Where top VCs are investing in media, entertainment, & gaming

In my TechCrunch column, I just posted long-form quotes from these 9 sharp VCs on their investment interests in the media, entertainment, & gaming space. If you’re an entrepreneur planning to raise money (or an investor curious what your peers are focused on), I suggested you give it a read.

Monetizing Media (April 28) – Zwift & Northzone interviews, Research Update, Interesting Deals this Week

Happy Sunday night, media friends. (I’ll send Monetizing Media when I send it. Aiming for shorter posts that vary a bit in format since a formal weekly routine didn’t happen.)

Great to see many of you over drinks in London and LA recently. Shout out to Hummingbird VC and Sinai VC for co-hosting those events. I’ll be at the Milken Conference this week so if you’re in town for it reach out.

Fun fact: tonight’s Game of Thrones episode featured what is likely the longest non-stop battle sequence ever on film, almost the entire 80 minutes. It took 55 days to shoot. The prior (unofficial) record was the 40-minute Battle of Helm’s Deep in “Lords of the Rings: The Two Towers”. (Read more)

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Zwift: interactive fitness vs. fitness-gaming

I interviewed Zwift CEO/Founder Eric Min in TechCrunch, discussing the virtual cycling company’s product evolution, numerous potential revenue streams, and Olympic esports ambitions.

Interactive fitness startups are a hot trend right now, following Peloton’s mainstream breakthrough. As it’s preparing to IPO, other “Peloton for X” startups like Tonal, Mirror, and Hydrow are raising substantial sums. Scooter Braun and Rumble are teaming up for a boxing one called At Home 360.

These combine the upfront purchase of workout hardware with monthly subscriptions to access live-streamed or recorded workout videos. It’s a smart business because it taps into “content as a utility”…content that is framed as a providing concrete outcomes in areas where we are used to spending a lot of money (health, education). The hardware purchase creates a sunk cost bias that makes customers resistant to stop subscribing.

What Zwift is doing taps into what I consider a bigger, more defensible opportunity however: fitness-gaming. Cyclists can put their bike on a trainer at home (which makes it stay in place) and ride with other players inside a virtual course where their characters’ looks, movements, and power corresponds to their own.

Because users are represented as players within a social game, there is the benefit of network effects, opportunity for in-game commerce and an audience viewing the competition.

In Zwift’s case, it’s developing a full-force virtual cycling league that involved real like pro cyclists and that he aims to get included in the Olympics as a cycling event. (Read the interview here)

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PJ Pärson: VC investing in media

I posted the conversation I had with Northzone VC partner Pär-Jörgen “PJ” Pärsonat the SLUSH conference in Helsinki this past winter. PJ was the first investor in Spotify and also led the Series C round of sports OTT startup fuboTV. Here are a few snippets…

On the framework that’s guided his investing for 20 years:“There’s always value chain disruption potential in pretty much any industry. The trick is to know what role to play in that value chain. Do you want to take a role in many places along that value chain, or do you want to be a tollgate that everyone in the value chain passes through?”

On content exclusivity:
“I do believe that the content market, and the idea of exclusivity, is flawed in many ways…what the artists or the content owners really need is maximum distribution…what is ultimately fueling the interest of Man United or the Patriots is the number of people who want to watch their games. If you restrict that, then you’re undermining the company.”

On tensions between tech and media giants:
“My hopes were too high that the established media houses would see the dangers of jumping into bed with Facebook and Google…they’re just laying down flat to die.”

Research Updates

Unity Technologies: This past week, I wrapped up two months of interviews with (20+) Unity executives for my upcoming TechCrunch series analyzing the $3 billion company (and the future of game engines) as it heads toward a rumored IPO. My articles, podcast episode, and video clips will be published over the course of May.

Music: Next up after the Unity release will be a similar series on a leading music company. I will also be dissecting the results of an ongoing project tracking the newsletter, website, and merchandise strategies of the top 50+ recording artists. 
Patreon: if you missed my report on Patreon (or were scared by its length), I did a 25-minute podcast with Connie Loizos of StrictlyVC discussing the takeaways. (Listen here)

Interesting Deals & Updates

VIDEO/TV/FILM

  • Disney hauled $1.2 billion in the opening weekend box office total for Avengers: Endgame, an all-time record opening for a film. It’s roughly twice the prior record of $641 million that was set by Avengers: Infinity War. US moviegoers contributed just $350 million of this weekend’s haul, highlighting the Marvel franchise’s global appeal. (Read more)
     
  • Sinemia, the Moviepass competitor, announced it is shutting down in the US and then filed for bankruptcy. (Read more)
    • As I wrote in July, cinema subscription startups are doomed to fail in the US and Canada given the market is an oligopoly (or near-monopoly in Canada) and there is substantial advantage to a vertically-integrated solution offered by the cinema chains themselves.
       
