Economy

Content king

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Domenic Carosa’s first business venture was selling postcards as a child. Now he’s running a $70 million video, film and music content company. He tells AMANDA GOME about the journey.

Domenic Carosa’s first business venture was selling postcards as a child. Now he’s running a $70 million video, film and music content company and has Lachlan Murdoch as a shareholder. He tells AMANDA GOME about building online communities and how to make money out of them.

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 To listen to the podcast of Dominic Carosa, click here.

Amanda Gome: Domenic, in Destra’s early days you used to sleep on a shelf?

Domenic Carosa: Yes. My bedroom and various other bedrooms in the house was effectively converted into a company-type warehouse, which we used to use in the mid-1990s as we were setting up the company.

You transformed from a hosting company into a pure content company. Is that correct?

That’s correct. When we listed the company in May 2000 it was very much focused on digital media but we found we weren’t getting traction from a revenue perspective.

The record companies weren’t providing our licenses. There was really a lack of broadband in Australia and the online advertising market effectively died after the dot.com crash because it was all the dot-coms spending money and they were all going broke.

We changed our business model and refocused on hosting. As my mentor says, we set ourselves a big fat hairy audacious goal to become one of the top three web hosting companies in the country.

After about 12 to 18 months we did become the second-largest hosting company in the country, which we subsequently sold to Blue Freeway late last year. That allowed us to continue running the company on a profitable basis until the market was ready [for a content company]. There is a lot more broadband now compared to seven years ago.

The online advertising market is now worth well in excess of $1 billion, back then it was worth $30 or $40 million. Content companies, record companies, now license out their content. So from that perspective the market is now ready for the kinds of things that we were doing in the late 1990s.

Do you wish you’d waited?

Not at all. I think every single day and month and year has been a very good learning experience. We’ve built a very strong business and our refocus back into digital media really goes back to the roots of the company. We’ve now got Prime Television is as a shareholder. And that really just provides the credibility stamp from a media perspective that we’ve been… finally people are taking notice of what we’re doing.

Well you’ve also got Lachlan Murdoch in there as a shareholder with a 2.8% stake. What’s he like to have around? You think he’d be very useful for advice or leads.

Lachlan is a very smart entrepreneur and I’ll certainly be tapping him on the shoulder every once in a while and seeking his counsel on myriad things we’re doing in media.

You’re now a video, film and music content company. And you’re creating communities around that and monetising those communities.

Correct. Our strategy revolves around three core areas. Our first part of the strategy is that we acquire content. Both music content and video content, and some of the content that we have is artists such as Dannii Minogue, Roger Sanchez and quite a lot. And sports – we have the rights to the AFL, NRL, World Cup Soccer, V8 Super Cars as well as a huge range of film.

The second part of the strategy, and this is in our view the most important part, it’s the glue, is where we build communities around certain demographics, around certain genres of content. We use the content to help drive the audiences.

The third part of the strategy is that we monetise not only through the sale of content but also through the sale of advertising around the content.

Our view of the future is that people will experience and want to entertain themselves with music and video. A lot of people in the future will want to receive that content for free but it will be supported by advertising and it’s like what TV and radio have been doing for many years – effectively giving away content but wrapping advertising around it.

By using the internet we’re able to better understand who our customers are so we can ensure that the content that we push to them is content that they are interested in and the advertising that we push to them is also advertising that they’re interested in.

There’s no point showing me advertisements on handbags because I’m not interested in handbags. So that’s the kind of targeted profiling system that we’re building which allows content and advertising to be targeted towards individuals.

Is the price of online advertising going up? At the start it was so much lower than the print equivalent. Is better targeting helping you charge more online for advertising?

What we’re starting to see is that smaller, niche-targeted communities are achieving a much higher yield from an advertising perspective than a really broad untargeted reach perspective, and the analogy that one can look at is if you want to advertise on Hotmail, which is really completely untargeted, you can buy it at $2 per CPM roughly.

But if you want a highly targeted community, that has one-to-one relationships and understands who the customers are and demographics and psychographics and all of that stuff that marketing that people are really interested in, you could be charging anywhere from $30 per CPM up to a couple of hundred dollars for a video-type based CPM. So we’re finding that video is able to achieve a much higher CPM or high yield than the traditional website because you’re watching the video and before the video you’ve got the advertisement.

What about podcasting?

Podcasting can be relatively targeted. It depends on what kind of user registration system is in place that allows people to register for this kind of podcast, but one of the most important things that is driving content and advertising and rich media online is the penetration of broadband in Australia and, really, in the last couple of months and I think pre and post-election we’ll see Governments placing a lot greater emphasis on broadband.

In my view broadband – or high speed broadband – is just as important as electricity, roads, trains and other infrastructure. It’s what basically helps grow and build the digital economy.

How are you seeing online communities changing?

I think online communities… I won’t say that they’re the way of the future. I think they’re just going to be one part of a number of parts of an overall way that consumers are able to interact with other people and content.

One of the visions that we have, and one of things that we see is a little saying that I have is that ubiquity is the best form of exclusivity. And right now if you look at music or video you have content that is released firstly in the cinema. Then it’s released on DVD, then pay TV, and then it gets trickled down and then finally gets released on the web.

