Author: Eric Cohen-Peckham

Deal News: April 30, 2020

(This was originally shared in today’s Monetizing Media newsletter. Sign up here.)

Digestible Media

Film/TV/Video 

  • NBCUniversal Q1 revenue dropped 7% yoy to $7.7b. (Read more)
    • Filmed entertainment down 22.5% to $1.4b. Theme park revenue down 31.9% to $869m.
    • Ad revenue was down just 2.2% but Comcast expects a harder hit in ad revenue in Q2. 
       
  • TF1 Group, the French TV broadcaster, reported Q1 earnings (Read more)
     
  • IMAX Q1 earnings: just $35m in revenue given cinema closures, that’s -56% yoy. With a $49m net loss, compared to a $8m net profit in Q1 2019. (Read more)
     
  • Amazon signed a contract to stream Thursday night NFL games through 2022 for $65m per year. (Read more)
     
  • AMC Entertainment is delayed Q1 earnings release until June. (Read more)

Publishing

  • The Financial Times‘ consulting arm, FT Strategies, is using a grant from Google News Initiative to work with 8 other European publishers on improving their subscription offerings. (Read more) 
     
  • Subscription publishers are taking advantage of a weakened ad market to increase paid acquisition. Condé Nast subscriber growth was up 100% yoy in March with 50% of new subs from paid. (Read more)

Interactive Media

SFX

  • Bublar Group, a Swedish company whose subsidiaries provide AR & VR solutions to multiple industries, is acquiring the Stockholm-based SFX group Goodbye Kansas for $5.7m in stock. (Read more)
    • I checked several articles to verify the price is accurate. Goodbye Kansas is one of the leading SFX houses in the world and has a team of ~200.
    • The deal seems to highlight the brutal economics of SFX, a low margin services business with “cost plus” payment structures and bidding for contracts that pushes margins toward zero. Plus no financial upside in the film or game projects firms work on.
    • Goodbye Kansas lost money the last two years. Turnaround efforts led to revenue in the first 2 months of 2020 of roughly $5m with $500k in EBITDA.
    • Bublar listed on Nasdaq First North Growth Market in November 2019.
    • Both firms were founded in 2015.

Gaming

  • I surveyed 7 VCs on their esports investment interests: Peter Levin (Griffin Gaming), Beth Ferreira (Firstmark), Ethan Kurzweil (Bessemer), Jens Hilgers (Bitkraft), Dough Higgins (Sapphire Sport), Rick Yang (NEA), Kevin Baxpehler (Remagine) >> Read their responses
     
  • Twitch launched a esports directory for users to easily track esports competition schedules. (Read more)
     
  • Microsoft‘s gaming revenue was flat in Q1 (its fiscal Q3). Overall gaming revenue was $2.35b, -1% yoy. (Read more)
    • Xbox specifically was +2% yoy with a decline in hardware revenue (due to pricing decreases on older units, it says) and increased for content and services.
    • There are now 10m subscribers to its Xbox Game Pass subscription bundle and 90m MAUs for its cloud-streaming service Xbox Live.
    • Xbox Xcloud — its new service for cloud streaming Xbox games across devices — has hundreds of thousands of MAUs in its beta.
       
  • Unit 2 Games is releasing its no-code, UGC-driven game design platform platform Crayta this summer, exclusively available on Google Stadia. (Read more)
    • Crayta itself is built with Unreal.
    • UK-based Unit 2 is led by Richard Smithies and has raised $5m in funding from Makers Fund.
       
  • Ubisoft announced the next title in its Assassin’s Creed franchise, Assassin’s Creed: Valhalla. (Read more)
     
  • Gaming content on YouTube received 17b views in the last week of March, +24% yoy. (Read more)
    • There’s been a 60% increase in Call of Duty videos uploaded during the Covid-19 crisis, a much larger jump than content from other games.

AR/VR

  • Facebook said its +80% yoy increase in Q1 non-advertising revenue to $287m was primarily due to Oculus sales. (Read more)
    • Zuckerberg said FB is trying to produce more Quest headsets faster to keep up with the huge demand. Even before Covid-19 they were selling out frequently.
       
