Confirmed: Federated Media Receives $50 Million Third Round; Interview With Battelle

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John BattelleAs has been widely expected, Federated Media, the online blog advertising network, has announced that it has received a $50 million minority investment from late-stage investors Oak Investment Partners. Oak was the only investor in the round, contrary to previous reports. The company, founded in 2005 and based in Sausalito, CA, says it has about 150 sites in its network, and became profitable in Q307. No official word on the company’s valuation, but previous stories pegged it at $200 million pre-money. Also, FM is reported to have about $25 million in 2007 revenue, and expects around $60 million this year. Previously, the company raised $7 million in two rounds from JP Morgan, Omidyar Network, *NYTCo* and various individuals.

FM has expanded beyond its tech blog vertical and added parenting, business & marketing, media & entertainment, video gaming, graphics arts, automotive and others. It has also started doing events for its blog clients, offering them turnkey service in return for revenue share.

I spoke to founder and president John Battelle on the funding, the company’s hopes and plans, rollups in blog space, future of online ad networks, and other issues:

The rationale behind this big raise: “We want to increase in a big way the two things we do for our partners: the publishers, and marketers/advertisers. That isn’t just one big thing we can do…there is a wide range of things we can do because of the range of folks we work with. We have good plans for putting this one to work .” He did not disclose the specific uses, citing competitive reasons.

On acquisitions: He didn’t directly address but said: “With this money, we would be in a position of strength and be proactive when opportunities arise. One thing this does is create valuation for the company that gives it flexibility in terms of transactions that might occur in the future — the ability to not just use money, but stock of the company…we just have a lot more options now.”

Next phase of growth: “We don’t view ourselves as an ad network…ad networks are our cousins. We have a portfolio of brands that we represent and partner with, so we consider ourselves a digital media and publishing company. Our next phase is to help those brands grow.”

On not owning any of the blogs/brands: “That is our secret sauce: not controlling them and not having a media model where you don’t have command and control. We have about 120 people who have 150 sites, and they are all entrepreneurs who passionately believe in what they do and have ownership. That’s hard to do at scale in the traditional model of a media company. imagine 150 magazines, with 150 editor in chiefs, and the superstructure needed to support those…believe me, I know those superstructures very well.”

Reconciling to the talent drain: “Some will decide to build their own structures, and that’s ok. On the other hands, others who have been working with their own structures will decide that it is not an efficient model, and will join us.”

Proliferation of online ad networks: “We are in a phase where the online ad networks have been built on the direct response model, and the effective CPMs prove that. *Google* AdSense is the biggest example of that. That’s where the other ad networks started, and then this evolution where people try and build algorithms and other things that try to get above that bar: behavioral, contextual and others. We are trying to get out of that trap, and build engagement and brand equity, and that whole stuff that build the rest of the media industry before the Internet.”

Rolling up blogs: “The idea of rolling up properties has been there forever, and they work, or don’t, depending on a lot of factors that no one controls. It is not simple, and requires a deft touch, in terms of media skills. I don’t think we are in a market where that can be done easily. I don’t think the people who write the best stuff are interested in being rolled up and be a W-2 employee of somebody in a long-term earnout.”

What if the ad economy goes into a tailspin?: “I went through the most insanely scarring experiences of my life, which was The Industry Standard. We went from $200 million in revenues to $50 million in four months. I had $80 million in leases over 10 years, and had 400 people. That, of course, shaped my experiences in how I built FM. Now I have 20 percent of the staff and 8 percent of the lease. I built this company with the idea that it had to be nimble and lightweight…that was something I was studying with Web 2.0, effects of search on media, etc. If marketers withdraw, then we will have to adjust just like any other company, but we don’t have the overheads. We have also focused on big, national brand advertisers, who don’t stop spending in a recession. We are in a position to be at least at the table in case of a downturn that significant.”

Pic on the right: Battelle at our EconSM conference speakers’ dinner last year, on Apr 25th evening at Spago in LA.

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Sramana Mitra

I think FM should pick up a few flagship sites that they can use to drive traffic to the rest of their portfolio.

One of the things that is not happening much yet, but if big media plays its cards right, it will, is that "traffic" will be used as a currency to recruit strong voices into networks. In other words, WSJ can easily recruit FM's top authors with the lure of brand and traffic.

What is FM's strategy to counter this, when it starts happening?

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