  • Coursera, the online video courses platform, raised a $103 million Series E round valuing it over $1 billion. (Read more)
     
  • The Writers Guild of America‘s standoff with major talent agencies led to a WGA request for all screenwriters to fire their agents, which at least 7,000 have done. The WGA is encouraging submissions to its own makeshift marketplace for scripts as a way to bypass agents. (Read more)
    • The sticking point in negotiations is over agencies getting packaging fees from studios.
    • This sudden hole in the market is an opportunity for The Black List, a startup that started with a closely-watched annual list of the best unproduced scripts and has evolved in to a marketplace for producers to discover writers/scripts.

GAMING

  • DouYu, the Chinese game live-streaming platform that doubled revenue in 2018 to $531M, filed to IPO on the NYSE, aiming to raise up to $500M. (Read more | here’s the S-1)
    • Tencent is its largest shareholder and the second largest shareholder in Its main competitor Huya, which listed on the NYSE last year (and had 2018 revenue of $678M).
    • Q4 MAUs: 153M @ Douyu; 116M @ Huya.
    • Both make almost all their revenue from in-app transactions: gifts consumers send to live-streamers.
    • Here’s a helpful post on these companies and the Chinese esports market: Read it here.
       
  • Playstation‘s $20/month cloud gaming service Playstation Now has reached 700,000 subscribers worldwide. It launched in 2014 and provides access to over 750 games.(Read more)
    • Playstation also said its next generation console won’t be released within the next year. (Read more)

MUSIC

  • Gaana, the Indian music streaming service, surpassed 100M MAUs, up 25% from 4 months ago. (Read more)
     
  • Amazon, which launched a free tier of Amazon Music (via Alexa) two weeks ago, is reportedly working on a high-fidelity music streaming tier in the $15/month price range. (Read more)
    • Neither Spotify nor Apple Music have made a push into HiFi, leaving it to smaller players like TIDAL.

PODCASTING

  • Luminary publicly launched its subscription podcasting app after raising $100M in funding. It’s gotten a lot of flack on Twitter and in the press, however, framing it as having used podcasts without the creators’ permission. The result is a wave of top podcasters pulling their shows. (Read more)
    • What happened is Luminary was using a proxy server, which interferes with podcasters’ analytics by masking the end-user’s IP (it has now stopped). Luminary also automatically strips links from podcast descriptions. It wasn’t stealing and reusing podcasts without permission anymore than every single other podcast app pulling from open RSS feeds does though. 
    • Some of the notable critics of Luminary’s launch, like Ben Thompson, have given Luminary access again.
    • A lot of folks were rooting for Luminary to fail before they even launched. That’s a factor in why this blew up into a big press story and why some top players are using it as an excuse to pull their content.
    • On one hand, there’s a lot of angst in the industry over the idea of paywalled podcasts in general; on the other, there’s lots of competition bidding for exclusive shows who would appreciate one less major competitor.

AR/VR + OTHER TECH

  • Synthesia, a London-based AI startup that enables automated creation of videos where lip movements are synced with new words/languages, raised $3.1M from LDV Capital, Mark Cuban, and others. (Read more)
    • The product was used in a video that shows David Beckham speaking 9 languages.
       
  • Voiceflow, a Toronto startup whose platform enables development of Alexa and Google Assistant apps without coding, raised a $3M seed round led by True Ventures and several angels. (Read more)
     
  • Magic Leap raised another $280M, this time from Japanese telecom Docomo.
    • That’s 2.6B in funding. As Lucas Matney notes, it only just launched its first AR headset, which is expensive and underwhelming relative to the hype behind the company. (Read more)
    • Magic Leap’s market timing was too early. Perhaps it can keep raising enough money on the vision to stay alive as the industry’s R&D makes more progress.

