Photo: Jim Edwards / BI
You’ve probably never heard of Alloy Inc., but you’ve certainly heard of the things it’s created: the TV shows Gossip Girl and Vampire Diaries, the Sisterhood of the travelling Pants novels turned movies, and books like “The A-List,” “Private,” “The Clique.”
Click here to meet Diamond and tour the office>>
Its 43-year-old CEO, Matt Diamond, is one of the most influential executives in youth and pop culture marketing.
Alloy, since the late 1990s, has perhaps exerted more influence over the minds of American teenagers (and girls in particular) than any other commercial entity.
Yet Diamond couldn’t be a more unlikely looking candidate for a hyper-trendy, teen-oriented business: He’s a graduate of Harvard Business School who spent his early 20s at General Electric in Tokyo before deciding there was a gap in the market for a business devoted entirely to monetizing youth culture.
Diamond’s name rarely shows up in the business press. One explanation is that Alloy’s business model is difficult to describe. The company functions like a mixture of an ad agency, movie studio, TV production house, and book publisher. It’s such an unusual bunch of businesses to have under a single roof that few people outside its walls understand how it works. Audiences, of course, barely know it exists.
Diamond sat down recently with Business Insider to talk about his company’s recent acquisition of Generate, the production and talent management firm of former CW CEO Jordan Levin; Alloy’s acquisition by Zelnick Media in 2010 (which put Geraldine Laybourne on Alloy’s board) and his plans to find the next Pretty Little Liars—another TV show that came out of Alloy.
He also let us tour his office.
The mid-1990s: In the early days of the company, Alloy had two catalogues--Alloy and Delia's--and two corresponding web sites, selling T-shirts, clothing, and other teen-oriented stuff.
Diamond's central insight was that Alloy and Delia's would probably be the first piece of relevant mail delivered to a kid's house with their name on it. And, unlike their web sites, tweens could pass the catalogues around at school.
The magazines functioned as ads for the web sites, and the web sites promoted the merchandise in the catalogue. It was self-funded marketing.
Venture capital funders looked askance at the business model. Diamond says, 'We were not darlings of the venture world. They wanted everything to move online and we went backwards with the catalogues. But we had a very profitable businesses model and the public markets cared more about the profitability than the venture world.'
Alloy went public in 1999.
Usually TV and movie production houses are headquartered in Los Angeles, but Alloy is located in an anonymous warehouse building on 26th Street in Manhattan.
Diamond's office is modest and cluttered with a surprising amount of paper, considering his longstanding commitment to web and digital media.
Alloy's current big project is Dating Rules From My Future Self, a web-only TV show that allows Alloy to launch its own series, bypassing cable and broadcast TV networks.
2005: Diamond wanted to focus on his core media business, so Alloy eventually spun off its catalogue businesses into separate companies. The company's current media brands include Channel One, the school TV program provider; gURL.com; Teen.com; Takkle (for high school sports); and Smosh.com.
At their peak, Alloy's revenues were around $200 million a year.
One of the reasons Alloy remains so anonymous is that unlike other media companies such as NBC or Disney, it doesn't own a gigantic tentpole property like a cable channel or a movie studio.
The late 2000s: Shows like Vampire Diaries and Gossip Girl cemented Alloy's reputation as a hit factory.
All of its products are advertiser-friendly, and it sells ads against the media it owns and creates. Both media companies and ad agency holding companies became interested in acquiring Alloy.
The advantage Alloy has over regular ad agencies is that it owns the media on which it is creating branded content and selling space. This allowed it to keep all the media costs it charged for that space.
Traditional ad agencies, by contrast, don't own media and must negotiate buys with independent companies. Those high costs are passed on by ad agencies, whereas Alloy gets to keep them.
2010: The Sarbanes-Oxley Act made it much more expensive to be a publicly traded company. Diamond says it became inevitable that Alloy would be acquired by a company seeking a strategic media investment.
