Tag: Endeavor

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Cayena delivers inventory marketplace for food preparation businesses

Procuring items to fill the shelves of local stores is not an easy task in Latin America. Orders are mostly still done on paper or over the phone, and sometimes store owners have to drive to the wholesaler to get their orders.

Cayena founders Gabriel Sendacz, Pedro Carvalho and Raymond Shayo believe injecting technology into procurement will make the process much simpler for food preparation facilities, like restaurants, bars, bakeries, hotels and dark kitchens, in their home country of Brazil and across the region.

“Latin American B2B is a massive market, but it is fragmented when it comes to supply and demand,” Shayo told TechCrunch. “About 90% of our customers are small and medium, independent and family-owned businesses. On the supplier side, there are thousands of distributors all with different products, but they have less than 1% of the market share.”

In contrast, the United States has large foodservice companies, like Sysco, U.S. Foods and Gordon Food Service, which hold around 10% market share and offer a one-stop shop for everything from food to cleaning supplies.

What does Brazil’s new receivables regulation mean for fintechs?

Pedro Carvalho, Gabriel Sendacz, Raymond Shayo

Cayena co-founders, from left, Pedro Carvalho, Gabriel Sendacz and Raymond Shayo. Image Credits: Cayena

As a result, there are several problems Shayo explained, including that across 20 vendors there might be a 40% to 50% difference in price for the same item. It can also take credit card companies around 30 days to pay restaurants, but at the same time, restaurants have to pay in advance for their inventory orders, which results in a working capital problem, especially when ingredients are the largest cost for restaurants, he added.

Simply put, it is easy for restaurants in Latin America to get behind and stay behind. So they created a business-to-business marketplace, targeting the $100 billion wholesale food industry in Latin America, that enables users to source inventory from multiple suppliers at one time and get orders delivered the next day. It is also offering add-on services like buy now, pay later financing.

Users can browse through the products and get a quote on the selected items. Cayena’s algorithm takes into account what is available from the suppliers and the user’s budget and provides the best combination of suppliers. The company utilizes a drop-ship model for delivery and once the order is made notifies the suppliers to deliver the order.

After launching the marketplace in 2020, the company saw its customer base grow 10 times in one year and average ticket sizes multiplied by four times, as it became harder for restaurants to procure inventories, with the average customer purchasing from Cayena five times a month.

That prompted the company to go after additional capital, including a $3.5 million round in late 2021 led by Picus Capital, after initially raising $550,000 in a round led by Canary.

Business was so good that shortly after the seed round in September, the founders saw Cayena double in growth and keep that pace every two months or so as it reached a milestone of R$100 million, or nearly $200 million, in annualized transaction volume across its presence in 50 cities in the state of São Paulo.

All of that acceleration caught the attention of investors, and the company was preempted with a $17.5 million Series A investment, led by Vine Ventures, that also included participation from MSA Capital, Picus Capital, Canaan Partners, Clocktower Ventures, FJ Labs, Femsa Ventures, Gilgamesh, Astella, Endeavor and GraoVC. This gives Cayena just over $21 million in total funding.

“It is a very hot market right now, which is a good thing because it has become easier for investors all over the world to compare and benchmark which companies are successful,” Shayo said. “A few years ago, it was hard to compare, but it is clear who is taking different approaches and strategies now.”

Due to its business model, Cayena doesn’t need to invest in warehouse, trucks or distribution, just the technology, so much of the new capital will go into hiring. Shayo expects to double the team of 60 by the end of the year. The company will also focus on product and technology to create new financial products and expand geographic suppliers.

Next up, the founders see opportunity in Latin America as a whole, so future plans are to first scale toward being the largest food services supplier in Brazil, without having a single truck, in the next one to three years, then expand around the region.

Fintech and insurtech innovation in Brazil set to take off on regulatory tailwinds

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Endeavor BioMedicines raises $62 million to combat pulmonary disease

A new startup has officially emerged for stealth with the raise of its $62 million Series A funding round. Endeavor BioMedicines is led by co-founder and CEO John Hood, who previously led Impact Biomedicines, and its new funding comes from Omega Funds and Longitude Capital, as well as the company’s own management team. Endeavor is also co-founded by Miguel de los Rios, who serves as its Chief Science Officer and who was previously CEO of Rift Biotherapeutics.

