Lost in the hubbub surrounding last week’s announcement of a Donald Trump media company that wants to “stand up to the tyranny of Big Tech” is the underlying likelihood that the Former Guy stands to scoop up a lot of money.
That the money also likely will be extracted from overeager and not-very-sophisticated followers, regardless of whether a planned social-media app and SVOD service succeed, or even launch, is par for the course these days among both retail investors and conservative political circles.
Dem’s da breaks when you do a deal with The Donald.
To quickly recap, Trump Media & Technology Group (TMTG) and special purpose acquisition company Digital World Acquisition Group (DWAC) announced they would merge, making TMTG a public company with significant payouts to its owners just months after it was created, and before it has built a product, added a single customer, or signed a single advertiser.
Even Quibi, uh, mastermind Jeffrey Katzenberg must be a little jealous of Trump’s cash-extraction efficiency, despite the fact that he raised more than $1 billion for his own short-lived short-form video service and has raised many millions more as a long-time Democratic fundraiser.
TMTG’s rapid road to public status comes by way of DWAC’s status as a SPAC, or special purpose acquisition company, designed to raise a bunch of money from speculating investors, go public as a placeholder organization, then find a promising private company to merge with.
It’s the approach that another notable media company, Redbox, used when it went public just this week. For Redbox CEO Galen Smith, taking the company public culminated a 13-year slog that began when he was a junior investment banker fired by the DVD-dispensing company with under-realized potential.
Reached on the stock’s first day, after he had rung the Nasdaq opening bell, Smith was understandably exultant.
“It feels incredible,” Smith said. “It’s such a spectacular day for the company. A lot of people have put in a lot of work to bring Redbox to public markets. It was a surreal moment to be standing there.”
Now, Redbox is public, or at least part of it is. Private equity giant Apollo remains majority owner, with its very deep pockets and around three-fourths of Redbox. For Smith’s company, the SPAC had a lot of benefits compared to traditional initial public offerings.
“The IPO is done ahead of the time,” Smith said, ticking off the upsides. “You find someone who understands your story, and they have to think about their fiduciary obligation to their investors. The timeline is a bit quicker. You can share a bit more information about the future than in the IPO process.”
Also read: Can Redbox Help Convert Middle America to Streaming?
The deal helps Apollo validate Redbox’s market value, and injects $90 million in capital into Redbox that Smith said will be used for strategic acquisitions and further investment in technology and ad-tech, all smart ways to use your piggy bank as you grow a real company.
But as Smith acknowledged, investor enthusiasm for SPACs has cooled considerably since Redbox began its process. A rash of poorly vetted copycat deals this past year has plopped some clunkers onto the markets that weren’t ready for public scrutiny or little things like making a profit. Regulators have noticed too, and are beginning to crack down on excesses.
Redbox, by contrast, was fully cooked and appears to be an example of what SPACs can be.
The company was built on a network of 40,000 physical kiosks in Walmarts, grocery stores, and similar venues, serving some 40 million value-hunting users. Smith has been rapidly iterating on that rock-steady base, launching original productions, licensing content to other outlets, and then running the content on its own ad-supported streaming service. Redbox is, after nearly two decades of operations, a grown-ass company.
Contrast that with the proposed Trump SPAC.
What Trump announced last week wasn’t an actual operator merging with a financial instrument. Rather, TMTG is an idea for an operating company, though one that is richly valued at $875 million, with another $825 million in earn-outs “depending on the performance of the stock price post-business combination.”
For the time being, operations will be financed with the $293 million DWAC had in its accounts, though at least one big investor, Saba Capital Investments, has already sold off its shares, rather than remain entangled with Trump.
“Many investors are grappling with hard questions about how to incorporate their values into their work,” Saba founder Boaz Weinstein said in an e-mailed statement. “For us, this was not a close call.”
Other investors also sold off their stake, including Highbridge Capital Management and Lighthouse Investment Partners, likely cashing in on fervid retail investors who bid up DWAC shares by more than 1,000% after the announcement. Share prices have since dropped by half, but remain well above pre-announcement levels.
That wild swing had all the marks of a meme stock, fueled by r/wallstreetbets, rather than institutional money seeing a long-term opportunity. For those investors who stick around until the merger is completed, there’s much that needs to be done to create an actual operating media company.
First up is Truth Social, a social-media network that looks a lot like Twitter, from which Trump was dismissed this year after his enthusiastic embrace of that little treasonous insurrection in the Nation’s Capital.
The news release says Truth Social is available for “pre-order” now on the iOS App Store, will launch in beta next month, and open to everyone early next year. That timing depends on a few things, like whether TMTG can avoid a threatened lawsuit over misuse of source code used to build the app.
Soon after, the company said it will launch an SVOD service, to be headed by reality-TV veteran Scott St. John, that will naturally be called TMTG+. The release said it will “feature 'non-woke' entertainment programming, news, podcasts and more.”
Trump promises to regularly issue “Truths,” as posts are called, though it seems unlikely he’ll make like a Twitch star and stream live for hours at a time each day. Even with his substantive involvement, Truth Social and TMTG+ will have to a.) attract large audiences, b.) attract other creators, c.) get them to create lots of content, d.) find ways to help those creators make money, and e.) also create and pay for original programming on the streaming service, to attract paying customers.
TMTG will be doing all this in two already overstuffed markets. Among right-wing social-media services, we already have Gab, Parler, Gettr and Blaze Network. Conservative video services include One America News and Fox News Nation. It’s not clear that any of them is a financial success, and all are handcuffed by the limitations of their sharply delineated and overlapping audiences.
All have been delighted when Trump and clan have graced their services with a rant or two. The delight may quickly fade when they’re scrapping with TMTG+ and Truth Social for audiences, creators and advertisers.
Forgive my skepticism about how that process may go, especially for a public company under sharp scrutiny by shareholders, regulators, the media, politicians and the electorate.
To Trump’s credit, he has grasped the key issue in both social and streaming media: monetize the damned thing quick. Thus that absurd potential valuation of $1.7 billion for a company with no working products, audiences, content providers, subscribers or advertisers.
And given how things went with Trump Steaks, Trump University, Trump Casinos and other Trump ventures, investors may want to closely review their chances of success in riding along with Trump Media & Technology Group.
It likely won’t matter for Trump himself though. As often seems to happen in his deals, he’ll have already cashed a very large check, laughing all the way to the bank.