Here's where Madison Avenue's major agency holding companies--WPP, Omnicom, Interpublic and others--made one of their greatest strategic errors. Although Alloy's higher margins should have made the company an attractive target, none of them bought it. Owning media was too great a psychological shift for the agency business, Diamond believes, even though many flirted with the idea.
'I'll say this. We spoke to everyone,' Diamond says. 'I will say very light on the agency side. Much heavier on the media side.'
Alloy was acquired by the ZelnickMedia investment group for $126.5 million, a 27 per cent premium over the company's stock price at the time.
2011: Alloy used to own a classic agency business, Amp, a digital events and promotions agency. Diamond sold the business back to its own management in 2011 because he says it was being 'hurt' by the success of Alloy's media businesses. It looked like a conflict of interest if Amp ever advised a client to buy media on Alloy properties. 'They wouldn't want clients ever to think there was a bias' when it placed ads in Alloy properties, Diamond says.
Here's the type of person Diamond seeks in a new employee: 'They need to love this demographic. If you don't enjoy this constantly changing demo, the pop culture, the fact that it's chaotic, you won't succeed at Alloy. As adults we think of it as ADD. For them it's not, it's reality.'
Another powerful part of Alloy's business model is that unlike an ad agency it doesn't go out looking to hire famous creative talent. A 'hot' art director or copywriter on Madison Avenue can demand a salary of $250,000.
Alloy doesn't want those folks.
'We need ideas from the demographic,' Diamond says. 'We need people who … have come directly from college. We have a great internship program with a number of different schools.'
'It's much less resume-focused and much more about how enthusiastic they are about this demo,' Diamond adds. 'Our platform for that 250K job is the next job.'
Diamond likes to say that Alloy has probably created more than eight millionaires, including Ann Brashares, who wrote 'Sisterhood of the travelling Pants' and Cecily von Ziegesar, who wrote 'Gossip Girl.'
This conference room is used by Alloy's creative staff to dream up new ideas for books and TV series. In Hollywood and in the advertising world, creative ideas are generated by high-priced writers and directors.
At Alloy, it's a collective, committee-like process where books are written based on ideas generated by a gaggle of 20-somethings around this table.
'Every idea is a neutral idea,' Diamond says. 'If a 23-year-old says something, great, no one's going to say 'that's no good -- you're only 23.''
They sit in this room and they say, 'Desperate Housewives is hot. Is there a version that we can create that makes sense for us?' And that was Pretty Little Liars.'
Sometimes his staff will identify a trend, like retro nostalgia for the 1970s or 1980s -- 'What were the hot shows back then, make a list!' -- and Alloy will try to reinvent one of them.
This is production manager Maureen Chiapetta's cubicle.
Senior interactive designer Ada Fung surrounds herself with pop culture stuff.
Diamond says, 'For years researchers have asked parents, Do kids have too much media, not enough media or just the right amount of media? And consistently, for 50 years, the answer is 'too much media.' And for kids, consistently, the answer is 'just the right amount.' Our parents thought we had too much media, we thought we had just the right amount. These kids know how to balance. They've grown up with it.'
Diamond says, 'I've probably seen 50 to 100 companies fail in this demographic over the last 16 years.' There are two reasons, he believes:
1. 'They're part of bigger companies that aren't exclusively focused on the demo. They don't think about it all day long; it's not their bread and butter.'
2. 'The other bucket are kids or recent grads of college that are in the demographic that recognise someone is doing something and … it lacks, often, some business discipline.'
Alloy's platforms launched the careers of Blake Lively, Leighton Meester and Chace Crawford.
Vampire Diaries was an old book that Alloy had owned for 10 years when the Twilight/True Blood vampire craze hit suddenly in 2009.
Channel One is staffed by 'hardcore journalists who are getting on the plane and going to Japan for the tsunami,' Diamond says. Channel One's most famous alumnus is Anderson Cooper.
Alloy recently moved its office around, so a lot of stuff hadn't been properly unpacked on the day we visited.
Now lighten your mood with a slideshow of Photoshopped images of Scarlett Johansson's adman boyfriend...
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