Unity IPO analysis, Part 2: The bear and bull cases for Unity

In Part 1 of my outline on Unity ahead of its IPO, I explained the scope of its multidimensional business, its R&D efforts and competitive positioning, and its grand vision for powered interactive 3D content across every industry. Part 2 digs into Unity’s financials and how it is marketing its public listing, and frames both the bear and bull cases for its future.

(This post was originally published on TechCrunch)

What are Unity’s financials?

Key financial metrics from the S-1 filing:

  • Revenue grew 42% year over year from $381 million in 2018 to $542 million in 2019 with operating losses of $130 million and $150 million respectively. It hit $351 million in revenue by June 30 this year; that pace suggests a 2020 total around $700-750 million (+30% year over year). 
  • The company has gross margins of about 79%, although costs are overwhelmingly centered in R&D and sales & marketing which account for 47% and 32% of revenue, respectively.
  • The company has cumulatively lost $569 million up to this point, including a $163 million net loss in 2019.

The geographical source of Unity’s revenue in 2019 was: 34% EMEA, 28% US, 21% APAC (ex China), 12% China, and 5% Americas (ex. US). Unlike many other Western tech companies (and game publishers), Unity operates freely in China, where it has built a large sales and professional services team over the last three years.

In Part 1, I explained each of Unity’s 7 main revenue streams. During the first half of 2020, revenue by segment broke down to:

  • $216.9M (62%) from Operate Solutions (products for managing and monetizing content), the “substantial majority” of which is from the ads business.
  • $101.8M (29%) from Create Solutions (products and consulting for content creation), two-thirds of which is from Unity Pro subscriptions.
  • $32.7M (9%) from Strategic Partnerships & Other (Unity Asset Store and Verified Solutions Partners).

The S-1 discloses that less than 10% of overall revenue is from “newer products and services, such as Vivox and deltaDNA” (referencing key 2019 acquisitions for its Operate segment). 

Some takeaways from this data:

  • The largest of the 7 revenue streams must be advertising. At a minimum, 31% of Unity’s revenue is from its ads business but the amount is likely meaningfully higher than that: Unity described it as a “substantial majority” of the Operate Solutions segment revenue. Moreover, it is unclear what else is included in the company’s reference to “newer products and services, such as Vivox and deltaDNA” — in particular Multiplay, which it acquired in 2017 and is likely one of the larger revenue drivers within the Live Services portfolio alongside Vivox and deltaDNA — but that category contributed less than $54 million (10% of $542 million) in 2019. Half of Operate Solutions revenue in 2019 equates to about $146 million. That’s a $92 million gap unlikely to have been filled by the Live Services products not named. Much of it is likely attributable to the ads business.
  • Unity Pro subscriptions comprise over 19% of overall revenue. That leaves under 10% of overall revenue coming from all the other Create Solutions offerings: Unity Plus and Unity Enterprise subscriptions; the engine extensions/tools like Unity Reflect, MARS, Pixyz, and AR Foundation; and consulting services. It suggests a lot of Unity’s growing portfolio of Create products still generate little revenue, especially since consulting work is a large component of Unity’s work with larger customers (as the $55M acquisition of a 200-person consulting firm in April confirms).

My estimation of Unity’s revenue composition based on the first half of 2020 is:

  • 31-50% Ads (revenue-share)
  • 9-20% Live services (usage-based)
  • 19-25% Create subscriptions
  • 4-6% Consulting
  • 9% Other (Strategic Partnerships, the Asset Store, and Verified Solutions Partners)

Unity’s revenue is quite fragmented. It’s surprising Unity hasn’t translated being the most used game engine in the world, including for 53% of the top 1,000 grossing games in the $80B mobile game market, into more revenue from the core engine. 

Unity adopted the freemium model in 2009 at Sequoia Capital’s urging to spur massive adoption among developers. 

  • On one hand, it seems the company gives too much away for free, especially since its position in the market has been the engine of the masses. Unity emphasized its enterprise focus in its S-1, sharing that 74% of overall revenue comes from 716 companies paying Unity over $100,000 annually (versus over 100,000 customers below the $100,000 per year spend level). That its revenue comes overwhelmingly from companies with large budgets (who can then also afford highly skilled developers) is somewhat disconnected from its traditional market position: outside of mobile games, that’s the territory in the market where Unreal tends to win more.
  • On the other hand, perhaps optimizing for wider market adoption will continue to create upward pressure on large companies as well. Many companies do choose Unity because there’s a larger talent pool who know how to use it. As non-gaming companies adopt game engines they will find it easier to hire Unity developers.

Why isn’t Unity profitable and what will it take to get there?

Unity’s lack of profitability appears to stem from its enormous investment into expansion. R&D accounts for 47% of revenue, Sales and Marketing for 32% of revenue. Per his own words in one of our past interviews, John Riccitiello expanded the engineering headcount from about 100 when he took over in 2014 to over 1,500 by 2019.

Unity’s expansion into other gaming infrastructure offerings and its expansion into other industries are both in early innings in terms of their revenue impact and market penetration. It will require substantial ongoing R&D and Sales & Marketing investment to fuel growth in those two areas in line with Unity’s stated ambitions. This suggests several more years of operating losses until Unity’s Live Services portfolio and its expansion beyond gaming each gain much greater market penetration.

What to watch for in Unity’s IPO

Unity will hope for investors to value it as a high-growth SaaS company; such companies were hitting valuations earlier this year in the 15 to 30 times revenue range and that jumped over the summer to 20 to 40 times revenue in some cases. It also will want to benefit from comparisons to Epic Games, given it was just valued at $17 billion and has much greater public name recognition and hype.

To accomplish this, Unity seems to be underplaying the significance of its advertising business (adtech companies trade at much lower revenue multiples). In the past, Unity referred to its operations in three divisions: Create, Operate, and Monetize. At the start of August, the SVP and VP leading the Monetize business switched titles to SVP and VP of Operate Solutions, respectively, and then Unity reported the Monetization business as a subset of its Operate division in the S-1. Consolidating Operate and Monetize into one reporting segment obscures specifics about how much revenue the ads business and the live services portfolio each contribute. As noted above, this segment appears to be dominated by ad revenue which means anywhere from 30% to 50% of Unity’s overall revenue is from ads. That should reduce the revenue multiple public investors are willing to value Unity at relative to recent and upcoming SaaS IPOs.

There isn’t a publicly-traded game engine company to directly benchmark Unity against, nor a roster of equity research analysts at big banks who have expertise in gaming infrastructure. Adobe and Autodesk appear to be relevant businesses to benchmark Unity against with regard to the nature of the non-advertising components of the business and Unity’s stated vision. Compared to Unity, those companies have lower growth rates and generate operating profits though; more recent public listings of SaaS companies like Zscaler and Cloudflare are likely to be valuation comps by investors to the extent they focus on its subscription and usage-based revenue streams since their revenue growth and margins are closer to Unity’s. 

Unity’s market penetration holds a lot of strategic value in the gaming and AR/VR markets that may add a premium to its value. Any attempt by one major tech company to acquire Unity would almost certainly cause a bidding war with others. When Facebook hoped to acquire Unity back in 2015, Mark Zuckerberg wrote that the risk of Unity falling into the hands of a competitor “is such a vulnerability that it is likely worth the cost just to mitigate this risk.”

