’re comfortable with understanding the business. The bankers are going to ask a million questions because they want to be prepared for exactly what the business is and its potential for success.
From that standpoint, it’s a real in-depth interview. The last thing the banker wants is to get through a process and then find that the potential investors start asking questions that do not have a good answer. Once the bankers are satisfied with the story, then it’s a lot of work between the finance and the legal guys. A huge amount of work goes into the writing to make sure it has the appropriate disclaimers. It captures what you said you were doing. It tells what you’re going to do going forward, and the risks of the business.
It’s pretty exciting. At that point, however, you as the business person should be as far removed from that as you can be. Your job is to continue to make it work and execute. For example, you say to a banker, “We’re going to do 30 deals next month.” At the end of the month, the banker’s been working on it and asks, “How many deals did you do last month?” You answer, “I did three.” That isn’t good. You’re not going anywhere.
In many ways, it’s the same as raising money. You’re trying to be optimistic in the way in which you approach your business and what you say is the potential, but you also have to manage the expectations.
Telling somebody you’re going to do 30 deals and doing three isn’t cool. At the same time, if you’re going to do 30, you don’t want to say you’re going to do 10. The banker is basing the evaluation of the offer and what they are going to take public on what you say you’re going to do.
You try to keep it pretty straightforward. Then they do a pretty in-depth competitive analysis. They crunch a lot of numbers. You make a lot of assumptions. You get management to say, “These are good assumptions. These are not good assumptions.” You tweak it again and again. You go through a bunch of filings, and then you go on a road show. The road show is telling the story over and over again to potential investors. At some point, you’re going to see your private company become a public company.
Adrian Bye: When the company goes public, does all the money just suddenly go into the corporate bank account?
Scott Cohen: That’s exactly what happens. It goes from the investors to the investment banks, and it literally gets deposited. You have sold a part of your company to the public. Suddenly you have a lot of money, but then you have investors. Those investors have a lot of expectations as to what they’re looking to see happen. They’re investing in it at, let’s say, $15 a share on the basis that it’s going to be worth a lot more than $15 a share.
The investors have stock. The company has cash and still has some stock. The owners of the company have stock that’s usually subject to some sort of a lock up. In other words, as owners, you can’t just all of a sudden, the day after you sell to the public, also sell your shares.
Adrian Bye: Does the company actually have to hang on to that? The company owns the share?
Scott Cohen: Let’s assume that the company right now is you and me, and we have 100 shares. We each own 50 shares. We decide to sell 10 shares publicly. We still own 50 shares each, but now we’re selling 10 more shares. In other words, we’re issuing 10 more shares. Now, the public owns 10 shares out of a 110. You still own 50. I still own 50, but the company is issuing new shares to investors. We have both been diluted. Then the investors have a say in what’s going on in the company through a board of directors.
Usually there’s more than just you and me, but the numbers are kind of like that. The company issues a few more shares and sells those shares. The company receives money. That money doesn’t belong to you or me. It now belongs to the company, and investors own a piece of that company.
Adrian Bye: What is going on at Dimestore Media?
Scott Cohen: When I took it over, it was a destination site. It was a business model paying people to watch commercials. I didn’t believe that either of those models was the way to go. Our goal is to change the way consumers view and interact with advertising on the Web. Video advertising is expected to grow over 450% by 2011. We create ad friendly entertainment.
I’ve worked with my partner and my management team to develop a different business model. I’ve hired tech folks, undertook developing a spec, and then starting to rebuild the technology. In fact, we’re a few weeks away from launching the next version of the technology, called VideoInsights.
We have a product road map and an operating plan that’s being fine tuned. You could almost look at it as branded entertainment, but it’s a game show on the Internet using TV commercials as content. It’s a rich media platform where the consumers are connected with that entertainment. There’s a lot of research and data that we pick up through the process. I’m hitting all the areas that I like: data, media, advertising and branded entertainment.
Adrian Bye: Are you still working out your message?
Scott Cohen: No, I’ve kept it very quiet. We’ve intentionally not shared with the marketplace what we’re doing. We know who our potential clients are. We’ve been talking to major agencies, advertisers, and big publishers. The message is getting out to the people that we need it to.
Our main focus right now is talking to advertisers that want to experience the next generation of rich media. We can provide a great story to advertisers with regard to research where we can get great data. It’s completely turnkey.
If someone wants to see an example of what we’re doing, they can go to VideoAdGames.com. They can register and play it, or they can just play it. They’ll get a sense of exactly what we’re doing. You’ll watch a TV commercial. At the end of that commercial, you’ll have a chance to answer four questions about it and win some points. Those points can turn into prizes. We’ve done some case studies now and found that we are increasing brand awareness, increasing message recall, and measuring purchase intent, which is something that nobody else has been able to do.
Everybody has been saying that the 30-second spot is dead. That you’re never going to get people to watch 30-second or 60-second commercials on the Internet. That you have to re-tool your content or your commercial message to 10 seconds as a pre-roll. We’re finding that we can get people to watch a 30-second spot. We can get people to watch the entire spot and engage in that. That’s significant and interesting.
People love game shows. It’s just watch, play, and win. The reality is that this isn’t an overly sophisticated type of business, but it is interesting. It is a real win for publishers. It is a real win for advertisers. It is a fun for visitors, by providing entertainment. From an advertising perspective, it’s a good model.
Adrian Bye: What would you say to someone, who gets two to three billion impressions a month, to get him to want to run your ads?
Scott Cohen: It’s not a matter of running our ads. Dimestore has developed a white-labeled solution. We create a game show they can label their own, and which they can offer to advertisers. The advertisers get branded entertainment. They get something that reinforces the message. If they areselling any advertising on the site now, they probably hear over and over again, “I want something more than banners, buttons and text links.” We can give real-time reporting, and we can give a registration vehicle. What we are giving a publisher is content, which will increase the time on their Website and generate revenue.
Additionally, Dimestore is creating video inventory, which is the highest CPM advertising on the Web. It’s not only video inventory, but video inventory that engages the consumer-it’s even a better sell. It’s another thing that they can take out of his toolbox and offer to an advertiser.
Adrian Bye: Does he offer it to the advertiser? Do you bring the advertiser and everything to him and then he runs it? Does he tell you to work with the advertiser?
Scott Cohen: Currently, we’ve offered it both ways. Certain clients we do business with are letting us sell some of the ads, and they have their own advertisers. Certain sites have their own advertisers, and they prefer to control the inventory 100 percent. In that case, they’re paying us either on a rev share or a CPM basis.
Adrian Bye: Do you have any competitors for this?
Scott Cohen: There aren’t any competitors. You can go with Firebrand, which raised $60 million and tried to do a whole channel based on watching TV commercials. We had adTV, which was a group that started doing some interesting things with online advertising. You have a number of sites that pay people to watch advertising. From our research, the advertisers are not enamored with that. You are not receiving the best potential customer when you say, “I’ll pay you to watch an ad.” I think we’ve cracked the code, and we’ve come up with the next generation of rich media. We’ve added a social component and a game component, which makes it entertaining and fun. The commercial becomes the content. It’s the anti-TIVO!
Our focus today is working with advertisers to get them to understand the benefits of what we’re doing and presenting our solution to publishers to get them to recognize how valuable putting VideoInsights on their site can be. It’s completely white-label, so we’re not trying to brand our company. We offer a complete turnkey approach to creating revenue. We’ll serve it, report on it, and they’ll be able to collect the revenues. Dimestore Media’s VideoInsights platform has been custom designed to provide branded entertainment while serving the right video ad, to the right viewer, at the right time.