Endeavor’s goal is to develop treatments specifically to address pulmonary disease, and the startup is putting its funding towards two Phase 2 clinical trials that will seek to determine whether their therapeutic candidate can reverse or slow the progression of idiopathic pulmonary fibrosis (IPF), a very common type of pulmonary fibrosis that results in long tissue scarring which causes difficulty in breathing for affected patients.

IPF has a significant and worrying fatality rate – the condition comes with “an estimated mean survival of 2-5 years from time of diagnosis,” according to Hood in a press release. Endeavor’s new treatment candidate, called ‘taladegib,’ is an inhibitor that addresses what’s known as the ‘Hedgehog’ pathway for IPF. This pathway, which is primarily responsible for cell differentiation during embryonic development, can also play a role in development of harmful conditions in adults when they malfunction while regulating the regeneration of mature tissues.

Hood’s last company Impact Biomedicines exited in a sale to Celgene Corp worth put to $7 billion, depending on performance milestones set in the terms of the acquisition for passing certain regulatory and sales conditions. That company focused on treatment development specifically for myelofibrosis, a type of blood cancer, using an inhibitor for a specific type of protein kinase.

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As venture firms struggle with diversity, the Kauffman Foundation is grooming candidates to help

Recognizing the need for a more diverse venture capital industry, the Ewing Marion Kauffman Foundation is looking to take steps to train its most diverse class of would-be investors and is adding to its board to foreground diversity and inclusion going forward, the non-profit said today.

A longtime resource for startup founders and the venture capital industry and a voice for bringing the tools of venture investment to a broader national stage, the Kauffman Foundation is  bringing diversity to its boardroom with the appointment of Marlon Nichols as one of the organization’s newest directors. Nichols, a founder of MaC Venture Capital, joins Melissa Richlen, who heads up limited partner investments in private equity and vneture capital for the MacArthur Foundation, and Allen Taylor whose work at Endeavor and Endeavor Catalyst is focused on investing in entrepreneurs in undercapitalized markets in the US and around the world.

“This organization is taking diversity very seriously and it’s starting from the top down. The board is now 25% Black and 38% women. And the new class of Kauffman Fellows is the most diverse class in the twenty five year history of the program,” said Nichols. 

A graduate of the Foundation’s program, Nichols said that the new emphasis on diversity will help to get more new fund managers exposure to a network of dealmakers and potential limited partners.

“It’s setting them up for longevity in the industry so as those funds grow, they’re going to grow from a diverse base, and that foundation in diversity will lead to investments in more diverse founders,” said Nichols. “Instead of setting up a committee to talk about diversity, [the Foundation] is pulling them into the game and setting them up by giving them the resources to succeed in the game.”

The twenty fifth class of Kauffman Fellows is also the most diverse cohort the foundation has assembled. Out of 61 fellows 41 percent are women and 49 percent are people of color, while 11 percent are underrepresented minorities.

“Since our inception, we have believed that in order to best understand the world’s challenges and continue to catalyze innovation, the future of the VC industry must be diverse and more reflective of society as a whole. This has been at the core of the Kauffman Fellows mission, and it started with an extremely diverse group of Fellows in our charter class 25 years ago,” the Foundation said in a statement. “Over the years, we have measured the importance of a trusted diverse network and how it impacts the success and longevity of the best investors in the industry. Research has shown that Kauffman Fellows not only have larger returns than the industry average, but they stay in the industry 15+ years post-fellowship, which is 2X the minimum number of years it takes to recognize success in venture capital.”

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Players Ntwrk launches celebrity gaming channel backed by WME, Daylight and Stratton Sclavos

Emerging from the smoldering wreckage of Echo Fox and Vision Venture Partners, the investor Stratton Sclavos is rising again to launch a new esports related venture — a gaming-focused digital network also backed by the WME talent agency and Daylight Holdings.

Tapping Daylight and WME’s roster of talent, Sclavos has created PLAYERS NTWRK, a new gaming-focused production company that will look to compete with other upstarts angling to tap into esports and competitive gaming’s newly dominant place in the entertainment firmament.

Players Ntwrk will feature original programming, unscripted series, celebrity gameplay and live events tapping talent from music, traditional pro-sports, and the esports gaming world.

Sclavos and the multifaceted talent manager and president of Daylight Holdings, Ben Curtis, dreamed up Players Ntwrk as a way to tie together disparate groups of athletes and entertainers around their shared love of gaming and entertainment. the network will initially leverage relationships with WME and Klutch Sports Group, the agency founded by LeBron James’ longtime manager, Rich Paul, to find talent for programming.