What is the bear case for Unity?

A pessimistic view of Unity is that it’s an advertising-centered business pouring itself into finding new growth in other markets but unable to show substantial ROI yet on those investments in expansion. And it faces better-resourced competitors at every turn.

Unity has nearly saturated the mobile gaming market, limiting future growth for the engine. It is getting ever tougher for small mobile studios to break through the noise and the advantages of incumbents, and top game companies nowadays are focused on expanding their existing hit games rather than launching a lot of new ones. Since successful studios pay Unity on a flat per-seat basis not a revenue-share basis, Unity’s engine revenue doesn’t benefit from more concentrated ownership of the top mobile games. 

Despite Unity’s massive popularity, it makes little to no money off the mid- and long-tail of game developers it is most popular with, given 74% of revenue is tied to the 716 largest customers and two-thirds of all Create Solutions revenue comes from Unity Pro tier subscriptions. 

Moreover, gaming’s future will feature greater dominance by a handful of cross-platform MMOs where people build social lives and participate in non-gaming activities like virtual concerts and trading of digital goods in addition to core game play. That’s a use case Unity’s main competitor, Unreal, is specifically built for. 

Unity’s fragmented revenue streams suggest it has been grasping for better ways to make money off the widespread adoption of its product and struggling to come up with a clear solution. Its revenue comes from a little bit of everything rather than one, massively successful strategy. 

The dominant revenue stream is advertising solutions, which aren’t valued at high revenue multiples by public market investors because it’s a crowded market and hard to differentiate. While Unity Ads is one of the largest mobile ad networks in the world it is still far behind Google and Facebook’s. In-game ads is a $3 billion market according to Criteo (a very small subset of the overall mobile ads market) and most categories of advertisers don’t participate in it. 

Moreover, Apple’s forthcoming changes to IDFA — now delayed until Q1 2021 — are causing major upheaval in the mobile ads market due to the dramatically more limited ability to target ads. Unity’s ad revenue could be hurt by this is, as noted in the Risks section of the S-1. Apps will only be able to track user behavior across their phone in order to target ads if the user specifically opts in, which few will do. Apple’s SKAdNetwork will be the only way to receive data on users’ behavior beyond the app and it will be much more limited data. This will make it difficult to target in-game ads and to measure the effectiveness of in-game ads at converting new customers. 

While Unity only provides advertisers with behavioral data of users’ actions within a game, advertisers use the user’s unique identifier to match them with information about them gathered from other sources. Advertisers may pull back from spending on mobile ads overall, including within games. When Facebook tested the removal of personalization features from mobile ad install campaigns in its ad network in June, it saw a 50% decline in publisher revenue. Since Unity earns money through a revenue share with publishers using its ad network, a major decline in their ad revenue would proportionally decline Unity’s ad revenue.

Unity is staking its vision for growth on expansion to other industries and expansion to other types of gaming infrastructure but both of those expansions are still nascent in terms of their revenue impact. 

Unity’s expansion into other cloud-based game infrastructure products appears to only account for 9-20% of revenue, most of which is inorganic growth through recent acquisition of startups. There isn’t dramatic advantage to game studios from the vertical integration of tools for matchmaking, game hosting, and player communications with the engine they use; each of these products will continue to face competition from other startups and large companies and any move by Unity to force engine customers to use only its Live Services products would diminish its popularity as an engine. The more Unity grows in cloud hosting and gaming infrastructure, the more direct competition it is likely to face from tech giants like Google, Microsoft, and Amazon as they each expand both their cloud and gaming businesses. 

Unity claims there is currently a $17 billion TAM for use of their products beyond gaming, with 37 million engineers and technicians who could be using these tools. But the expansion of Unity’s engine into other industries shows little revenue impact thus far despite being a central focus of the substantial investment in R&D and sales & marketing over five years: just 60, or 8%, of the 716 customers who contribute over $100,000 in annual revenue are from outside gaming. 

This expansion faces direct competition from Epic, which has a much larger war chest due to profits from its game development business, but it’s not clear yet whether non-gaming industries offer huge growth opportunities for either of them. If you call professionals in the industrial sectors these engines are targeting, the typical response is that more people are becoming aware of them and experimenting with them but they are not taking the industry by storm. In these segments, Unity’s business is a hybrid of a consultancy and a startup whose software is being used in a lot of promising pilots and an initial group of customers but hasn’t definitively established itself in the market.

Public market investors will be taking on a lot of risk that growth will come from unproven new markets compared to typical NYSE IPOs.

What is the bull case for Unity?

An optimistic view of Unity is that it is positioned to become one of the most important technology companies of the decade ahead as gaming (and socializing within virtual worlds) continues to explode in popularity and as 3D interactive media takes center stage in our personal and professional lives.

The Unity engine is the most popular content creation platform in a massive, fast-growing market. There’s still solid growth in the upper echelons of the mobile games market where studios pay more for Unity. According to App Annie data, 1,121 gaming apps generated at least $5 million in revenue in 2019, up from 1,055 in 2018 and 959 in 2017; at the top of the market, 140 games generated over $100 million in revenue last year, up from 116 in 2018 and 88 in 2017. Unity is used for 53% of the top 1,000 mobile games and has more growth opportunity both in terms of market share and absolute number of large mobile game studios.

The company has an impressive ability to upsell existing customers to add additional products and services — with a 142% net expansion rate on 12-months trailing revenue as of the end of June. That represents substantial untapped potential within mobile games for its growing portfolio of Live Services products. Since the focus of successful game studios is increasingly on expanding existing hit games, there is increased demand for tools to support such “live ops” work and urgency to regularly update the game with new content. Unity’s Live Services portfolio offers those tools as third-party solutions so the studio can keep its staff focused on new content creation.

Unity’s mobile game monetization products still have a lot of growth amid the surging overall mobile ads market ($200 billion with a 14.3% CAGR per Statista). Unity targets ads based on contextual behavior of users’ gameplay so Apple’s IDFA changes will have more limited impact than on other ad networks. The dominant advertisers in mobile games are other mobile games — for them gaming behavior is the most effective personalization data. The insularity of in-game ads by other gaming companies cushions Unity ad revenue from broader ad market shifts (as seen this past March and April as the economic recession hit and mobile games ad revenue increased 59%). It also suggests how much potential growth there is as advertisers in other categories recognize mobile games as an environment in which all demographics of consumers are highly engaged. 

Importantly, Unity doesn’t yet take a revenue-share for optimizing in-app purchases (IAP), but it could. That’s a huge growth opportunity since consumer spending on mobile games is a $77 billion market, growing 13% year over year, according to Newzoo. Mobile game industry revenue is heavily concentrated among the most popular games, the majority of which are made with Unity. Unity could create a multi-billion dollar business in the years ahead just by improving IAP solutions for mobile games and charging with a revenue-share.

Unity has made enormous strides in catching up to the customization and technical feats of the Unreal Engine as it expands beyond mobile games, in particular with its data-oriented tech stack (explained in Part 1). Critiques of Unity’s lesser capabilities stem from old norms that it has since surpassed. For most games and non-gaming use cases, Unity is fully capable of achieving the level of customization and performance needed.