This is sort of the archaic thinking that these large content providers currently have. My view moving forward is all content will be released across all platforms, all at the same time because what is starting to happen. If you’re a fan of Lost, you’ve got to wait weeks and months before it’s available infrastructure, so what are a lot of people doing? They’re going on a P to P site and they’re downloading it and finally the video providers, the movie providers, are starting to wake up and realise that consumers are wanting content now based on their terms when they want to watch it, not when some producer at a TV station is telling them when they should watch it.

So everything is now starting to move to an on-demand model and that is the way of the future and the same with music. Music will be distributed globally and released all at the same time and Destra is one of the largest independent content providers in Australia. We’re very much living towards … to that mantra and releasing all of our content across multiple platforms all at the same time.

What are some good tips, things you’ve learnt about how to create and built online communities?

I think being able to allow people to interchange in terms of ideas. So things like forums and hosting of comments and you see the guys at the Sydney Morning Herald and the Age, well they’ll write certain articles and then allow people to blog and make certain comments about certain things.

I actually find personally reading through the blogs and people’s comments, just as interesting if not more interesting than the actual article. So really simple things, of allowing people to provide comments and feedback to articles that people write, that is a very, very simple way that people can effectively start building community and you know, forums are another way and there’s a whole bunch of ASP IS software service type applications online where people can just plug that into their existing website and bang, they’ve got a community without having to go and spend big bucks on it.

What about building your databases?

One of the things that we certainly do is ensure that if someone is downloading a podcast that they’ve got to register and they’ve got … if we’re going to give them something for free … they should just at least part with some of their information: name, address, the kind of things that they’re interested in, etc. so it’s a way for the person or company that owns the particular website to start building a database of people who are interested in that particular product or service or community.

So building databases I think is a really important part and then obviously emailing those customers or those members out on a fairly regular basis is also as important. Keeping in touch with the community.

Now you’ve been on a bit of a spending spree. How many companies have you bought, say, in the last two years?

We’ve sold off three companies – non core divisions – and we’ve bought, from memory, about 10 or 11 companies in the last 24 months.

And how have those acquisitions gone? What have you found are the hardest things about putting acquisitions into a sort of mix like yours?

We’ve … having built the second largest hosting company in Australia mainly through acquisition but also quite aggressive organic growth.

We have broken down acquisitions into three core areas in terms of integration.

One is the customer integration. The second is the systems or technology integration and then third is the people. Customer integration and technology/systems integration with planning and work and really solid communication, in my view, that’s the easy bit. The biggest challenge in any acquisition is the people integration. This is where we spend the largest chunk of time, integrating and making the people that have been acquired feel part of the Destra family. I shouldn’t say you can control systems and customers, and those things but you have a high degree of influence on … controlling people is virtually impossible so that from our perspective is the biggest challenge but at the same time is also the biggest reward.

And have you got any tips on how to make people feel more at home? Do you have any little quirks?

We’ve got little things that we do at Destra that some people can say is pretty crazy. I’d like to say that it’s actually part of the Destra culture. What makes us who we are and that is for example we’ve got bells – we call them the bells of success and effectively bells that people can ring at the various offices when people do good stuff.

I love walking through our offices or sitting in my office and hearing someone go up to the bell and ring it because he just had a really good customer experience, just done something positive. They are really a symbol of ensuring that we do celebrate our victories and have a lot of fun at the same time because life is too short not to have fun.

Are you still looking for acquisitions and what are you looking for?

We are always looking for acquisitions. I think making acquisitions is part of the company DNA. We’re looking for a lot more in the media space so we are continually looking to acquire more content. We’re looking at more communities out there, both across music and video and sports and anything in traditional media that we can cross over into digital media. We’re currently looking at a number of what I would term old-economy assets but we see these old-economy assets as not only having good solid cash flows and profits today, but also giving us the foundation or the base to move them into the digital world.

Now where are you up to with Magna Pacific, the film and DVD distributor?

We’re currently in the process of acquiring that company. It’s certainly not a done deal. My view is any public company acquisition has a high degree of execution risk so the scheme documents go out later on this week (21 June). We’ve got the support of the board and the major shareholder who’s on the board – or shareholders, I should say, that are on the board. We’re quite confident, however, at the same time we’re also realistic to know that the deal is not done until it’s signed and the money’s in the bank.

Now revenue to the six months of December 2006, was $35.9 million.

Yes, that sounds about right.

And what are you projecting for this six months?

We haven’t provided any guidance from that perspective but like we have in the past we expect revenues to continue growing. We expect our bottom line to continue growing. The 2007 financial year, which is just about complete, will have a number of abnormals. We would have generated over $20 million in EBITDA profit through the sale of domains hosting and communications, so from that perspective we’ve had a very, very good year.

But what’s important is what kind of results we expect to achieve over the next two to three years and that’s why I think the large strategic shareholders are with us and investors are coming on board is because not what we’ve got today but what kind of company we’re building for the future.

You’re 32. And you started the company in the mid to late 1990s, didn’t you?

Well, my first business – my first foray into business, I’m not sure if you’d call it a business – was actually selling postcards when I was five years old out the front of my house. I remember back then it was one postcard for one cent or three postcards for two cents and back then a couple of cents would buy you a handful of lollies and when I was five my core objective was more lollies. These days my core objective is to grow a big successful company with a bunch of really really smart talented people that want to accomplish big things.

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