The network will launch on Tuesday at 5:00pm Pacific for two hours of gameplay featuring the New Orleans Pelicans Guard/Forward Josh Hart and Sacramento Kings point guard De’Aaron Fox on the Players Ntwrk Twitch channel. Additional live streams will be broadcast Friday and Saturday, the company said.

Over the next twelve weeks the network will add live programming featuring all of its “First Squad” talent and experimenting with different gaming and unscripted formats. Ultimately, the network will produce between twelve and fifteen hours of original programming per week by the end of the second quarter and will ramp up to twenty to twenty-four hours of programming per-week by the end of the year.

Initial programming is going to be devoted to charity fundraising, with proceeds going to designated charities based on direct audience donations, the company said.

PLAYERS NTWRK’s First Squad talent roster includes:

  • Professional athletes: De’Aaron Fox (Sacramento Kings), Josh Hart (New Orleans Pelicans), Jarvis Landry (Cleveland Browns), and Alvin Kamara (New Orleans Saints)
  • Music and Entertainment: PARTYNEXTDOOR, Murda Beatz, producer Boi-1da, actor/former athlete Donovan Carter (Ballers)
  • Creators/Streamers: KatGunn, Sodapoppin, Cash, Jesser, Jericho, Octane, Sigils, Sonii and DenkOps

Players Ntwrk joins companies like Venn, which are angling to gain a slice of the roughly 37.5 million monthly viewers that are expected to watch live streams on Twitch by the end of 2020, according to research done by eMarketer.

“The number of viewers and subscribers consuming gaming entertainment across YouTube and Twitch tops other entertainment services such as Netflix, HBO, Spotify and ESPN combined,” said Sclavos, in a statement. “Entertainment spectacle is trumping hardcore gaming competition. That kind of engagement makes it clear; gaming entertainment is the next pop culture phenomena. PLAYERS NTWRK is the only platform embracing and executing this new reality by creating original content with the most influential people who also happen to be fans themselves.”

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Emergence’s Jason Green joins TC Sessions: Enterprise this September

Picking winners from the herd of early-stage enterprise startups is challenging — so much competition, so many disruptive technologies, including mobile, cloud and AI. One investor who has consistently identified winners is Jason Green, founder and general partner at Emergence, and TechCrunch is very pleased to announce that he will join the investor panel at TC Sessions: Enterprise, on Sept. 5 at the Yerba Buena Center in San Francisco. He will join two other highly accomplished VCs, Maha Ibrahim, general partner at Canaan Partners and Rebecca Lynn, co-founder and general partner at Canvas Ventures. They will join TechCrunch’s Connie Loizos to discuss important trends in early-stage enterprise investments as well as the sectors and companies that have their attention. Green will also join us for the investor Q&A in a separate session.

Jason Green founded Emergence in 2003 with the aim of “looking around the corner, identifying themes, and aiming to win big in the long run.” The firm has made 162 investments, led 64 rounds, and seen 29 exits to date. Among the firm’s wins are Zoom, Box, SageIntacct, ServiceMax, Box, and SuccessFactors. Emergence has raised $1.4 billion over six funds.

Green is also the founding chairman of the Kauffman Fellow Program and a founding member of Endeavor. He serves on the board of BetterWorks, Drishti, GroundTruth, Lotame, Replicon, and SalesLoft.

Come hear from Green at these other amazing investors at TC Sessions: Enterprise by booking your tickets today. $249 early bird tickets are still on sale for the next two weeks before prices go up by $100. Book your tickets here.

Startups, get noticed with a demo table at the conference. Demo tables come with four tickets to the show and prime exhibition spot for you to showcase your latest enterprise technology to some of the most influential people in the business. Book your $2000 demo table right here.

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Patreon’s future and potential exits

Through the Extra Crunch EC-1 on Patreon, I dove into Patreon’s founding story, product roadmap, business model and metrics, underlying thesis, and competitive threats. The six-year-old company last valued around $450 million and likely to soon hit $1 billion is the leading platform for artists to run membership businesses for their superfans.

As a conclusion to my report, I have three core takeaways and some predictions on the possibility of an IPO or acquisition in the company’s future.