Unity’s popularity is a highly defensible moat itself. It is the engine most students and professionals use to build interactive 3D content. As a result, it is preferred by companies because of the large talent pool to recruit from and there are a lot of young professionals trained in Unity who will see applications for it at non-gaming companies they work at.

Game engines are eating the world, as outlined in Part 1. A vast swath of entertainment and work activities already center on interactive content. Unity has demonstrated value and early adoption across numerous industries for a long list of use cases; it is on the precipice of entering the daily workload of millions of professionals, from engineers to industrial designers to film producers to marketers. Its Create Solutions division is on a path to becoming something of a next generation Adobe ($11 billion in 2019 revenue): a creative suite used by design, engineering, marketing, and sales teams across industries.

As AR and VR technology expands into mainstream use over the decade ahead, Unity’s adoption will only expand further. The majority of AR and VR content is already made with Unity’s engine and Unity’s R&D is improving the ease of creating such content by less technical professionals (and students). This positions Unity to expand into key functions higher up in the tech/content stack of mixed reality by providing identity, app distribution, payment, and other solutions across content experiences.

Unity has only one other core competitor as a game engine expanding into these industries, and in the scope of the dramatic market size and different product design philosophies there is room for both to co-exist. The biggest barrier to growth is educating the market on what game engines are and how they can be used; Epic’s investment in growing Unreal does more to help this effort than to hurt Unity. 

Unity’s rise has been a consistent story of staying ahead of the curve, building content creation solutions for new formats of content as they gain popularity. It is simultaneously becoming more powerful of a platform and easier to use, a combination that allows it to compete at the top of the market while expanding the overall market to more users.

Unity IPO analysis, Part 1: What Unity does and where it’s going

Unity Software Inc. is set to list on the New York Stock Exchange this month, following its S-1 filing two weeks ago. The 16-year-old tech company is universally known within the gaming industry and largely unknown outside of it. But Unity has been expanding beyond gaming, pouring hundreds of millions of dollars into a massive bet to be an underlying platform for humanity’s future in a world where interactive 3D media stretches from our entertainment experiences and consumer applications to office and manufacturing workflows. 

(This report was originally posted on TechCrunch)

Much of the press about Unity’s S-1 filing mischaracterizes the business. Unity is easily misunderstood because most people who aren’t (game) developers don’t know what a game engine actually does, because Unity has numerous revenue streams, and because Unity and the competitor it is most compared to — Epic Games — only partially overlap in their businesses. 

Last year I wrote an in-depth guide to Unity’s founding and rise in popularity, interviewing over 20 top Unity executives in San Francisco and Copenhagen, plus many other professionals in the industry, in the process. Here is a two-part guide to get up to speed on the company and make your own assessment about its future.

  1. This first part (this post) explains what Unity’s business is, where it is positioned in the market, what its R&D is focused on, and how game engines are “eating the world” as they gain adoption across other industries. 
  2. The second part (read here) breaks down Unity’s financials, explains how Unity is positioning itself in the S-1 to earn a higher valuation, and outlines both the bear and bull cases for its future.

For those in the gaming industry who are familiar with Unity, the S-1 might surprise you in a few regards: the Asset Store is a much smaller business that you might think; Unity is more of an enterprise software company than a self-service platform for indie developers; and advertising income, rather than subscriptions to the engine, appear to make up the largest segment of Unity’s revenue.

What is a game engine?

Unity’s origin is as a game engine. To oversimplify it, think of a game engine as Adobe Photoshop but for editing games and other interactive 3D content instead of editing photos. You import digital assets (often from Autodesk’s Maya) and add logic to guide each asset’s behavior, every character’s interactions, the physics and lighting, and countless more functions that build up to a fully interactive game. You then export the final product to any of the over 20 platforms that Unity supports, such as Apple iOS and Google Android, Xbox and Playstation, Oculus Quest and Microsoft Hololens, etc.

In this regard, Unity is more comparable to Adobe and Autodesk than to game studios or publishers like Electronic Arts and Zynga.

What are Unity’s lines of business?

Since John Riccitiello took over as CEO from co-founder David Helgason in 2014, Unity has expanded its scope of business beyond just the game engine. It now organizes its activities into two divisions: Create Solutions (i.e. tools for content creation) and Operate Solutions (i.e. tools for managing and monetizing content). Unlike many SaaS and consumer app IPOs where the company has one dominant product and revenue stream, Unity’s revenue is more fragmented. It has 7 noteworthy revenue streams overall.

Create Solutions (29% of H1 2020 revenue)

  • The Unity Platform: the core game engine, which operates on a freemium subscription model. Individuals, small teams, and students use it for free whereas more established game studios and enterprises in other industries pay (via the Unity Plus, Unity Pro, and Unity Enterprise premium tiers).
  • Engine extensions: a growing portfolio of subscription-based tools and templates of the core engine purpose-built for specific industries and use cases. These include MARS for VR development, Reflect for architecture and construction use with BIM assets, Pixyz for importing CAD data, Cinemachine for virtual production of films, and ArtEngine for automated art creation.
  • Professional services: hands-on, specialized consulting for enterprise customers using Unity’s engine and other products. Unity expanded its consulting capacity further in April with a $55 million acquisition of Finger Food Studios, a 200-person team in Vancouver that builds interactive media projects for corporate clients using Unity.

Aside from those three Create product categories, Unity is reporting another group of content creation offerings separately in the S-1 as “Strategic Partnerships & Other” (which accounts for further 9% of revenue):

  • Strategic Partnerships: major tech companies pay Unity via a mix of structures (flat-fee, revenue-share, and royalties) for Unity to create and maintain integrations with their software and/or hardware. Since Unity is the most popular platform to build games with, ensuring Unity integrates well with Oculus or with the Play Store is very important to Facebook and Google, respectively, for example.
  • Unity Asset Store: Unity’s marketplace for artists and developers to buy and sell digital assets like a spooky forest or the physics to guide characters’ joint movements so they don’t each have to design and code every single thing from scratch. It is commonly used, though larger game studios often use Asset Store assets just for initial prototyping of game ideas.

Operate Solutions (62% of H1 2020 revenue)

  • Advertising: via the 2014 acquisition of Applifier, Unity launched an in-game advertising network for mobile games. This expanded substantially with the Unified Auction, a simultaneous auction helping games get the highest bid from among potential advertisers. Unity is now one of the largest mobile ad networks in the world, serving over 23 billion ads per month. Unity also has a dynamic monetization tool that makes real-time assessments of whether it is optimal to serve an ad, prompt an in-app purchase, or do nothing in order to maximize each player’s lifetime value. (While the Unity IAP feature enables developers to manage their in-app purchases, Unity does not take a cut of that revenue at this time.)
  • Live Services: a portfolio of cloud-based solutions for game developers to better manage and optimize their user acquisition, player matchmaking, server hosting, and identification of bugs. This portfolio has primarily been assembled through acquisitions like Multiplay (cloud game server hosting and matchmaking), Vivox (cloud-hosted system for voice and text chat between players in games), and deltaDNA (player segmentation for campaigns to improve engagement, monetization, & retention). There is also Unity Simulate for training AI models in virtual recreations of the real world (or testing games for bugs). Live Services products have usage-based pricing, with an initial amount of usage free.