PUBLISHING

  • Nikkei, the Japanese media conglomerate that owns the Financial Times, acquired a majority stake in Singapore financial news startup Deal Street Asia at a $5-10M valuation. (Read more)
    • FYI Deal Street Asia has a good daily newsletter listing VC deals in China and SE Asia, often at least 1 of which is media related. (Find it here)
       
  • Verizon Media Group CEO Guru Gowrappan told Fortune his goal is that in 5 years, his portfolio’s revenue will be equally split between ads, subscription, and transactions (like e-commerce and affiliate links). (Read more)
     
  • TheSkimm acquired the startup Purple, which enables indie creators and media companies to run subscription messaging services through Facebook Messenger (think a subscription newsletter but in FB instead of email). (Read more)
    • Messenger-based communications (that feels personalized) is now fairly common in the music industry as a channel for artists to engage fans en mass. It’s still new in publishing, where TheSkimm has tested it out over SMS.
       
  • Authentic Brands Group (which owns retail fashion brands Nautica, Juicy Couture, and Nine West) is reportedly the top contender to acquire Sports Illustrated from Meredith Corp at a price of roughly $110M. (Read more)
     
  • “If free nations demand companies store data locally, it legitimizes that practice for authoritarian nations, which can then steal that data for their own nefarious purposes, according to Facebook  CEO Mark Zuckerberg.” (Read more)

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Interview with Eric Min, CEO of Zwift

I interviewed Zwift CEO/Founder Eric Min in TechCrunch, discussing the virtual cycling company’s product evolution, numerous potential revenue streams, and Olympic esports ambitions.

Interactive fitness startups are a hot trend right now, following Peloton’s mainstream breakthrough. As it’s preparing to IPO, other “Peloton for X” startups like Tonal, Mirror, and Hydrow are raising substantial sums. Scooter Braun and Rumble are teaming up for a boxing one called At Home 360.

These combine the upfront purchase of workout hardware with monthly subscriptions to access live-streamed or recorded workout videos. It’s a smart business because it taps into “content as a utility”…content that is framed as a providing concrete outcomes in areas where we are used to spending a lot of money (health, education). The hardware purchase creates a sunk cost bias that makes customers resistant to stop subscribing.

What Zwift is doing taps into what I consider a bigger, more defensible opportunity however: fitness-gaming. Cyclists can put their bike on a trainer at home (which makes it stay in place) and ride with other players inside a virtual course where their characters’ looks, movements, and power corresponds to their own.

Because users are represented as players within a social game, there is the benefit of network effects, opportunity for in-game commerce and an audience viewing the competition.

In Zwift’s case, it’s developing a full-force virtual cycling league that involved real like pro cyclists and that he aims to get included in the Olympics as a cycling event. (Read the interview here)

Interview with Northzone’s PJ Pärson

Today I posted an interview in TechCrunch that I did with Northzone general partner PJ Parson at the SLUSH conference in Helsinki.

We talked about the core investment thesis that has guided him for 20 years, how he went from running a fish distribution to running a VC firm, his best practices for effective board meetings and VC-entrepreneur relationships, and his assessment of the big social platforms, AR/VR, voice interfaces, blockchain, and the frontier of media.

Read it on TechCrunch

Monetizing Media (it’s back) – Patreon, Unity, Luminary, BallerTV, other deal news

Monetizing Media is back! Welcome to version 2.0. Here’s the new plan :

It’s weekly. Responding to the daily news cycle last year was a reactive way to work, distracting from the projects I wanted to proactively dive do. My productivity has soared since unplugging from it. Rather than share everything, I’m gonna share what’s most interesting each week.

It’s deeper. My focus is sharing deeper analysis by myself and others, and I’ll give attention to a specific topic for multiple weeks at a time. I’ll still highlight interesting deals and product updates but expect fewer news summaries.

It aligns with my writing at TechCrunch. I’m using my platform as their Media Columnist to produce:

  1. in-depth research reports on growth-stage and pre-IPO startups
  2. long-form analysis on business/technology trends
    …in both cases related to media & entertainment.

Much of my writing is behind the new TechCrunch paywall. They’ve kept it low at $15/month (or $150/year) though and you can use my discount code “PECKHAM” to get $50 off the annual price. The benefit of TC’s premium tier = a solid budget to do whatever I need for these research projects.

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Patreon: the definitive report
I wrote a 20,000+ word analysis of Patreon and monetization strategies by independent content creators. Patreon is a platform that creators use to run membership businesses (monthly payment in exchange for special access) with their superfans. Think CRM + CMS + payment processing.