The future is bright for creators

First, the future is promising for independent content creators who are building engaged, passionate fanbases.

There is a surge of interest from the biggest social media platforms in creating more features to help them directly monetize their fans — with each trying to one-up the others. There are also a growing number of independent solutions for creators to use as well (Patreon and Memberful, Substack, Pico, etc.).

We live in an economy where a soaring number of people are self-employed, and the rise of more monetization tools for creators to earn a stable income will open the door to more people turning their creative talents into a part-time or full-time business pursuit.

Membership is a niche market and it’s unclear how big the opportunity is

Patreon’s play is to own a niche category of SMB who it recognizes has particular needs and provide them with the comprehensive suite of tools and services they need to manage their businesses. A large portion of creators’ incomes will need to go to Patreon for it to someday earn billions of dollars in annual revenue.

The market for content creators to build membership businesses appears to be growing, however, membership will be only one piece of the fan-to-creator monetization wave. The number of creators who are a fit for the membership business model and could generate $1,000-500,000 per month through Patreon (its target customer profile) is likely measured in the tens of thousands or low hundreds of thousands right now, rather than in the millions.

To get a sense of the revenue math here, Patreon will generate about $35 million this year from the 5,000-6,000 creators who fit its target customer profile; if you believe this market is expanding at a fast clip, capturing 10% of the revenue (Patreon’s current commission) from 20,000 such creators could bring in $140 million. And that’s without factoring in the potential success of Patreon implementing premium pricing options, which is a high priority. If Patreon can increase its commission from 10% to 15%, it would need around 47,500 creators in the $1,000-$500,000/month range (9.5x its current number) to reach $500 million in revenue from them.

There is a compelling opportunity for a company to provide the dominant business hub for creators, with tools to manage their fan (i.e. customer) relationships across platforms and to manage back-office logistics. At a certain point it taps out though.

That’s one of the reasons why Patreon’s vision includes extending into areas like business loans and healthcare. For companies targeting small and medium businesses like Shopify, Salesforce and Dropbox, there is so much more growth tied to their core products that there is no need for them to consider such unrelated offerings as business loans. Patreon has to both expand its market share and also expand the services it offers to those customers if it wants to reach massive scale.

Patreon faces serious competition but is evolving in the right direction

Patreon is the leading contender in this market, and there’s a role for an independent player even if Facebook, YouTube, and other distribution platforms push directly competing functionality. Patreon will need to make three important changes to compete effectively: more aggressively segment its customers, make the consumer-facing side of its platform more customizable by creators, and build out more lightweight talent management services.

What’s next for Patreon?

Having raised over $100 million in funding over the last six years, what is the path to a liquidity event for investors and employees? 

In a worst case scenario, it is unlikely the company would go out of business even if it fell into disarray because it would be strategic for several large companies to takeover at a discount. Patreon may be on the path to IPO (as CEO Jack Conte hopes), but I find it more likely that the company gets acquired sometime in the next couple years.

Path to IPO?

If a public offering is in Patreon’s future, it’s several years out. It now defines itself as a SaaS company and has a plan to earn a higher blended commission on the sales of its customers through premium pricing options. It is a frequently misunderstood company, however, and needs to prove that a big market exists for mid-tail creators building membership businesses. 

According to a summary by Spark Capital’s Alex Clayton, SaaS companies who went public in 2018 typically:

    • had $100-200 million in revenue over the prior twelve months,
    • were 14 years old,
    • had an average year-over-year revenue growth rate of ~40%,
    • earned 90% of revenue from subscriptions,
    • had a median gross margin of 73%,
    • ranged from roughly 500 to 2500 employees,
    • had a raised a median of $300 million in VC funding,
    • and IPO’d with a median market cap of $2 billion

Public market companies to benchmark it against will be Shopify (as SaaS infrastructure for small businesses selling to, and managing payments from, consumers) and Zuora (Patreon can be viewed as a media-specific SMB alternative to Zuora’s “Subscription Relationship Management” system). Compared to Shopify, whose market of SMB e-commerce businesses globally is easily understood to be enormous, Patreon would face more skepticism from public investors about the market size of mid-tail content creators.