Unity vs. Unreal vs. other engines

Unity is compared most to Epic Games, the company behind the other leading game engine, Unreal. Below is a quick overview of what differentiates each. The cost of switching game engines is meaningful in that developers are typically specialized in one or the other and can take months to gain high proficiency in the other, but some teams do vary the engine they use for different projects. Moving an existing game (or other project) over to a new game engine is a major undertaking requiring extensive rebuilding and is rarely done.

Epic Games

Epic has three main businesses: game development, the Epic Games Store, and the Unreal Engine. 

  • Epic’s core is in developing its own games and the vast majority of Epic’s $4.2 billion in 2019 revenue came from that (principally, from Fortnite). 
  • The Epic Games Store is a consumer-facing marketplace for gamers to purchase and download games; game developers pay Epic a 12.5% cut of their sales. 

In those two areas of business, Unity and Epic don’t compete. While much of the press about Unity’s IPO frames Epic’s current conflict with Apple as an opportunity for Unity, it is largely irrelevant. A court order prevented Apple from blocking iOS apps made with Unreal in retaliation for Epic trying to skirt Apple’s 30% cut of in-app purchases in Fortnite. Unity doesn’t have any of its own apps in the App Store and doesn’t have a consumer-facing store for games. It’s already the default choice of game engine for anyone building a game for iOS or Android, and it’s not feasible to switch the engine of an existing game, so Epic’s conflict does not create much of a new market opening. 

Let’s compare the Unity and Unreal engines:

  • Origins: Unreal was Epic’s proprietary engine for the 1998 game Unreal and was licensed to other PC and console studios and became its own business as a result of its popularity. Unity launched as an engine for indie developers building Mac games, an underserved niche, and expanded to other emerging market segments considered irrelevant by the core gaming industry: small indie studios, mobile developers, AR & VR games. Unity exploded in global popularity as the main engine for mobile games.
  • Programming Language: Based in the C++ programming language, Unreal requires more extensive programming than Unity (which requires programming in C#) but enables more customization, which in turn enables higher performance.
  • Core Markets: Unreal is much more popular among PC and console game developers; it is oriented toward bigger, high-performance projects by professionals. That said, it is establishing itself firmly in AR and VR and proved with Fortnite it can take a console and PC game cross-platform to mobile. Unity dominates in mobile games — now the largest (and fastest growing) segment of the gaming industry — where it has over 50% market share and where Unreal is not a common alternative. Unity has kept the largest market share in AR and VR content, at over 60%.
  • Ease of Authoring: Neither engine is easy for a complete novice, but both are fairly straightforward to navigate if you have basic coding abilities and put the time into experimenting and watching tutorials. Unity has prioritized ease of use since its early days, with a mission of democratizing game development that was so concentrated among large studios with large budgets, and ease of authoring remains a key R&D focus. This is why Unity is the common choice in educational environments and by individuals and small teams creating casual mobile games. Unity lets you see but not edit the engine’s source code unless you pay for an enterprise subscription; this protects developers from catastrophic mistakes but limits customization. Unreal isn’t dramatically more complex but, as a generalization, it requires more lines of code and technical skill. It is open source code so can be completely customized. Unreal has a visual scripting tool called Blueprint to conduct some development without needing to code; it’s respected and often used by designers though not a no-code solution to developing a complex, high-performance game (no one offers that). Unity recently rolled out its own visual scripting solution for free called Bolt.
  • Pricing: While Unity’s engine operates on a freemium subscription model (then has a portfolio of other product offerings), Unreal operates on a revenue-share, taking 5% of a game’s revenue. Both have separately negotiated pricing for companies outside of gaming that aren’t publicly disclosed.

Proprietary Engines

Many large gaming companies, especially in the PC and console categories, continue to use their own game engines built in-house. It is a large, ongoing investment to maintain a proprietary engine which is why a growing number of these companies are switching to Unreal or Unity so they can focus more resources on content creation and can tap into the large talent pools that already have mastery in each one.

Other Engines

Other game engines to note are Cocos2D (an open source framework by Chukong Technologies that has a particular following among mobile developers in China, Japan, and South Korea), CryEngine by Crytek (popular for first-person shooters with high visual fidelity), and Amazon’s Lumberyard (which was built off CryEngine and doesn’t seem to have widespread adoption, or command much respect, among the many developers and executives I’ve spoken to). 

For amateur game developers without programming skills, YoYo Games’ GameMaker Studio and Scirra’s Construct are both commonly used to build simple 2D games (Construct is used for HTML5 games in particular); users typically move on to Unity or Unreal as they gain more skill.

There remain a long list of niche game engines in the market since every studio needs to use one and those who build their own often license it if their games aren’t commercial successes or they see an underserved niche among studios creating similar games. That said, it’s become very tough to compete with the robust offerings of the industry standards — Unity and Unreal — and tough to recruit developers to work with a niche engine.

UGC Platforms

User-generated content platforms for creating and playing games like Roblox (or new entrants like Manticore’s Core and Facebook Horizon) don’t compete with Unity — at least for the foreseeable future — because they are dramatically simplified platforms for creating games within a closed ecosystem with dramatically more limited monetization opportunity. The only game developers these will pull away from Unity are hobbyists on Unity’s free tier. 

I’ve written extensively on how UGC-based game platforms are central to the next paradigm of social media, anchored within gaming-centric virtual worlds. But based on the overall gaming market growth and the diversity of game types, these platforms can continue to soar in popularity without being a competitive threat to the traditional studios who pay Unity for its engine, ad network, or cloud products.

What is the forefront of Unity’s technical innovation?


For the last three years, Unity has been creating its “data oriented technology stack,” or DOTS, and gradually rolling it out in modules across the engine. 

Unity’s engine centers on programming in C# code which is easier to learn and more time-saving than C++ since it is a slightly higher level programming language. Simplification comes with the trade off of less ability to customize instruction by directly interacting with memory. C++, which is the standard for Unreal, enables that level of customization to achieve better performance but requires writing a lot more code and having more technical skill.

DOTS is an effort to not just resolve that discrepancy but achieve dramatically faster performance. Many of the most popular programming languages in use today are “object-oriented,” a paradigm that groups characteristics of an object together so, for example, an object of the type “human” has weight and height attached. This is easier for the way humans think and solve problems. Unity takes advantage of the ability to add annotations to C3 code and claims a proprietary breakthrough in understanding how to recompile object-oriented code into “data-oriented” code, which is optimized for how computers work (in this example, say all heights together and all weights together). This is orders of magnitude faster in processing the request at the lowest level languages that provide 1s-and-0s instructions to the processor.

This level of efficiency should, on one hand, allow highly-complex games and simulations with cutting-edge graphics to run quickly on GPU-enabled devices, while, on the other hand, allowing simpler games to be so small in file size they can run within messenger apps on the lowest quality smartphones and even on the screens of smart fridges.

Unity is bringing DOTS to different components of its engine one step at a time and users can opt whether or not to use DOTS for each component of their project. The company’s Megacity demo (below) shows DOTS enabling a sci-fi city with hundreds of thousands of assets rendered in real-time, from the blades spinning on the air conditioners in every apartment building to flying car traffic responding to the player’s movements.