  • Magic Leap warns of a critical battery issue. (Read more)

Communications

  • Guilded, an in-game chat platform, raised a $7m Series A from Matrix Partners (Ilya Sukhar), Initialized Capital, Susa Ventures, and Sterling VC. (Read more)
     
  • Facebook Q1 revenue was $17.7b. (Read more)
    • Ad revenue was down 19% from Q4, compared to Q1 2019’s 11% drop from Q4 2018.
    • 1,734m DAUs and 2,603m MAUs…increased DAUs and MAUs in every region from Q4.
    • 67% DAU:MAU ratio. It’s been 66% for the last 2 years.
       
  • Twitter Q1 earnings: $808m revenue (+3% yoy). US revenue grew 8% yoy while international revenue shrank 4% yoy. (Read more)
    • 84% of revenue was from ads, the rest mostly from data licensing.
    • From March 11 to 31, ad revenue declined 27% yoy.
    • It reported a +8% increase in mDAUs (“monetizable DAUs”) to 164m

Dealmakers

  • FuboTV, the sports-centric OTT service, named Edgar Bronfman Jr. its executive chairman. The former Warner Music CEO is an investor in FuboTV personally and through his VC firm (w/ Daniel Leff) Waverly Capital. (Read more)

Layoffs/furloughs: NY Post, Ticketmaster, ViacomCBS

Gaming VCs survey: esports

I compiled responses from several VC investors on where they see opportunities for esports startups right now:

Read it here on TechCrunch >>

7 VCs talk about today’s esports opportunities

Deal News: April 29, 2020

(This was originally shared in today’s Monetizing Media newsletter. Sign up here.)

Digestible Media

Film/TV/Video 

  • WarnerMedia‘s Turner Broadcasting Europe division acquired The Widget Company (aka TWC), an Amsterdam-based, 30-person firm that designs OTT applications for media companies. (Read more)
     
  • Sony is negotiating to make a large investment in Eleven, the UK production company behind Netflix hit show “Sex Education”. Its investment will reported involve buying out Channel 4’s 20% stake. (Read more)
     
  • Dish Network is saying it isn’t obligated to pay ESPN $80-100m in April carriage fees because there are no live sports and their contract includes a force majeure clause. ESPN unsurprisingly disgrees. (Read more)
     
  • YouTube ad revenue in Q1 was $4 billion, up 25% yoy but down 14% from Q4. (Source)
    • Last year was the first time Alphabet broke out YouTube earnings, so it unclear what past Q4 to Q1 revenue change has been for YouTube. Media co’s often seen Q1 declines from Q4 due to holiday ad spending.
       
  • YouTube added fact check panels to search results in the US. (Read more)
     
  • News Corp‘s Fox News hit a new record in TV ratings this month, averaging 3.68m primetime viewers. It has had 2.2m viewers on average overall (its 2nd best month ever). (Read more)
    • NBCUniversal’s MSNBC: 2.03m primetime, 1.25m overall
    • WarnerMedia’s CNN: 1.94m primetime, 1.36m overall
    • In the 25-54 age group, CNN was up 179%, Fox up 83%, and MSNBC up 54%. (Source)
       
  • NCAA announced its support for allowing college athletes in the US to get paid for endorsements and other use of their name/likeness so long as their school isn’t involved. (Read more)

Publishing

  • Niche, a publisher whose platform shares content for comparing different US colleges, raised $35m in Series C funding from Radian Capital, Salesforce Ventures, Allen & Co., and Tim Armstrong. (Read more)

Music

  • Spotify Q1 earnings report:
    • Audience (+ change from Q4)
      • 286m MAUs (+5%)
      • 130m paying subs (+5%)
      • 163m free tier MAUs (+7%)
    • Revenue (yoy / qoq)
      • Total: €1,848m (+22% / 0%)
      • Subscription: €1,700m (+24% / +4%)
      • Subscription ARPU: €4.42, -6% from Q4 due to longer trials, emerging market expansion, and popularity of family/duo bundles.
      • Ads: €148m (+17% / -32%)
    • Maintained 25.5% margin from Q4 with gross profit of €474m. Premium gross margin increased to 28.3%.
    • Covid-19 impact: while hours of listening declined, subs and DAU:MAU ratio were steady. Without commutes people aren’t listening as much within each day. Listening on at-home devices (TVs, smart speakers) and game consoles soared.
       