Patreon’s gross margins can’t be much more than 50% given that almost half of revenue is going toward payment processing. Patreon mirrors Shopify’s topline revenue growth in the run up to its 2015 IPO: Shopify reported $23.7 million for 2012, $50.3 million for 2013, $105 million for 2014 and I estimate Patreon brought in $15 million for 2017, $30 million for 2018, and will hit $55 million for 2019. Most of Shopify’s revenue came from subscriptions, however, with only 37% coming from the “merchant solutions” services where Shopify had to pay out payment processing fees. Patreon’s revenue net of payment processing fees is closer to $7.5 million for 2017, $15 million for 2018, and $27 million (predicted) for 2019.

There’s a lot of capital chasing late-stage startups right now. How long that remains the case is unknown, but Patreon can likely raise the funding to operate unprofitably a few more years — getting topline revenue closer to $150-200 million, proving creators will adopt premium pricing, and showcasing its ability to compete with Facebook and YouTube in a growing market. In that case, it could become a strong IPO candidate.

The acquisition route

The other scenario, of course, is that a larger company buys Patreon. In particular, one of the large social media platforms building directly competitive features may decide it is easier to buy their expansion into membership than build it from scratch. Patreon is the dominant platform without any noteworthy direct competitor among independent companies, so acquiring it would immediately put the parent company in a market-leading position. Competing social platforms wouldn’t have another large Patreon-like startup to acquire in response.

There are three companies that jump out as both the most likely acquirers. Each of these M&A scenarios would be mutually beneficial: advancing Patreon’s mission and providing strategic value to the parent. The first two companies are probably obvious, but the last one may be less known to TechCrunch readers.

Facebook

I highlighted Facebook as the top competitive threat to Patreon. This is also why it’s a natural acquirer. Patreon would bring fan relationship management to the Facebook ecosystem and particularly the company’s Creator App with CRM and analytics specifically fit for creators’ needs. It would also bring a stable of 130,000 creators of all types to make Facebook the primary infrastructure through which they engage their core fans.

Facebook is prioritizing human relationships more and clickbait content less. A natural replacement for the flood of news articles and viral videos is deeper engagement with the creators that Facebook users care the most about.

Since the annual churn rate of Patreon creators who earn $500 per month or more is under 1%, the ~9,200 creators who fit that category would likely stick around as Patreon’s infrastructure integrates with Facebook’s; the vast majority probably already have Facebook pages and possibly use the Creator App.

Facebook’s data on who fans are, what they like, and who their friends are is unrivalled. The insights Facebook could provide Patreon’s creators on their fans could help them substantially grow their number of patrons and build stronger relationships with them.

Like all major social media platforms, Facebook has partnership teams vying to get major celebrities to use its products. Patreon could lock the mid-tail of smaller (but still established) creators into its ecosystem, which means more consumer engagement, more time well spent, and more revenue through both ads and fan-to-creator transactions. Owning and integrating Patreon could have a much bigger financial benefit than solely revenue from the core Patreon product.

As a Facebook subsidiary, Patreon would stick more closely to being a software solution; it wouldn’t develop as robust of a creator support staff and the vision that it may expand to offer business loans and health insurance to creators would almost surely be cut. Facebook would also probably discontinue supporting the roughly 23% of Patreon creators who make not-safe-for-work (NSFW) content.

Given Patreon’s mission to help creators get paid, it may make a bigger impact as part of Facebook nonetheless. Facebook’s ecosystem of apps is where creators and their fans already are. Tens of thousands of creators could start using Patreon’s CRM infrastructure overnight and activating fan memberships to earn stable income.

A Facebook-Patreon deal could happen at any point. I think a deal could just as likely happen in a few months as in a few years. The key will be Facebook’s business strategy: does it want to build serious infrastructure for creators? And does it believe paywalled access to some content and groups fits the future of Facebook? The company is experimenting with both of those right now, but doesn’t appear to be committed as of yet.

YouTube

The other most likely acquirer is Google-owned YouTube. Patreon was birthed by a YouTuber to support himself and fellow creators after their AdSense income dropped substantially. YouTube is becoming a direct competitor through YouTube Memberships and merchandise integrations.

If Patreon shows initial success in getting creators to adopt premium pricing tiers and YouTube sees a strong response to the membership functionality it has rolled out, it’s hard to imagine YouTube not making a play to acquire Patreon and make membership a priority in product development. This would create a whole new market for it to dominate, making money by selling business features to creators and encouraging fan-to-creator payments to happen through its platform.