The forefront of graphics technology is in enabling ray tracing (a lighting effect mimicking the real-life behavior of light reflecting off different surfaces) at a fast enough rendering speed so games and other interactive content can be photorealistic (i.e. you can’t tell it’s not the real world). It’s already possible to achieve this in certain contexts but takes substantial processing power to render. Its initial use is for content that is not rendered in real-time, like films. Here are videos by both Unity and Unreal demonstrating ray tracing used to make a digital version of a BMW look nearly identical to video of a real car: 

To support ray-tracing and other cutting-edge graphics, Unity released its High Definition Render Pipeline in 2018. It gives developers more powerful graphics rendering for GPU devices to achieve high visual fidelity in console and PC games plus non-gaming uses like industrial simulations. (By comparison, its Universal Render Pipeline optimizes content for lower-end hardware like mobile phones.)

Next-Gen Authoring

Unity’s Research Labs team is focused on the next generation of authoring tools, particularly for an era where AR and/or VR headsets become widely adopted. One component of this is the vision for a future where non-technical people could develop 3D content with Unity solely through hand gestures and voice commands. In 2016, Unity released an early concept video for this project (something I demo-ed at Unity headquarters in SF last year):

Game engines are eating the world

The term “game engine” limits the scope of what Unity and Unreal are already used for. They are interactive 3D engines used for practically any type of digital content you can imagine. The core engine is used for virtual production of films to autonomous vehicle training simulations to car configurators on auto websites to interactive renderings of buildings.

Both of these engines have long been used outside gaming by people repurposing them and over the last five years Unity and Unreal have made expanding use of their engines in other industries a top priority. They are primarily focused on large- and mid-size companies in 1) architecture, engineering, and construction, 2) automotive and heavy manufacturing, and 3) cinematic video. 

In films and TV commercials, game engines are used for virtual production. The settings, whether animated or scanned from real-world environments, are set up as virtual environments (like those of a video game) where virtual characters interact and the camera view can be changed instantaneously. Human actors are captured through sets that are surrounded by the virtual environment on screens. The director and VFX team can change the surroundings, the time of day, etc. in real-time to find the perfect shot.

There are a vast scope of commercial uses for Unity since assets can be imported from CAD, BIM, and other formats and since Unity gives you the ability to build a whole world and simulate changes in real-time. There are four main use cases for Unity’s engine beyond entertainment experiences:

  1. Design & Planning: have teams work on interactive 3D models of their product simultaneously (in VR, AR, or on screens) from offices around the world and attach metadata to every component about its materials, pricing, etc. The Hong Kong International airport used Unity to create a digital twin of the terminals connected to Internet of Things (IoT) data, informing them of passenger flow, maintenance issues, and more in real-time.
  2. Training, Sales & Marketing: use interactive 3D content so staff or customers can engage with: a) photorealistic renderings of industrial products; b) VR trainings for risky construction situations; c) online car configurators that render custom designs in real-time; or d) an architect’s plan for new office space with every asset within the project filled with metadata and responsive to interaction, changes in lighting, etc. 
  3. Simulation: generate training data for machine learning algorithms using virtual recreations of real-world environments (like for autonomous vehicles in San Francisco) and running thousands of instances in each batch. Unity Simulation customers include Google’s DeepMind and Unity teamed up with LG to create a simulation module specific to autonomous vehicles.
  4. Human Machine Interfaces (interactive screens): create interactive displays for in-vehicle infotainment systems and AR heads up displays, as showcased by Unity’s 2018 collaboration with electric car startup Byton.

Unity’s ambitions beyond gaming ultimately touch every facet of life. In his 2015 internal memo in favor of acquiring Unity, Facebook CEO Mark Zuckerberg wrote “VR / AR will be the next major computing platform after mobile.” Unity is currently in a powerful position as the key platform for developing VR / AR content and distributing it across different operating systems and devices. Zuckerberg saw Unity as the natural platform off which to build “key platform services” in the mixed reality ecosystem like an “avatar / content marketplace and app distribution store”. 

If Unity maintains its position as the leading platform for building all types of mixed reality applications into the era when mixed reality is our main digital medium, it stands to be one of the most important technology companies in the world. It would be the engine everyone across industries turns to for creating applications, with dramatically larger TAM and monetization potential for the core engine than is currently the case. It could expand up the stack, per Zuckerberg’s argument, into consumer-facing functions that exist across apps, like identify, app distribution, and payments. Its advertising product is already in position to extend into augmented reality ads within apps built with Unity. This could make it the largest ad network in the AR era. 

This grand vision is still far away though. First, the company’s expansion beyond gaming is still early in gaining traction and customers generally need a lot of consulting support. You’ll notice other coverage of Unity over the last few years all tends to mention the same case studies of use outside gaming; there just aren’t that many than have been rolled out by large companies. Unity is still in the stage of gaining name recognition and educating these markets about what its engine can do. There are promising proof points of its value but market penetration is small.

Second, the era of AR as “the next major computing platform after mobile” seems easily a decade away, during which time existing and yet-to-be-founded tech giants will also advance their positions in different parts of the AR tech, authoring, and services stack. Apple, Facebook, Google, and Microsoft are collaborators with Unity right now but any of them could decide to compete with their own AR-focused engine (and if any of them acquire Unity, the others will almost certainly do so because of the loss of Unity’s neutral position between them).

Read Part 2 of my Unity IPO analysis for a break down of Unity’s current financial position, how it’s positioning itself in the S-1 to achieve a higher valuation, and what both the bear and bull cases are for its future.

July 1, 2020

Interesting Deals, Stats, & Product Updates

Digestible Media


  • YouTube increased the price of its live OTT service YouTube Live by 30% to $64.99. (Read more)


  • Spotify rolled out its $12.99/mo “Duo” discount bundle for two users at the same address in the US, India, and 53 other markets. (Read more)
    • Discount plans like the Family and Student plans and this Duo bundle have helped fuel Spotify’s premium subscriber growth over the last three years to 130M. ARPU for subscribers has declined each year due to that and to lower pricing in new markets (€4.72 avg in 2019).
  • HIFI, a platform for musicians to better manage royalty collection and analysis, launched publicly and announced MUSIC (the music-focused fund of Matt Pincus and LionTree), Lerer Hippeau, and Flybridge Capital as initial investors. (Read more)

Interactive Media


  • Koji, a San Diego-based startup whose platform enables users to make and share interactive selfies, memes, and games over social media, raised $10M from Galaxy InteractiveBitkraft Esports VenturesMTGMark Pincus, and Michael Eisner. (Read more)
  • Voicemod, a Spain-based startup providers voice filters to gamers to change their voice in in-game chat, raised $8M in funding from BitKraft Esports Ventures and others. The company has 2.5M MAUs and a team of 55. (Read more)
  • MyRemoteApp, the Polish startup behind cloud gaming platform Vortex.gg, raised €2M from Deutsche Telekom. (Read more)
  • Relentless Studios, the Amazon-owned studio building a big MMO called Crucible, pulled Crucible back into a closed beta to make improvements after an underwhelming launch. It’s a setback for Amazon’s gaming ambitions. (Read more)
  • Tencent is opening a new studio in LA called Lightspeed that is building a game for Playstation 5 and Xbox Series X. (Read more)