The report dives into the company’s founding storyproduct developmentbusiness model & financialscore thesiscompetition, and potential exit scenarios. I also added a syllabus for further reading.

Some quick takeaways:

  • Patreon has undergone a strategy shift from being a marketplace / social platform to a SaaS company making business tools for creators. The goal seems to be to provide all tools & services a creator needs, including small business loans.
  • Patreon’s rake is too low, but they’re about to roll out new premium features. I suggest pricing tiers as a path forward, which is the norm for B2B SaaS.
  • The product needs to put creators’ brands first and Patreon’s second.
  • 70% of revenue comes from creators who make $1k+ per month. That’ll be $35M+ this year.
  • The key question is how big this market size is. The % of creators who make even $1k per month is tiny…but is that 10s of thousands or 100s of thousands of them?
  • Last valued at $450M in 2017, I expect Patreon to close a Series D in the next few months that makes it a “unicorn”.
  • An IPO in a few years is possible, but I think it will get acquired first. Facebook and YouTube are obvious candidates. I make the argument that Endeavor should buy them though.

The summary page is a good place to start. And you can use that “PECKHAM” discount code when you hit the paywall.

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My next report is on Unity Technologies
I had 9 hours of interviews with the exec team at Unity last week as I start my next report. Unity’s game engine is now used to build the majority of the world’s games. It’s rapidly expanding its product offerings though, plus bringing its game engine to new verticals like film & TV, automotive, and architecture. Last valued at $3 billion, Unity is rumored to be targeting an early 2020 IPO.

If you use Unity, I’d love to hear from you.

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Luminary unveiled its initial shows + new $$$
NYC- and Chicago-based podcast startup Luminary Media (which NEA principal Matt Sacks founded last year) announced an initial slate of exclusive podcasts from talent like Conan O’Brien, Trevor Noah, Malcolm Gladwell, Lena Dunham, and Guy Raz. (Read more)

Aiming to be the Netflix of podcasts, Luminary revealed a $40M first round of funding last year and now says it has raised about $100M total. Its app hasn’t launched or announced pricing yet.

I discussed the company in my October analysis that podcasting is going the way of SVOD services. The big music streaming services have a major advantage here given they already have millions of subscribers to premium tiers. This is also a capital intensive game of paying for the best talent and IP, which favors established companies.

Luminary has deep access to capital compared to most startups though and is accessing A-list talent. Keep an eye on it as the likely main competitor to the music services here.

(Btw, this was an interesting argument from a year ago that Twitter should get into the game.)

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Smart Reads
I’ve a number of articles/reports to catch up on here. More next week. Send me insightful reads you come across.

  • PodNews compiled an interesting list of mobile data rates by country and the % of avg annual income they represent. (Read it here)

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Startup to Know: BallerTV
(New section: I’ll feature an interesting startup each week)

BallerTV is an OTT platform for watching amateur sports games across the US. With a $15/month ($90/yr) subscription, relatives and friends of young athletes can watch them play in tournaments and games. BallerTV already streams tens of thousands of games per weekend and uses gig workers (amateur videographers) to shoot each game for a low cost.

Founders Aaron Hawkey and Robert Angarita have been business partners for 20 years, previously selling two edtech startups. The team of 30 is based in Pasadena. They pivoted to this business after initially developing a “Periscope for amateur sports” concept with parents shooting video.

BallerTV hasn’t announced its funding details yet but says it has raised a Series A led by Index Ventures and did a Seed round with firms like Peak Ventures, The Chernin Group, Moving Capital, and Unusual VC.

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Also of note…
(interesting deals/announcements over the last week)

VIDEO/TV/FILM

  • AMC Theatre’s cinema subscription service, Stubs A-List, surpassed 700,000 subscribers. It launched last June and includes tickets for 3 movies per week for $19.95-23.95/month (depending on the state). (Read more)
     
  • AT&T‘s WarnerMedia is undergoing a leadership reshuffle as it merges content from each of the brands into a unified OTT offering. HBO president Richard Plepler and Turner Broadcasting president David Levy are leaving. (Read more)
     
  • Discovery‘s Q4 earnings here.
     