In the meantime, it seems that YouTube is still searching for an answer to whether membership fits within its scope. It previously removed the ability for creators to paywall some videos and it could view fan-to-creator monetization efforts as a distraction from its dominance as an advertising platform and its growing strength in streaming TV online (through the popular $40/month YouTube TV subscription).

YouTube is also a less compelling acquirer than Facebook because the majority of Patreon’s creators don’t have a place on YouTube since they don’t produce video content (as least as their primary content type). Unless YouTube expands its platform to support podcasts and still images as well, it would be paying a premium to acquire the subset of Patreon creators that it wants. Moreover, as much as a quarter of those may be creators of NSFW content that YouTube prohibits.

YouTube is the potential Patreon acquirer people immediately point to, but it’s not as tight of a fit as Facebook would be…or as Endeavor would be.

Endeavor

The third scenario is that a major company in the entertainment and talent representation sphere sees acquiring Patreon as a strategic play to expand into a whole new category of talent representation with a technology-first approach.  There is only one contender here: Endeavor, the $6.3 billion holding company led by Ari Emanuel and Patrick Whitesell that is backed by Silver Lake, Softbank, Fidelity, and Singapore’s GIC and has been on an acquisition spree.

This pairing shows promise. Facebook and YouTube are the most likely companies to acquire Patreon, but Endeavor may be the company best fit to acquire it.

Endeavor is an ecosystem of companies — with the world’s top talent agency WME-IMG at the center — that can each integrate with each other in different ways to collectively become a driving force in global entertainment, sports and fashion. Among the 25+ companies it has bought are sports leagues like the UFC (for $4 billion) and the video streaming infrastructure startup NeuLion (for $250 million). In September, it launched a division, Endeavor Audio, to develop, finance and market podcasts.

Endeavor wants to leverage its talent and evolve its revenue model toward scalable businesses. In 2015, Emanuel said revenue was 60% from representation and 40% from “the ownership of assets” but quickly shifting; last year Variety noted the revenue split as 50/50.

In alignment with Patreon, Endeavor is a big company centered on guiding the business activities of all types of artists and helping them build out (and maximize) new revenue streams. When you hear Emanuel and Whitesell, they reiterate the same talking points that Patreon CEO Jack Conte does: artists are now multifaceted, and not stuck to one activity. They are building their own businesses and don’t want to be beholden to distribution platforms. Patreon could thrive under Endeavor given their alignment of values and mission. Endeavor would want Patreon to grow in line with Conte’s vision, without fearing that it would cannibalize ad revenue (a concern Facebook and YouTube would both have).

In a June interview, Whitesell noted that Endeavor’s M&A is targeted at companies that either expand their existing businesses or ones where they can uniquely leverage their existing businesses to grow much faster than they otherwise could. Patreon fits both conditions.

Patreon would be the scalable asset that plugs the mid-tail of creators into the Endeavor ecosystem. Whereas WME-IMG is high-touch relationship management with a little bit of tech, Patreon is a tech company with a layer of talent relationship management. Patreon can serve tens of thousands of money-making creators at scale. Endeavor can bring its talent expertise to help Patreon provide better service to creators; Patreon would bring technology expertise to help Endeavor’s traditional talent representation businesses better analyze clients’ fanbases and build direct fan-to-creator revenue streams for clients.

If there’s opportunity to eventually expand the membership business model among the top tiers of creators using Patreon.com or Memberful (which Conte hinted at in our interviews), Endeavor could facilitate the initial experiments with major VIPs. If memberships are shown to make more money for top artists, that means more money in the pockets of their agents at WME-IMG and for Endeavor overall, so incentives are aligned.

Endeavor would also rid Patreon of the “starving artist” brand that still accompanies it and could open a lot of doors in for Patreon creators whose careers are gaining momentum. Perhaps other Endeavor companies could access Patreon data to identify specific creators fit for other opportunities.

An Endeavor-Patreon deal would need to occur before Patreon’s valuation gets too high. Endeavor doesn’t have tens of billions in cash sitting on its balance sheet like Google and Facebook do. Endeavor can’t use much debt to buy Patreon either: its leverage ratio is already high, resulting in Moody’s putting its credit rating under review for downgrade in December. Endeavor has repeatedly raised more equity funding though and is likely to do so again; it canceled a $400M investment from the Saudi government at the last minute in October due to political concerns but is likely pitching other investors to take its place.