  • Google acquired North, the Waterloo-based maker of AR glasses Focals. Focals will discontinue its product line and app. (Read more)
  • Niantic, the AR gaming studio behind Pokemon Go and Harry Potter: Wizards Unite, is partnering with immersive theatre company Punchdrunk (creators of Sleep No More) for a series of immersive experiences. (Read more)
  • Facebook made voice commands available as a beta feature for Oculus Quest users in the US. (Read more)


  • Discord raised $100M in Series G funding at a roughly $3.5B valuation from Index Ventures and other investors as it pushes beyond gaming to be a broader group conversation hub. (Read more)


  • Willa, a Stockholm-based fintech startup by former Spotify staff that advances freelancers the money owed to them from clients and tech platforms, raised $3M in seed funding from EQT VenturesNordic Makers, and Moonfire Ventures. They are initially focused on social media influencers with an average following of 100,000 people. (Read more)

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June 29, 2020

Hi everyone – I spoke with Starz CEO Jeffrey Hirsch about his strategy for expanding the longtime premium cable network into SVOD in the US and abroad, including user acquisition, pricing, and content localization efforts. Here’s the interview on TechCrunch.

Interesting Deals, Stats, & Product Updates

Digestible Media


  • SpringHill Co., the entertainment company led by basketball star LeBron James and his business partner Maverick Carter whose holdings are the SpringHill film/TV production co, the Uninterrupted media brand, and the Robot Co. marketing agency, raised $100M from Elisabeth MurdochGuggenheim Partners, the University of California endowment, and SC.Holdings. (Read more)
  • YouTube is beta testing a feature for creators to post 15-second videos like on TikTok. (Read more)
  • Spire Animation Studios, a new animated film studio, raised seed funding from the new CAA-affiliated VC firm Connect Ventures and entertainment law firm Ziffren Brittenham. (Read more)
  • The Sundance Film Festival will be spread across 21 different cities next January instead of taking place only in Park City, UT as usual. (Read more)
  • NENT raised its 2020 new subscriber target for Nordic SVOD service Viaplay from 400k to 600k. It finished 2019 with 2.3M subs and added 200k in Q1. (Read more)


  • The New York Times withdrew from Apple‘s Apple News subscription bundle. (Read more)
  • Great Hill Partners acquired the subscription-based stock media marketplace Storyblocks. (Read more)


  • Artlist, an Israel-based platform for companies and independent creators to access royalty-free music, raised $48 million from PE firm KKR. (Read more)
    • Artlist is a competitor to Stockholm-based, EQT-backed platform Epidemic Sound.
  • Soundtrack Your Brand, the Stockholm-based music streaming service for businesses (that spun out of Spotify in 2013), overhauled its cap table in recent months, per a story by Swedish startup publication Breakit. (Read more, in Swedish)
    • Tension over a focus on rapid growth and/or seeking a sale (preferred by Spotify and investors like Balderton, DIG, Industrifonden, and Northzone) vs. a focus on improving margins (preferred by management) led to new (Miami-based) investor Rokk3r investing for a 37% stake at a $34M valuation, half its prior valuation.
    • The co-founders’ stake and Spotify’s stake were diluted from 15% to about 3.5%, with an option plan getting the founders back to 14% based on performance.
    • 2019 financials were $12M in revenue (+20% yoy) with a $8.8M loss.

Interactive Media


  • Tencent is beta testing a new live streaming platform in the US to compete with Twitch, called Trovo. (Check it out)
  • Roblox surpassed $1.5B in player spending over its mobile app, including $102M in May. The vast majority of revenue comes from users in the US and with iOS devices. (Read more)
  • Roblox partnered with Warner Bros and DC to create a virtual world in Roblox modeled on Wonder Woman’s home island. (Read more)
  • Focus Home Interactive, the French publisher behind World War Z that earned €13M in profit on €143 in revenue over the last year, acquired German studio Deck13 for €7M. (Read more)


  • Mirror, the interactive fitness video startup that sells a subscription to video workout classes delivered through an at-home wall-mounted device (with a mirror), is getting acquired by Canadian fitness apparel maker Lululemon for $500M. (Read more)


  • Facebook opened up fan subscriptions to any creator in the US, UK, and several other markets. The feature lets creators with Facebook pages charge a $4.99 per month membership that paywalls exclusive content, gives fans a membership badge alongside their posts, and other perks. (Read more)
    • Niche creators are key to Facebook succeeding in its effort to orient Facebook around private interactions and membership in shared interest groups. For creators to devote themselves to community building on the platform, the monetization options have to be more lucrative than just a rev-share on ad revenue. 
    • Social platforms are wary of creators wanting to own their audience and drive fans to their websites or sites like Patreon, Substack, etc. so they are building similar features (while still not giving creators access to fans’ contact info, ensuring they stay beholden to the platform.)
    • I outlined the growing competition between leading social platforms to allow creators to directly monetize their fans in my February 2019 series on Patreon.
  • TikTok has been monitoring what iOS users with its app copy to their device’s clipboard when they’re not using the app, per cybersecurity researchers Mysk. The same issue was reported in February for Android devices, with TikTok saying that was due to a faulty Android update. (Read more)
  • Unilever and Verizon are among a wave of giant companies pulled their advertising from Facebook temporarily in protest of the amount of hate speech on the platform. (Read more)
  • Cox Communications, the US telecom, launched an internet plan specifically for gamers that promises lower latency in response times to gaming-related servers. (Read more)
    • Perhaps the start of a trend?


  • CAA and the VC firm NEA have formed a new $100M VC fund called Connect Ventures targeting media-tech startups. (Read more)
    • It’s the latest of many attempts by Hollywood’s top talent agencies to succeed in VC and seems most similar to the Mailroom Fund (2008-11) that William Morris launched with Accel and Venrock.
  • MCH Group, the financially troubled Swiss parent company of art fair Art Basel, is reportedly in talks with James and Rupert Murdoch to sell a 30% stake for $105 million. (Read more)

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Where to open a game studio

I surveyed a dozen gaming-focused VCs, and a handful of gaming entrepreneurs and executives like Scopely’s Walter Driver, about the most exciting cities for gaming startups right now. The aim was a guide for founders deciding where to base themselves and companies deciding where to add a new office.

The most surprising thing was how varied the answers were…that there are powerful clusters of gaming talent everywhere, as Zynga’s recent $1.8B acquisition of Istanbul-based Peak Games highlighted.

The top recommendation was Los Angeles though. There was also unanimous feedback that the benefits are not worth the excessive cost in the San Francisco Bay Area. Helsinki was the top recommendation for mobile gaming. Eastern European capitals and Canada’s major cities are attracting more attention. (Read the full post)

Gaming industry data

The most-cited annual report on the gaming industry is by UK research firm Newzoo, which released its 2020 edition.

