Zealot Networks Buys Threshold Interactive, Its Third Ad Agency

Former Maker Studios CEO Builds Next-Gen Entertainment and Media Company Via Acquisition

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Danny Zappin's Zealot Networks has bought three ad agencies, including Threshold Interactive.
Danny Zappin's Zealot Networks has bought three ad agencies, including Threshold Interactive.

Disney bought the last company Danny Zappin co-founded in a deal worth $950 million. But instead of recreating Maker Studios with his new company Zealot Networks, Mr. Zappin is aiming a bit higher.

"We compare ourselves to Disney, not Maker," Mr. Zappin said in a recent interview at Zealot's Venice, Calif. headquarters.

Seven-month-old Zealot Networks has a long way to go before it is at Disney's level. But Mr. Zappin appears to be building his company the same way Disney CEO Bob Iger has reasserted Disney's dominance: through acquisitions.

Whereas Disney under Mr. Iger purchased Pixar, Marvel Entertainment, Lucasfilm and Maker Studios, Zealot under Mr. Zappin has picked up 10 companies -- including talent managment firm Converge Media Group and three ad agencies -- to build its next-generation media-and-entertainment company.

Zealot Networks, which has raised more than $30 million in funding, is profitable and operating on a $50 million revenue run-rate, Mr. Zappin said. That profit and revenue come from the existing revenue streams of the companies Zealot has acquired. The company counts more than 100 employees, including 15 to 20 people who work directly for Zealot and did not join through any of its acquisitions.

Mr. Zappin — who stepped down as Maker Studios' CEO in 2013 amid some controversy — emphasized that Zealot is not an online-video network like Maker Studios that manages a bunch of YouTube stars' channels and tries to strike talent deals with brands. His company is also not focused only on YouTube.

But what Zealot is remains a bit hazy for now. The picture should clear up later this year when Zealot releases its first content, but Mr. Zappin said its work will include TV shows, feature films, live events and musical artist development. And then there's the work Zealot will be doing for brands.

Zealot will create some content with brands, and it will create other content on its own and ask brands to advertise against that content. "We make content for audiences that a brand can come into," Mr. Zappin said.

To that end, Zealot Networks has acquired Los Angeles-based digital agency and Ad Age's 2013 Small Agency of the Year honoree Threshold Interactive, marking the company's third ad agency purchase. Since its August 2014 launch, Zealot had also bought creative shop Neighbor Agency and digital branded content studio Idea Farmer.

"We wanted someone more millennial on the digital side," Mr. Zappin said in explaining the Threshold deal. He declined to say how much Zealot paid for Threshold. The company's 10 acquisitions to date have been a combination of stock, cash and performance incentives, said the company's chief strategy officer Conn Fishburn.

The agencies Zealot has acquired will continue to perform the work they had offered clients before selling to Zealot. That means Threshold will be able to keep churning out campaigns for various Nestle brands, such as Hot Pockets and Butterfinger.

"The first thing I tell clients is Threshold's not changing," said Threshold Interactive CEO John Montgomery. He added, "What this does is it makes us a much more powerful marketing partner for them. Now we're plugged into the Zealot network, and our level of relationships [and] the tools and talent that we have to plug into from Zealot is a perfect complement to what we already do very well."

Zealot has no immediate plans to roll up the three agencies into a single entity, said Zealot's CMO Chad Seymour. Mr. Seymour had co-owned and been CEO of Neighbor before leaving to co-found Zealot.

Instead Threshold, Neighbor and Idea Farmer will operate as standalone businesses. Brands will be able to sign up as a Threshold client and won't be forced to also become Neighbor or Idea Farmer clients. However there will be ways for the agencies to work together. For example, Threshold clients would be able to use its sibling or parent company's production studios.

And while that work continues, Zealot's team will be coming up with what it will offer brands. "We don't have a definitive answer. We've had early-stage meetings with Fortune 500 brands," Mr. Seymour said. Those meetings have suggested that Zealot can help marketers with their branded content efforts from idea to execution.

"Our vision is to frankly have an offering that is not competitive with agencies, even though we're buying brand agencies. We envision working on initiatives that are synergistic with existing creative agencies," Mr. Seymour said.

Having bought three agencies, Zealot is "not actively" pursuing any more agency acquisitions, Mr. Zappin said. "We're slowing down to make sure we're integrating them properly," he said.

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