Morning Report

What you need to know one minute before daylight

The Advertising Industry Has a Problem: People Hate Advertising

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MARKETING 

This World Series between the Houston Astros and the Washington Nationals has attracted advertisers for advocacy groups and companies pushing social responsibility: “Advertisers are flocking to the baseball championship as an opportunity to reach Washington opinion leaders. This is a departure from typical sports championships, in which consumer package goods and retail ads typically dominate commercial time. Yes, but: This is a once-in-a-lifetime opportunity for brands to reach Washington decision makers in a casual environment. While many marquee advertisers sponsor events around Washington DC, there are few games that will have as high of an impact and as engaged of an audience as a World Series that includes a Washington team.”

The advertising industry is facing an existential threat: “As advertisers bombard consumers across platforms like Twitch, Facebook, television, billboards and more, consumers are trying to get away, signing up for ad blockers and subscription services. ‘People hate advertising,’ said Joanna Coles, the former chief content officer of Hearst Magazines, during a session at the Advertising Week conference last month in New York. ‘And it’s all advertisers’ fault.’ Seated next to her, nodding in agreement, was Marc Pritchard, the chief brand officer at Procter & Gamble, one of the largest advertisers in the world. Ads, he said, are often irrelevant and sometimes ‘just silly, ridiculous or stupid.’”

UK Insurance group Direct Line is moving its advertising budget away from online ads and toward “addressable TV”—an approach that can show different ads to different households watching the same programming: “Outside of search, which works well in tandem with TV, online ads had a ‘minimal’ impact on the advertiser’s long- and short-term effectiveness proxies such as reach, penetration and brand building, said Direct Line Group’s head of group commercial marketing, Sam Taylor. While linear TV works for reaching mass audiences for Direct Line, a notable number of viewers could be missed. But it’s not about going where those viewers [are] for Direct Line. … Rather, it’s about personalizing what the company shows them. A pet product, for example, may be too niche to promote on linear TV but could make sense around addressable content, said Taylor.”

THE ECONOMY

The current factory slump indicates that manufacturing isn’t the bellwether it used to be: “This has been a difficult year for American manufacturers, marked by trade war volleys and a global economy that is running out of steam. Output, investment and employment are down and firms are less optimistic. … Because factory production is volatile and sensitive to shifts in demand, it often starts to contract before the rest of the economy, the thinking goes. But that link may be weaker now that manufacturing firms make up a smaller share of the economy and the labor market, economists say. If that is the case, it means the US economy may be big enough and diverse enough to keep expanding even if manufacturing suffers a downturn. … Whether or not manufacturing’s recent troubles will spill over into the rest of the economy is a top concern for Federal Reserve officials, who are likely to cut interest rates this week to cushion the economy from a variety of risks.”

HUMAN RESOURCES

Employers are starting to rethink their bereavement policies: “Some 89 percent of employers have a bereavement-leave policy, up from 81 percent in 2016. But the policies tend to define family narrowly and allow as few as three days off for a death in the family. That’s barely enough time to travel to a funeral in a distant state, says Terri Rhodes, chief executive of the nonprofit Disability Management Employer Coalition. … More large employers are moving in the same direction. Facebook COO Sheryl Sandberg announced a doubling of the company’s bereavement leave in 2017 to as much as four weeks, citing her own need for flexibility after the sudden death of her husband in 2015. Both Airbnb and Mastercard mentioned Ms. Sandberg’s experience in announcing 2017 increases in their maximum bereavement leave to 20 days. … A few companies are easing restrictions on the kinds of relationships that qualify for bereavement leave. ‘More progressive companies would allow the employee to determine who matters,’ [LuAnn] Heinen says. That avoids putting employers in the awkward role of deciding how many days an employee should be allotted to mourn, say, a brother-in-law vs. a romantic partner.”

STARTUPS

French-based Welcome to the Jungle is a media and tech company that helps other tech companies recruit: “The company works with photographers and a video crew to create high-quality profiles of other companies that are actively recruiting. This way, potential candidates can browse those profiles, learn more about companies and make up their mind. Companies pay for those profiles to improve their branding, especially when it comes to recruitment. And it seems to be working well, as there are now over 2,500 clients, including 250 in Spain and 100 in Czech Republic. More recently, Welcome to the Jungle has started to expand beyond those showcases to tackle the recruitment process at large. The startup launched Welcome Kit, an applicant tracking system to manage job offers and take care of job applications. … Four thousand companies are using Welcome Kit. Collectively, they have posted about 150,000 job offers and received 2.5 million applications.”