I featured its highlights on TechCrunch, but 2020 revenue is predicted to hit $159B and by 2023 is predicted to surpass $200B. It’s important to note that this report, and the many news articles that cite it, doesn’t include revenue from in-game ads or the market size of consumer-to-consumer trading of digital goods from games, each of which are multi-billion dollar markets (that I’m looking to get credible data on the size of).

The disparity between who plays video games and who spends money on video games is notable…

Distribution of gamers:

  • 1,447 million (54%) in Asia-Pacific
  • 386 million (14%) in Europe
  • 377 million (14%) in Middle East & Africa
  • 266 million (10%) in Latin America
  • 210 million (8%) in North America

Industry revenue:

  • $78.4 billion (49%) from APAC
  • $40 billion (25%) from North America
  • $29.6 billion (19%) from Europe
  • $6 billion (4%) from Latin America
  • $5.4 billion (3%) from Middle East & Africa

Annual consumer spend per gamer:

  • $190.48 in North America
  • $76.68 in Europe
  • $54.18 in Asia Pacific
  • $22.56 in Latin America
  • $14.32 in Middle East & Africa

Quibi’s misaligned incentives

published an article yesterday about Quibi’s rough start, relative to the amount of capital raised and spent. I’m a big believer in the opportunity for mobile-native content formats so sad to see it. I highlighted four main issues I saw:

  1. Miscalculating the risk of launching during the COVID-19 lockdown.
  2. Undervaluing the central role of interactivity in mobile-native entertainment (and overvaluing short content lengths).
  3. Creating misaligned financial incentives with the wrong content partners.
  4. Launching Quibi like a movie instead of like a startup.

The misalignment of financial incentives is something that jumped out at me in particular. Quibi aimed to pioneer a new content format, but it turned to the biggest names in traditional film/TV to do so…the “incumbents” who have the least need to innovate and the greatest opportunity cost on their time.

Quibi’s deal terms to lure VIPs let them repurpose their content for traditional film/TV formats after 3 years. It reduced the risk of their time being wasted on a project for a startup that flops, but it also created a disincentive to innovate a new format. Producers want the ability to repurpose their content so naturally create a Quibi show that’s not that different from traditional TV.

Aligning incentives would have meant focusing the deal on financial upside for creating a hit in a new format. The biggest names in Hollywood probably wouldn’t have bought into that, but rising star creatives looking to make a name for themselves would have…and that’s the better group to turn to in taking risks and pouring time into experimentation.

It’s always a red flag when startup founders say they need big celebrities involved; it hints that the product isn’t differentiated and compelling enough to excite consumers on its own. Quibi seems to have way over-indexed on thinking VIPs were the key to helping its content stand out rather than using its funding to take more risks (and more time) in product/production innovation.

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June 24, 2020

(This is from today’s newsletter. You can subscribe here.)

Digestible Media


  • Tencent is acquiring Iflix, a leading VOD service in Southeast Asia and the Middle East with 25M MAUs across 13 markets. (Read more)
    • The Kuala Lumpur-based company raised $348M in outside funding since 2014. It’s IPO in Sydney was canceled when the market crashed due to Covid-19.
    • Variety reports the acquisition price is in the “tens of millions” which is a steep cut from prior valuations.
  • FuboTV added ESPN and ABC channels to its OTT subscription. The addition of ESPN is a huge win for Fubo, which has anchored itself in live sports content. (Read more)
  • Disney says Disney+ will expand to 8 more European countries on Sept 15 with prices in the €7-8 range depending on country. (Read more)
  • Snap announced an interactive, shoppable show on Snapchat. (Read more)
  • Pixellot, an Israel-based provider of automated video production technology for sporting events, raised $16M from Shamrock Capital and other investors. (Read more)
  • NENT Group and Finland’s Elisa Viihde are forming a JV to combine SVOD offerings in Finland. (Read more)


  • Saban Music Group, the music group announced last July with $500M in backing from Haim Saban and a focus on developing international artists from LatAm and other regions, signed a global admin deal with Universal Music Publishing. (Read more)


  • Wondery, the LA-based podcast studio, launched its own podcast streaming app. (Read more)
  • iHeartMedia signed a deal with WarnerMedia to produce companion podcasts for HBO Max shows. (Read more)

Interactive Media


  • Treehouse Games, an LA-based game studio focused on collaborative games, raised $2.6M in seed funding from London Venture Partners (LVP), Transcend Fund, and Kristian Segestrale (CEO of Super Evil Megacorp). (Read more)
  • Epic Games‘ portal for buying and playing PC games, the Epic Games Store, hit 61 million MAUs this past month. It sunk money into free give-aways of popular games to lure new users. (Read more)
    • By comparison, Valve’s Steam portal (the longtime market leader) had 91 million MAUs at the end of last year.
  • Absolutely Games unveiled itself as a new UK-based studio led by serial gaming entrepreneur James Brooksby. Rebellion and Cedric Littardi provided seed funding. (Read more)
  • Activision Blizzard and Tencent‘s Call of Duty: Mobile has had 250 million downloads since launching in October. (Read more)
  • EA renewed an exclusivity deal with La Liga to include the Italian soccer league’s teams and players in the FIFA game franchise. (Read more)
  • Unity made its full library of educational courses for learning how to use Unity free. (View here)


  • Facebook acquired Ready at Dawn Studios, the VR studio behind the Lone Echo game franchise that has offices in Irvine, CA and Portland, OR. Its Facebook’s third acquisition of a VR studio in the last year. (Read more)
  • Facebook is discontinuing production and support for the Oculus Go headset. (Read more)
    • As the first decent cordless VR headset, it marked an important stepping stone, but it was underwhelming in tech specs and content offerings. The newer Quest headset is the substantially improved update to Go.


  • The European Commission released a two-year review of GDPR saying the data privacy law is working but there needs to be far more resources devoted to enforcing of it. (Read more)

June 22, 2020

Hi everyone – hope the week is kicking off well. 

Yesterday I published an article on Confronting Racial Bias in Video Games. Games are often overlooked in discussions of how media portrayals of different demographics affect real-world treatment of those groups.

The biggest problem within gaming is that the homogeneity of game companies’ teams often results in obliviousness to how non-White/Asian demographics are portrayed (or not portrayed) and not treating diversity as a business priority.

I featured a couple of the new game studios — Glow Up Games and Brass Lion Entertainment — that see the underrepresentation of Black and Latinx characters in games as a big business opportunity given the large % of gamers of those ethnicities. Gaming is behind Hollywood in waking up to the reality that diversity is about untapped markets in addition to being a moral and political issue.

Microsoft is shutting down Mixer
Microsoft is abandoning its attempt to compete in the game live-streaming market, with the announcement today that its Twitch-competitor Mixer will shut down on July 22.

As part of a deal with Facebook, Mixer will redirect all users to Facebook Gaming thereafter. Top live-streamers on Mixer (“partners”) are automatically being made partners on Facebook Gaming and will receive the same deal terms they had with Mixer.

Mixer paid up to secure the top streamers exclusively to its platform — most notably its $20-30M deal with Tyler “Ninja” Blevins — but never amassed the consumer following to catch up with Amazon’s Twitch, YouTube Gaming, and Facebook Gaming. That top tier of streamers are being freed from their contracts, so expect the remaining platforms in the space to make bids on new exclusive deals.