  • Tencent Music Entertainment invested in Radio Music Warehouse, a Chinese streaming platform providing music on commercial licenses to businesses (kind of like Spotify spin-out Soundtrack Your Brand). (Read more)

Podcasting/Audio

  • Spotify Q1 earnings:
    • 19% of MAUs listen to podcasts, from 16% in Q4.
    • Of 1 million podcasts on Spotify, 60% are created via Anchor. In Q1, 70% of new podcasts used Anchor.
       
  • US podcast downloads went back up for the first time since much of the country went into lockdown in early-mid March, according to Podtrac data. (Read more)

Interactive Media

Interactive Stories

  • Neon Media spun out of HBO as its own Seattle-based, 7-person firm focused on developing interactive stories and story-driven games. (Read more)

Gaming

  • Funtap, a Vietnam-based mobile games studio, raised a Series A from Makers Fund, DT&Investment, Colopl Next, and Soulbei. (Read more)
     
  • Epic Games is temporarily requiring user to verify their account with two-factor authentication in order to redeem free games from the Epic Store. It’s a move to encourage better account security by gamers. (Read more)
     
  • Riot‘s new game Valorant is having a lot of issues with player harassment, something executives — who say they’ve also been harassed in their game — are pledging to address. (Read more)

Communications

  • Marco Polo, a video chat app focused on asynchronous conversations (sending videos back and forth), added a subscription tier and claims 20m messages were sent on its app in one day. (Read more)

Dealmakers

  • Arctos Sports Partners, a new PE firm led by David O’Connor and Ian Charles that is focused on buying stakes in pro sports teams, is raising $1-1.5b for its first fund. (Read more)
    • Per Axios, $500m is already committed, with LPs including Goldman Sachs’ fund of funds Petershill.

The decline of the theatrical window

(This was originally published as a section in today’s newsletter. Sign up here.)

The news: Universal Pictures animated film “Trolls World Tour” has earned $95m in its first 3 weeks on-demand, having skipped its theatrical release due to Covid-19. Universal said they will release more films direct to VOD as a result.

US and European cinema trade groups NATO and UNIC criticized Paramount. The CEOs of top cinema chains AMC and Cineworld (Regal) threatened to no longer carry Universal films in theaters if Universal proceeds. (Read more)

The takeaway:

  1. The shutting down of cinemas is forcing studios to take risks they needed to take anyway in releasing films on-demand. Positive results from this during Covid-19 will make it much more likely the practice continues (at least for same-day release with theaters) after.
     
  2. Direct-to-VOD release doesn’t need to generate more topline revenue than a box office release to be more profitable, since the studio is only getting half the box office earnings but 80% of VOD earnings.
     
  3. Threats by cinema chains are empty. They have no leverage to negotiate here. Already struggling, they need every dollar they can get to survive after this crisis. Even if blocking a studio’s films would hurt the studio over the year ahead and be an effective long-term strategy, cinemas can’t afford the short-term loss. It may even expose them to shareholder lawsuits.

Deal News: April 28, 2020

(This was published in today’s Monetizing Media newsletter. Sign up here to receive it each day.)

Digestible Media

Film/TV/Video 

  • Endeavor is raising $250m to help cover operating costs, according to the NY Post. PE firm Silver Lake, which already owns 42% is not planning to increase its stake, per the report. (Read more)
    • Moody’s downgraded Endeavor’s credit rating yesterday from B2 to B3. The talent representation and live events group has carried a lot of debt since financing its acquisition of UFC in 2016. (Read more)
       
  • FaZe Clan, the high-profile esports team, and Sugar23 formed a joint venture called FaZe Studios to produce film and TV projects. (Read more)
     
  • A US District judge dismissed most charges by the Writers Guild of America that collection of packaging fees by talent agencies WME, CAA, and UTA were illegal. (Read more)
    • The judge ruled that individual writers can still make claims against their agencies for breaching fiduciary duties.