Patreon has strong revenue growth and the opportunity to retain dominant market share in providing business infrastructure for creators — a market that seems to be growing. Whether it stays independent and can thrive in the public markets sometime or whether it will find more success under the umbrella of a strategic acquirer remains to be seen. Right now the latter path is the more compelling one.

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What’s next for podcasting?

The podcast market will discover the answer to a foundational question about its future in the next few years. Will it continue along the path of music streaming, where all podcasts are available everywhere on free, ad-supported tiers? Or, will it follow the path of streaming TV into paid subscription services with exclusive content?

Today, effectively all of the industry’s revenue is from advertising — at least in the United States. However, we’re seeing the first steps being taken toward paid subscriptions and exclusive content. Based on numerous discussions I’ve had with top figures in podcasting over the last month, it’s clear that popular shows are getting large offers for exclusivity on podcasting platforms, major Hollywood players are entering the market, and some top VCs are willing to back new streaming platforms taking a Netflix approach to podcasts (like Luminary Media which raised a $40 million seed round).

Many in the industry are deeply skeptical of that business model and for good reason: we don’t have concrete evidence that consumers in the US will pay for podcasts and ad revenue is becoming quite lucrative for the top shows as the format gains popularity. But that precedent has hardly been entrenched, as the sector is only just now gaining mainstream consumer interest and getting attention from Hollywood.

And, there’s a macro problem with betting on ads. The dominance of Facebook and Google over all digital ad spending has already driven a shift to subscriptions across music, video, and publishing. Even with dramatic market growth, podcasting doesn’t have a comparative advantage in competing against the scale and ad-targeting of the duopoly.

Subscription tiers and exclusive shows (akin to Netflix Originals) can, on the other hand, provide a virtuous cycle of quality content and stable revenue, generating recurring revenue directly from consumers who might ultimately pay for multiple streaming subscriptions to access different shows.

Could podcasting go the direction of streaming TV, with subscription tiers and original series? The breakout success of House of Cards—the first Netflix Original—set the stage for Netflix’s dominance in streaming TV.

Podcasting’s future looks more like Hollywood than like NPR radio

The annual Infinite Dial survey by Edison Research tracked that the percent of Americans over age 12 who listen to a podcast in a given month grew steadily from 9% in 2008 to 26% (or 72 million people) in 2018. Fifty-four million Americans, or 17% of those over 12, are weekly podcast listeners with a mean weekly listening time over 6.5 hours.

The popularity of podcasts still exists primarily within a demographic niche, however. Roughly half of podcast listeners make $75,000 or more in annual income and a clear majority have a college degree (in fact, one-third have a master’s degree). This highlights how much potential for audience growth there still is. Podcasts are still mainly formatted like NPR radio shows, with hosts discussing politics, business, or society and a particular audience demographic tuning in as a result.

But podcasting is just a content medium and should be filled with shows that appeal to all different types of people, just like music, TV, film, publishing sites, and YouTube each have a vast range of content for everyone. Tom Webster, the SVP of Edison Research who co-authors that big annual survey on podcasting, highlighted in a recent blog post the discrepancy between the format and topics of the most popular podcasts and those of the most popular TV shows.

Addressing this gap in diverse show types is the thesis behind large new podcast production companies like Gimlet Media, Wondery, and Endeavor Audio. Endeavor Audio launched on September 13 as the podcast division of entertainment conglomerate Endeavor, dedicated to financing, developing, and marketing podcasts made for as diverse a set of topics and styles as there are in TV: scripted dramas, competition shows, documentaries, etc. that appeal to different audiences. Endeavor also owns WME, the world’s largest talent agency, giving it distinct advantage in creating new shows that draw on the skills of top creative talent in Hollywood. The upcoming wave of podcasts crafted to be more like TV shows than radio shows is what could bring tens of millions new listeners into the podcast market.

That will only be accelerated through music streaming services’ entry into the market and the rapid consumer adoption of smart speakers. Spotify, Pandora, iHeartRadio, and others have made podcasts a priority over the last year, promoting shows to millions of users who aren’t already into podcasting. Smart speakers like the Amazon Echo and Google Home make it easier for people who hear about a podcast to try it (just ask Alexa to play it) and will likely increase podcast listening among those in age groups that have lower smartphone penetration (children and people over 55).