Mediawan’s pan-European TV play

Mediawan announced it is acquiring the Spanish TV production studio Good Mood for an undisclosed sum and in the process of acquiring Lagardère’s production unit Lagardère Studios for up to €100M.

Paris-based Lagardère has been spinning off assets to focus entirely on its Publishing and Retail divisions, which are dominated by the book publisher Hachete and airport store chain Relay, respectively.

Mediawan was launched as a SPAC on the Paris stock exchange in 2015 by telco billionaire Xavier Niel, banker Matthieu Pigasse (then Lazard, now Centerview), and TV exec Pierre-Antoine Capton to roll up scripted TV production companies in Europe. Mediawan has acquired 23 companies since.

The founding trio also announced today that they are teaming up with insurer MACSF, which owns 7.8% of shares, and PE firm KKR to buy out the 73% of Mediawan shares they don’t already own via an entity called Mediawan Alliance. Mediawan Alliance will also take a minority stake in KKR portfolio company Leonine, a production/distribution company that has been running a similar strategy (at smaller scale) in Germany.

Interesting Deals, Stats, & Product Updates

Digestible Media


  • An Italian court rejected Vivendi‘s lawsuit to block Mediaset from merging its Italian and Spanish subsidiaries into one Dutch holding company called MediaForEurope. (Read more)
    • Mediaset founder (and former Italian Prime Minister) Silvio Berlusconi has been making a play to create a larger pan-European TV conglomerate that can better challenge Netflix and others. 
    • This was the latest in an ongoing drama of Vivendi and Mediaset suing each other. Vivendi took a minority stake in Mediaset and has tried to block the MediaForEurope strategy, arguing its just about the Berlusconi family increasing its % control over Mediaset assets.
  • DAZN and Sky paid €4.4B for 4-year domestic broadcasting rights to Germany’s Bundesliga soccer league. It’s €200M less than the 4-year rights deal that expires after this season, suggesting DAZN and Sky expect the market to return post-Covid fairly swiftly, albeit not entirely. (Read more)
  • Disney removed its 7-day free trial for Disney+, ahead of the release of the Hamilton Broadway recording. The demand to watch Hamilton should convert a lot of subscribers who would otherwise only stick around for the free trial to watch Hamilton. (Read more)
  • Cineworld agreed to a new $250 million secured debt facility. (Read more)
  • Weta Digital, the special effects industry leader based in Wellington NZ, is launching an animation division. (Read more)


  • The Local, a network of English-language news sites for expats in Europe, increased paying subscribers by 70% to 26,000 since Covid-19 lockdowns started in March.
    • Here’s a case study on the different ways the 11-person team is monetizing its 6-7M monthly unique visitors (which soared to 17M in March).
  • BuzzFeed has been seeking a buyer for BuzzFeed Germany, and German trade pub Meedia reports that an investor group consisting of Markus PossetAlexander Schütz, and Klemens Hallmann are making a bid. (Read more, in German)


  • Live Nation is dropping its artist guarantees by 20%, requiring artists to get their own concert insurance, and increasing the penalty for artists who cancel a concert, among other changes. (Read more)
  • Live Nation is testing its first drive-in concert. (Read more)
  • European digital distribution company Kontor New Media has acquired Germany-based punk, rock and metalcore label Arising Empire. (Read more)


  • SiriusXM bought podcast distributor and analytics platform Simplecast. (Read more)
  • Spotify shares have been soaring over the last month. The company’s $43B market cap is $13B higher than in mid-May.
    • Investor confidence seems to be growing that Spotify can dominate the podcast market, a key priority for the Swedish company, which has signed exclusive deals with Joe Rogan, DC Entertainment, and Kim Kardashian in the last month.
  • Spotify is testing interactive podcast ads, with a visual ad appearing in-app alongside the audio ad so the advertiser can directly link to a site or share a promo code. (Read more)
    • Spotify also last week began rolling out video ads to its free tier users in the US, UK, and Canada. (Read more)

Interactive Media

Interactive Storytelling

  • Twitch announced two of the interactive TV shows it is producing as part of its push to pioneer the format on its platform. (Read more)


  • DMarket, the LA-based marketplace for digital items from video games,raised $6.5M in Series A funding from Almaz Capital and Xsolla. It also announced EA founder Trip Hawkins as an independent board member. (Read more)
  • Riot Games announced there will be no skin trading built into its new hit game Valorant. This forces players to only buy directly from Riot. (Read more)
    • As explained in the same virtual economies article, this is standard in gaming still but dramatically limits the potential size of Valorant‘s economy and the money that could be earned from it. Think state-controlled economy vs. free markets. Game devs are wary of the liability and complexity that comes with a more open economy.
    • Many Valorant players will still trade skins, they’ll just do it via the grey market on other sites.
  • Nintendo is pulling back its mobile games ambitions to keep its focus on growth of the Switch console following the massive success of Animal Crossing: New Horizons. (Read more)
  • Blooper Team, the Polish studio behind Xbox exclusive game The Medium, is reportedly in acquisition talks with multiple US and European companies. (Read more)
  • Polyient Games launched as an accelerator for blockchain-based gaming infrastructure startups. (Read more)


  • Bose is shutting down its program to develop an audio-enhanced augmented reality platform for third-party developers. (Read more


  • France’s Constitutional Council ruled that a new law requiring social media companies to take down illicit content within 24 hours of it posting is unconstitutional. (Read more)
  • My TechCrunch colleagues compiled a reading list of articles to learn about Reliance Jio, India’s largest mobile carrier which has raised over $14B in the last month. (Read it here)
  • A summary of news from Apple‘s annual WWDC event today: (Read it here)


  • The Information profiled Endeavor‘s challenges since it pulled its planned IPO last year. (Read it here)

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June 16, 2020

Digestible Media


  • Tencent is reportedly exploring an acquisition of iQIYI, the Baidu-owned, Nasdaq-listed VOD service that has 119M subscribers (mainly in China). Tencent’s rival Tencent Video service has 112M paying subs. (Read more)
  • Hydrow, the Boston-based startup providing a subscription video service of rowing workout videos alongside a rowing machine (think Peleton for rowing), raised an additional $25M in funding from L Catterton. (Read more)


  • Midia’s blog post on Tencent‘s music industry strategy: Read it here

Interactive Media


  • Epic Games‘ current fundraise is for $750M at a $17B valuation. (Read more)
    • GamesBeat reports Epic took in $400M in April revenue from Fortnite.


  • Hulu is shutting down its VR app. (Read more)
  • The Verge investigated “What’s left of Magic Leap“: Read it here


  • The EU’s European Commission announced formal antitrust investigations into Apple over its App Store and Apple Pay. (Read more)
    • Spotify, among others, filed formal complaints against Apple last year and lobbied regulators to take action.


  • Lagardère, the Paris-based publishing and travel retail group that recently fended of activist investor Amber Capital, is looking to sell its live entertainment assets like Les Foiles Bergeres cabaret and several venues for €70M. (Read more)
  • Kevin Durant, a star basketball play at the NBA’s Brooklyn Nets, bought a 5% stake in the Philadelphia Union MLS soccer team with option to double his stake. (Read more)

This deal news was from today’s newsletter. Subscribe here.