  • Higher Ground Productions, the new production shingle of Barack and Michelle Obama, will be led by Priya Swaminathan (from Annapurna) and Tonia Davis (from Chernin Entertainment). (Read more)
     
  • KKR is making a play in German media. It has acquired film distributor Universum just a few days after acquiring TV company Tele Munchen Group. (Read more)
     
  • Legendary shut down its $4.99/month Alpha streaming service focused on sci-fi, gaming, and fantasy. (Read more)
     
  • Netflix: A survey found 59% of people who use a Netflix account someone else pays for say they would pay for their own subscription if they lost access. (Read more)
     
  • Participant Media‘s 17 Oscar nominations marked a comeback. (Read more)
     
  • VICE hired Joe Simon as CTO. (Read more)
     
  • YouTube eliminated the comments section from videos focused on minors. (Read more)

AUDIO/MUSIC

  • IFPI says Drake was the world’s best selling recording artist of 2018, followed by BTS, Ed Sheeran, and Post Malone. (Read more)
     
  • Liberty Media posted Q4 earnings here.
     
  • Liberty MediaKKR, and Tencent are all interested in acquiring the up-to-50% stake in Universal Music Group that Vivendi is selling. (Read more)
    • JPMorgan Cazenove analyst Dave Kerven valued UMG at $50B this week, compared to valuations of $29-42B by Morgan Stanley and $33B by Deutsche Bank in January. (Read more)
    • Liberty Media CEO Greg Maffei said his particularly interested in negotiating for a controlling stake in UMG. (Read more)
    • See Vivendi and UMG’s 2018 financials here.
       
  • Live Nation posted Q4 earnings. The company’s annual revenue was up 11% in 2018 to $10.3B and worldwide concert attendance was up 8% to 93M. (Read more)
     
  • Spotify launched in India without music by Warner Music recording artists. Warner had sued to stop the launch. Spotify is streaming music with publishing rights owned by Warner/Chappell, however, which could leave it liable for another lawsuit.  (Read more)
     
  • Spotify hired Liz Gateley (former Head of Programming @ Lifetime) to oversee original podcast programming. (Read more)
     
  • Spotify posted a job listing for someone to lead expansion into sports audio. (Read more)

GAMING

  • Ascendant Studios launched as a new SF-based gaming studio (focused on triple-A games) led by former “Call of Duty” creative director Bret Robbins. (Read more)
     
  • Epic Games‘ Fortnite revenue was down 48% in January from December. The game’s revenue normally spikes at the beginning of new seasons (like in Dec) then drops off, however. (Read more)
    • Fortnite season 8 preview here.
       
  • G2 Esports, a Berlin-based esports club, raised $17M in Series A funding. (Read more)
    • FYI: co-founder Jens Hilgers also founded ESL and the VC firm Bitkraft Esports Ventures.
       
  • NXC Corp, the South Korean hold co of PC and mobile gaming company Nexon, is rumored to have acquisition interest from AmazonComcastEAKakao, MBK Partners. (Read more)
     
  • Super League Gaming, which became the first US esports company to IPO last Monday (on Nasdaq) closed the week down 18% with a market cap of $75 million. (Read more)

PUBLISHING

  • Future Plc acquired US publisher Mobile Nations for $60M + up to $60M more tied to performance. (Read more)
     
  • Medium eliminated its $5/month paywall on premium tier articles for users who come to the site via Twitter. (Read more)
     
  • Reddit is testing tipping functionality for fans to support a creator, similar to tipping on Twitch, YouTube, or Facebook. (Read more)

AR/VR + OTHER TECH

  • Facebook may test functionality for Instagram to compete with Pinterest. (Read more)
     
  • Facebook‘s Oculus CTO implied the cameras on the upcoming Oculus Rift S could support finger-tracking, although that technology isn’t ready yet. (Read more)
     
  • The Game Developers Conference (GDC) later this month could feature several important new product announcements in VR. (Read more)
     
  • Microsoft launched the Hololens 2 AR headset. (Read more)
    • Epic Games said its Unreal game engine will support development on the Hololens 2. (Read more)

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My report on Patreon

I’ve spent the last two months researching Patreon, interviewing its executive team and investors, and talking to its customers. Thrilled to publish this report.

It’s the first in a new format for TechCrunch (and for me): in-depth reports on top late-stage stage startups that aim to provide the definitive analysis on a company.

This one clocked in at roughly 24,000 words. That’s half of a standard business book.

I approach this from three angles:

  1. A business case study of Patreon’s founding and growth.
  2. A breakdown of the product’s evolution and roadmap for the next three years.
  3. An investor-minded analysis of the company’s performance metrics, financials, competition, and exit potential.

Here are the posts:

If you read it, feel welcome to contact me with questions and comments.