Based in San Francisco, Plenty wants to put vertical farms in 500 densely populated cities around the worldstarting with LA’s Compton neighborhood: “At a nondescript gray building about 10 miles south of [San Francisco’s] Mission District, a team of a couple hundred people is trying to make vegetables taste better. This is the headquarters for Plenty, a company in the business of vertical agriculture—using hydroponics (growing plants without soil) to farm in an enclosed space—which is a long-in-development new frontier of farming that is starting to get to a place of technological efficiency that will allow it to scale commercially. In a space the size of a basketball court, the farm is growing kale, arugula, bok choy, beet leaves, fennel and mizuna. At Plenty, the mission is to make plants that taste so good, you’ll want to eat them over everything else. Chief executive and co-founder Matt Barnard, 47, claims that Plenty not only uses one percent to five percent of the water used to grow comparable crops on a traditional farm, but also uses a fraction of the land—and he’s doing it all in a 100 percent renewable facility powered by a combination of wind and solar energy.”

VENTURE CAPITAL

Steve Case has announced a second Rise of the Rest fund to invest in startups located where VCs rarely venture: “The $150 million fund is backed by Amazon founder Jeff Bezos, Spanx founder Sara Blakely, hedge fund billionaire Ray Dalio and other business leaders. ‘It’s nice that we are announcing this in Detroit, a rising city and the first city we visited on tour five years ago,’ Case, the lead investor, says. ‘We’ve seen a lot of momentum over those five years, and we are encouraged in terms of what’s happening.’

“The first Rise of the Rest fund invested its $150 million at a faster pace than anticipated, Case says. Since its unveiling in December 2017, the fund has made about 80 new investments, a pace of about 40 new investments per year, in 32 states, Washington, DC, and Puerto Rico, with average check sizes of $500,000. Its portfolio exceeds 125 companies.”

RavenPack, a provider of big data analytics services designed to collect data and conduct financial analysis, raised $10 million in a Later Stage VC round.

Aviatrix, a provider of a cloud native networking software designed to simplify connectivity to the cloud, raised $40 million in a Series C round.

PeerStreet, a provider of an investment platform designed to democratize access to real estate debt, raised $60 million in a Series C round.

M&A

Alphabet, Google’s parent, is trying to buy Fitbit: “A deal for Fitbit would come as its dominant share of the fitness tracking sector continues to be chipped away by cheaper offerings from companies such as China’s Huawei Technologies Co. Ltd. and Xiaomi Corp. Fitbit’s fitness trackers monitor users’ daily steps, calories burned and distance traveled. They also measure floors climbed, sleep duration and quality, and heart rate. Fitbit, which helped pioneer the wearable devices craze, has been partnering with health insurers and has been making tuck-in acquisitions in the healthcare market, as part of efforts to diversify its revenue stream. Analysts have said that much of the company’s value may now lie in its health data.”

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ENERGY

Even in Texas’ Permian Basin, investors are losing patience with frackingputting the revolution at risk: “It’s commonly believed that the boom began when wildcatters figured out how to combine two techniques—hydraulic fracturing and horizontal drilling—to unleash oceans of oil from hitherto impermeable shale rock. But the breakthrough was as much financial as technical. After the US Federal Reserve slashed interest rates in response to the 2008 financial crisis, cheap money washed into America’s forgotten oil fields, supercharging production. 

“A decade on, the returns on those investments haven’t matched the growth in output—not even close. The industry burned through almost $200 billion in the past 10 years. Over that time, the S&P 500 Oil & Gas Exploration Index lost 32 percent, compared with a 172 percent rise in the wider market. ‘The industry has destroyed so much capital for so long’ that many investors have fled, says Todd Heltman, senior energy analyst at Neuberger Berman Group. Access to capital is especially vital to shale drillers because of the wells’ rapid decline rates. Fracking production falls as much as 70 percent in the first year, compared with as little as five percent in a conventional vertical-drilling operation, so new wells are constantly needed. The number of drill rigs in the Permian has dropped 14 percent, to 422, since November 2018.”

Murray Energy is the eighth coal company this year to file for chapter 11: “As the company neared bankruptcy, the price for some of its bonds tumbled to the point of being nearly worthless, reflecting the coal industry’s dimming prospects as the US turns to abundant natural gas and renewable sources such as solar and wind. Some junior bonds were trading at less than a penny on the dollar last week, according to MarketAxess. … Until recently, Murray Energy was one of the few big coal miners to withstand the broader industry downturn through financial engineering, such as a 2018 bond exchange. But financial markets and debt investors have turned skeptical on the prospects of coal and aren’t sure the industry can recover from its long slump as prices weaken and coal’s share of US energy generation declines. The portion of the electrical grid powered by coal fell to 28 percent last year, down from 48 percent in 2008, according to the Energy Information Administration.”

And that’s what’s ahead.

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