Publishing

  • Hightimes Holding Corp, the company behind the cannabis-focused publishing brands like High Times, is leveraging its brand recognition to get into commerce: it’s acquiring 13 cannabis dispensaries in California for $80m in stock. (Read more)
    • It listed on Nasdaq in 2018 via a Reg A+ process and has revenue of about $20m/yr from publishing and events.

Music

  • Pandora added 51,000 paying subscribers in Q1, reaching 6.3m total. It earned $241 in ad revenue (+4% yoy) and $369m in total (+1%). (Read more)
     
  • Hipgnosis Songs Fund CEO Merck Mercuriadis said in an interview with music journalist Tim Ingham that Hipgnosis has now invested $1b across 60 catalogs since launching in July 2018. Despite industry rumors about him doing deals at 20x multiples, he says the publicly-traded investment co’s avg multiple paid has been 12.99x net publisher share. (Read more)
    • Mercuriadis also says he anticipates raising and investing another $1b in the next 2 years.
    • In Sept 2018 I wrote about the war over music copyrights with surging investment in the space. Some called it a bubble but it has continued as a hot market.
       
  • Travis Scott‘s 5 concerts in Fortnite attracted 27.7 million unique users combined. (Read more)

Podcasting/Audio

  • SiriusXM had Q1 revenue of $1.6 billion (+6% yoy) and gross profit of $992m (+7% yoy). (Read more)
    • 34.8m total subscribers, 9.1m of which are on trials given partnerships with auto makers or other companies.
    • Of 143k new subs, 69k were self-paying subs. Self-pay subscriber churn held steady at 1.8%.
    • ARPU was up 3% to $13.95.

Interactive Media

  • Rovio, the Finnish mobile games company best known for its Angry Birds franchise, reported Q1 revenue of €66.6m (-6% yoy) with pre-tax profits of €11.5m (+53% yoy). (Presentation / Webcast)
    • The boost in profits resulted from a substantial cut-back on user acquisition spend while user base remained stable (€13m vs €23m in Q1 2019).
    • Most UA spend is toward growing Angry Birds Dream Blast and Sugar Blast. The rest is on increasing earnings from Angry Birds 2.
    • Rovio has 10 games in development, the next 3 of which have been in soft launch since 2019 and are gearing up for full launch.
       
  • Scopely is acquiring PierPlay, a fellow LA-based studio that launched in 2016 and was a partner to Scopely in developing Scrabble GO. (Read more)
     
  • Macarthur Fortune Holding acquired the Jagex (the Cambridge UK-based team behind the hit MMO Runescape) from Fukong Interactive for $530m via its Platinum Fortune fund. (Read more)

Communications

  • While Verizon‘s weekly updates on network usage during the Covid-19 crisis have shown peak usage far above pre-Covid levels in activities like gaming, streaming, and web browsing, they have show declines in social media usage. The April 22 data was -15% for the week compared to averages before March. (Read more)
    • While social media companies are reporting increased DAUs, this suggests the amount of time those DAUs are spending on their platform may be lower. It would make sense given the easy availability of games, Netflix, etc. when at home all day, not to mention a dramatic shift to socializing through video chat like Zoom and FaceTime.
    • A Verizon spokeswoman confirmed the decline in peak social media usage was not merely due to a more even distribution of when people use social media than before.
       
  • Facebook plans to enable Facebook Pages to charge for users to attend live streams. (Read more)

Dealmakers

  • Social Capital Hedosophia Holdings II raised $360m, following the last week’s IPO of Social Capital Hedosophia Holdings III which raised $720m. Both are SPACs created by Chamath Palihapitiya and Ian Osborne, hunting for private tech companies (particularly startup “unicorns”) to acquire and take public. (Read more)
    • The duo’s first SPAC took Virgin Galactic public. Their new targets could include one of the entertainment-related unicorns but may very well not.

There are few people actually enforcing GDPR

(This was originally published in today’s Monetizing Media newsletter. Sign up here.)

