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Trio take stake in ITN
September, 6 2006

The Daily Deal, 09.06.06
Richard Morgan

A trio of investors announced plans Tuesday, Sept. 5, to take a majority interest in ITN Networks Inc. — a media sales company that customizes ad buys for major advertisers — in exchange for a capital infusion initially put at $200 million.

The investors, who are willing to chip in at least $50 million more depending on the opportunities presented to ITN as an acquisition platform, include New York-based private equity firms Veronis Suhler Stevenson and ZelnickMedia Corp. Veronis, which will become ITN's largest shareholder, and ZelnickMedia each had been pursuing ITN independently for years.

Rounding out the investor group is Sony Pictures Television, the Sony Corp.-owned content creator with more than 25 programs on network and cable television. That SPT was brought into the deal as a strategic partner stems from its status as the leading content creator not affiliated with a TV network or a TV station group.

"It's very important for ITN to be seen as a sort of Switzerland," said ZelnickMedia CEO Strauss Zelnick, who will also serve as ITN's nonexecutive chairman.

The Switzerland reference addresses the objectivity ITN needs when customizing national media networks for advertisers. The company does this by aggregating local TV-station ad inventory, then slicing and dicing it in ways to meet the demographics and psychographics specified by particular advertisers.

ITN has assembled a "Mom's Time Network," for example, to help packaged goods marketers reach working women with children. Through custom research, ITN identifies areas to reach moms when they are most receptive to an ad based on program environment, time period consistency and local appeal. "The whole model is about following the consumer you want to reach," Watson said.

Kevin Waldman, the Veronis managing director who led negotiations for his firm, said he expected ITN to "capture a larger share of markets we currently serve." But he also acknowledged that "huge opportunities" await ITN once its custom research and comprehensive analytics for targeting specific audiences are applied to cable and Internet advertising.

It was with a view toward expediting this process that ITN's individual owners — lead by Timothy J. Connors, who will remain the company's CEO as well as a significant shareholder — agreed to reduce their ownership to what was termed "a meaningful interest."

As ZelnickMedia partner Jim Friedlich explained: "ITN will invest its new capital resources to extend its reach beyond broadcast television into advertising markets including cable TV, satellite TV, the Internet and video games. ITN will apply its skill set to each of these media categories seamlessly and concurrently."

ITN, now in its 23rd year, is no stranger to advances from others. But indications of interest from acquisition-hungry ad agency and media conglomerates, which would prefer ITN direct more advertising through their agencies or to their outlets, have been viewed as causing potential conflicts of interest.

Simple financial sponsorship hasn't been all that attractive, either. ITN has not only grown on its own to average annual billings of $300 million in recent years, but it has managed to erect some fairly significant barriers to entry.

These barriers include its credibility as a buyer of ad time with major media outlets, its proprietary software for aggregating audiences and its history of successfully selling advertisers. "Any one of them may not seem that great by itself," Zelnick said, "but they're huge when taken together."

Veronis' Waldman, meanwhile, had no doubts as to why ITN elected to become the private equity firm's 45th media platform: "We're more strategic capital and not just fungible capital," he said. And that's just the sort of capital ITN desires as it moves from the stagnant, $32 billion ad market for national broadcast TV and into the soaring, $18 billion ad market for the Internet, which is growing at a compound annual rate of 20%.

Hence, unlike most media transactions these days, the ITN deal came together without an auction. The reason, according to one deal participant, was simple: "They were seeking smart money or none at all."