by R. Asmerom
Honey, the magazine that once vied for Essence’s spot as the go-to glossy for African-American women, was one of the many publications that folded in the last decade, victimized by the shift to online advertising and changes in the media economy. YouBlast Global, formerly known as Sahara Media Holdings Inc, sought to revive the brand as a website in 2008 and has since invested millions of dollars in the niche site and a soon to be released social network named YouBlast. From the poor performance indicated in YouBlast Global’s 2009 annual report, the company’s trajectory is in question. With a reported loss of $6.7 million in 2009, revenues of only $39,000 for the year and $300,000 dollars left in the bank, 2010 might well be the company’s swan song.
The exact business model of YouBlast Global is fuzzy. Are they ad salesmen, content creators, or web application builders? Although HoneyMag.com and their social network, TheHiveSpot.com, appear to be their core offerings, the company’s expected revenue stream seems to also rely heavily on a database it acquired when it purchased the Honey brand. In its corporate communications, YouBlast Global states that it generates revenues from “advertising sales from their websites; licensing of their database and direct marketing and sponsorships,” inferring that the database, which consists of 4.2 million names in the 18 to 49 urban demographic, is integral to their business model and that database licensing and direct marketing is expected to constitute a significant portion of their revenue. Whatever their chosen business model is, they appear to be failing woefully at it.
Ever since HoneyMag.com launched as a site targeting a “multi-cultural urban audience,” its online presence has been underwhelming. With low traffic numbers, the million and a half subscribers of the discontinued magazine are yet to convert into online fans. YouBlast bought the Honey brand in 2005 for $600,000 after its parent company at the time, Vanguard Media, folded the popular magazine during its 2003 bankruptcy filing.
When YouBlast Global raised funding and relaunched the Honey brand in 2008, it outlined its mission simply. “Honey
CEO Philmore Anderson IV has headed the company since 2005
is a great brand with a strong connection to an important audience,” said Philmore Anderson, YouBlast Global’s Founder and a former music executive, in a statement . “We are positioned to take the Honey brand to the next level as an online magazine and social network.” Despite the company’s praise for the site’s performance in the most recent press release, it’s clear that the site is not doing well and there’s little to indicate that HoneyMag.com’s growth was ever a primary objective for the company.TheHive Spot.com, which has been practically lying dormant, represents the company’s half-baked foray into social networking and will soon be replaced by YouBlast.
“I remember a few years ago, when I was reading some of their opening remarks, [it seemed that] a lot of their funding was related to how many page-views they could generate and unique visitors they could attract,” said new media consultant Liz Burr. “If your funding and livelihood is based on page-views, it probably would’ve been better [for them] to acquire blogs than build propriety social networks.”
The lack of buzz and the fact that it has been able to rack up only 61,000 unique monthly visitors (comScore) after its most recent relaunch puts HoneyMag.com well behind competitors like Essence.com and HelloBeautiful.com, which are both attracting about half a million unique visitors per month according to comScore.
“HoneyMag has probably relaunched three times in the last year or year and a half,” said Burr, adding that the company’s further investment into social networking with YouBlast may pose a difficult prospect. “I’m wondering how they’ll be able to compete in this [social networking] marketplace especially since it doesn’t appear like they did a very good job with getting HoneyMag off the ground.”
By all indications the funding event led by John Thomas Capital Management was an unfavorable deal for YouBlast Global. The total transaction fee paid to John Thomas Capital Management – the second biggest shareholder after Anderson, for the 2008 deal was $2.6 million leaving proceeds of only $7.6 million from what was touted as a $10 million funding round. A funding round with an exceptionally high 25% fee indicates a company that was unable to raise money from traditional sources and had to resort to more creative and hence more expensive sources, say experts with knowledge of transaction.
Post-2008 funding, the company was implicitly valued at $34 million. To get a better picture of the valuation, one has to only look at a similar deal that took place in 2008 when Radio One Inc. purchased Community Connect for $38 million. Although some speculated that Radio One’s acquisition wasn’t the most prudent deal, it did acquire the popular social networking site BlackPlanet, which claimed to have 20 million members and was the fourth most-visited U.S social networking site at the time. That acquisition also included two other ethnic nice sites including AsianAve.com and MiGente.com. Comparatively, YouBlast Global boasts a struggling HoneyMag.com and a barely there social network. How did John Thomas Capital and YouBlast justify a $34 million valuation to investors?
The high valuation is more than odd, according to experts. “Think about Microsoft’s $240 million investment in Facebook in 2007,” said an executive with a venture capital firm in the digital media space who spoke on condition of anonymity. “Does the 1.6% stake transaction really mean Facebook is worth $15 billion? If you believe this, Sahara’s market cap was $80 million when someone bought a tiny little amount of shares at $3 per share in 2008.”
The annual report undoubtedly raises many questions about the company’s spending habits. “The general and administrative costs are unusually high,” said John Doyle, managing director of Peachtree Media Advisors. The annual report shows that $5 million had gone to general and administrative costs while only $1.4 million had gone to product development. For a company that is claiming most of its efforts in the last year have gone towards the development of an innovative new social network (YouBlast), the allocation of funds seems decidedly off-kilter.
“While the company has increased its revenue generation between year-end ’08 and year-end ’09, the numbers are almost negligible relative to the increase in expenses incurred,” said Brandon Williams, a corporate litigator and a partner at Alston & Bird, LLP. “The increased expenses incurred appear to be mainly due to payroll, meaning it’s going to salaries and not necessarily product development and marketing. This is concerning as the monies raised don’t appear to be going toward revenue generating activities and development.”
The company listed their selling and marketing costs at $339,770. “Considering the company only generated $38,000 in revenue, the $339,000 that went into sales and marketing was not an efficient or effective use of capital,” said Doyle. As noted in the report, the increase is “primarily attributable to increased payroll of $96,000, advertising of $62,000 and marketing of $50,000.” YouBlast Global’s investment in a sales force could be considered aggressive considering that HoneyMag.com did not have the traffic to support such personnel. Assuming it was meant to be a flagship property, HoneyMag.com would have benefited from a spending strategy focused on content development and user activity. The marketing and sales staff that the six figure budget afforded the company brought in essentially $38,000 over the entire year, signing their first client (Alberto Culver) in the second half of 2009.
“The company seemed to have raised most of its capital in ’08 and did not raise capital in ’09,” said Williams. “The cash on hand has gone from approximately $4 million to $300,000 between December 2008 and December 2009. A major expense that impacted the company’s cash on hand was approximately $200,000 in website development expenses. Not sure if that’s reasonable, but seems awfully costly at a glance.”
The venture capitalist who spoke on condition of anonymity agreed. Although he perceives some of the numbers to be incomprehensible, he contends that investors may have simply over-invested in the brand and the potential of marketing to the database of 18-34 year olds purchased with the Honey brand. “The investors simply may have valued the demographic, the database of 4-million targeted consumers and the “Honey” brand, more than the traffic,” he said. “Maybe YouBlast Global has been very successful in making a good future roll-up story from those a bit dubious assets.”
Regardless, YouBlast Global will need to unveil something big with the social networking product that it is betting its future and survival on to validate its fiscal strategy thus far and to turn its business around. With stiff competition from a well established 400 pound gorilla, Facebook, and several smaller but still formidable players like MySpace, Orkut, Ning to mention a few, YouBlast has a very challenged road ahead and based on the weak financial state of the company, the chances of success are dubious.
Editor’s Note: YouBlast Global declined requests for comment and John Thomas Capital Management did not return calls for comment.