There are few people actually enforcing GDPR
The EU’s GDPR data privacy rules have caused fear and headaches for the media industry given the hefty fines for violating it and the costs to comply. It turns out there are very few people actually assigned to enforce it.

From a report by Brave, the privacy-centric internet browser, Germany is the only country meaningfully funding its GDPR compliance team:

  • Half of EU member states have less than €5m in annual budget for their data protection authorities.
  • Only 6 countries have more than 10 technical specialists on their compliance teams.
  • 1/3 of all the technical specialists across member states (101) are in Germany.
  • Ireland, which is in charge of supervising Google, Facebook, and other US tech giants as the legal home of their European HQs, has only 21 technical investigators.
  • Austria and Belgium don’t even have full-time technical investigators on staff, just contractors.
  • Without sufficient technical investigators — staff with relevant computer science backgrounds — these agencies can’t conduct investigations with enough sophistication to defend their case against well-funded legal teams at target companies.

Spotify’s monetization misstep with its new fundraising feature

(This was originally published as a section in today’s Monetizing Media newsletter. Sign up here.)

Hi everyone – Last week, Spotify added a feature called Artist Fundraising Pick for artists to add a fundraising links to their profile. It’s done in partnership with Cash App, GoFundMe, and Paypal.me so when a user clicks it, they are redirected to one of those apps to send money or to the website of one of the charities participating in Spotify’s Music Relief project.

Efforts to direct money to those who need it during a crisis like this are laudable. That said, I think the execution here is poorly thought through.

First: it combines charitable fundraising and tipping money to the artist in the same feature. If an artist is using this to accept money to themselves they look like a) they’re stealing from a charity that could’ve received it, b) they’re a charity case begging for your help.

The latter connotation is why Patreon has struggled so much to get musicians in the core music industry — those who are big stars or aiming to become one — onto its platform. It framed itself too much as a resource to support talented starving artists and so successful ones don’t want to associate. A year ago, when I extensively researched Patreon for a 25,000 word series about the company, artist managers and label execs were consistent is saying it’s bad branding for a rising star musician to use Patreon. (The company is trying to address this but the stigma remains.)

Second: it hurts the opportunity to bring the tipping business model to Western music. Introducing tipping as a charity feature on Spotify will contribute to a stigma that is harder to get past if it wants to introduce tipping as a normal way for fans to compensate artists. And it should want to do that. Tipping musicians is standard on music streaming platforms in Asia (esp. China) and generates billions. It has recently become mainstream in the West within the context of esports: tipping is common on Twitch in addition to YouTube Gaming and Facebook Gaming.

Spotify is eagerly hunting for new revenue streams that aren’t tied to licensing content from record labels. Figuring out the right product approach to make tipping artists normal within Spotify — as an act of showing fandom not providing charity — would be a big win. Like other platforms, it could take a % cut of that money. It already has credit cards linked to the accounts of its 124m paying subscribers and I believe tipping an artist would likely be a direct transaction separate from the royalty collection process. This would also do more to help all recording artists (from super stars to small indies bands) earn more money.

Third: the third-party apps. The partnership with payment apps primarily used to send money between friends is odd, and is perhaps tied to regulation of Spotify not being an approved payment processor.

Creating a behavior of tipping artists you like isn’t likely to occur through the same apps you use to reimburse friends for pizza. Directing potential tippers to a separate app they need to create a new account with benefit those third-party apps more than Spotify.

What Spotify should have done: create a feature for artists to link to their favorite charity website and encourage donations. Separately, focus on developing a tipping feature that keeps payment within Spotify and leans on Spotify already having your credit card on file, even if the timeline to roll that out is longer.

Gaming VCs survey: opportunities in MMOs and social games

I surveyed several gaming-focused VCs about where there see opportunity for MMO and other social gaming studios.

  • Kevin Zhang, Upfront Ventures
  • Ryann Lai, Makers Fund
  • Shanti Bergel, Transcend Fund
  • Bertrand Vernizeau, Game Seer Venture Partners
  • Siamac Kamalie, Skycatcher

Read their responses here on TechCrunch >>

5 top gaming investors explain how the pandemic is reshaping MMOs and social games