Advertising isn’t the best path forward

Last year the US market size for podcast ad revenue was only $314M and this year it will still be around $400M (according to the IAB). That’s extraordinary annual growth for an industry but it’s still tiny in absolute value. Justine and Olivia Moore at VC firm CRV crunched the numbers to show that podcasting makes 10x less money per hours consumed than any other major content medium. There’s a lack of monetization on the vast majority of podcasts: the minimum number of downloads per podcast needed to enroll in the industry’s ad marketplaces or start discussions with most advertisers is 50,000. As they noted, this is attributable to a range of issues like lack of programmatic advertising, lack of analytics, and lack of consistent measurement standards.

Life is admittedly getting good for the most downloaded shows now that the podcasting market is getting serious attention. One executive I discussed this with (who represents several top podcast creators) says there are a handful of podcasts generating eight-figures in ad revenue per year, a rapidly growing tier making seven-figures, and a large “middle-class” making six-figures. That’s before income from touring, merchandise, and book/film/TV deals. The going rate for ad spots is anywhere from $20-50+ CPMs and podcast ads tend to have a higher conversion rate than video ads.

As General Manager of Endeavor Audio – the new podcasting division of entertainment conglomerate Endeavor – Moses Soyoola is overseeing a group that’s bringing top Hollywood talent into the podcast space and financing new types of shows.

But near-term financial gains are not the primary reason that big names in Hollywood are getting interested in producing podcasts, according to Endeavor Audio general manager Moses Soyoola. When we spoke recently, he explained that while the income can reach into the seven figures on successful shows, that’s still less than what they can make in other creative projects. They see podcasting as a brand-building mechanism, however, and as an opportunity to understand a new storytelling format that could become even more lucrative in the future.

As with all ad-dependent content, the losers right now are those with passionate niche audiences and those producing big-budget shows that advertisers treat the same even if audiences find much deeper value in. A creator with a devoted fan base of 30,000 listeners cannot currently tap into advertising nor easily turn to subscriptions as an alternative. Listening to an hour’s worth of news discussion that the hosts record over a couple hours day-of generates roughly the same ad revenue as listening to an hour installment of a show that takes months to produce.

With the growing number of narrative podcasts being created by Endeavor Audio and others, the need to include numerous ad spots throughout them is disruptive, pulling audiences out of the story. It constrains the format and limits content within the boundaries of family friendliness that major advertisers are comfortable with. This is like the historic difference between network TV shows and HBO shows, which — freed from ad breaks and advertiser concerns — became the crown jewel of TV dramas and went on to consistently top the Emmy Awards winner list.

Would people pay for podcasts?

China is the inverse of the Western podcast market. The Chinese “podcast” market dwarfs that of the US because it is the norm to have paid subscriptions for shows rather than rely on advertising. To my understanding, the definition of podcast here may be broader than the scope in the US — by including audio courses — but the Chinese government estimated the market for paid podcasts alone as $7.3 billion in 2017.

We know consumers in the West are willing to pay subscriptions for film/TV and for ad-free streaming music, so why not for podcast streaming? New content formats often start free, have lagging monetization, then as the audience grows enough and creators experiment enough, premium content rises up that people are willing to pay for. Podcasts have been around for two decades but are just now going mainstream and seeing serious investment from Hollywood.

We saw with music streaming and satellite radio that many consumers are willing to pay in order to eliminate audio ads from music that’s otherwise free to listen to. Spotify has made a big push into podcasts over the last few months; it creates branded podcasts in collaboration with advertisers but can’t remove ads that are within podcasts it distributes. As podcasts turn to programmatic advertising — and large streaming services like Spotify push them there in order to serve up the ads — it would be surprising if Spotify didn’t make podcasts ad-free for its Premium tier subscribers and encourage podcast listeners to go Premium.

Most podcasts aren’t worth paying for, just like most articles on the internet aren’t worth paying for. Paywalled content has to be exceptional to stand out from the noise and get consumers to open their wallets. The freemium model is most likely to become the norm in podcasting, with most podcasts available free and ad-supported but some particularly high-quality shows restricted to a paid subscription tier that’s ad-free.

Streaming competition will drive exclusivity

If we’re being honest, the existing podcast streaming services — and there are many — are all the same. They are simple utilities for searching for and playing a show. No one has cracked the nut of discoverability in a differentiated way: making podcasts easy to discover based on topic and style and having a personalized recommendation tool that works as well as Pandora and Spotify music recommendations do.

Streaming services of any content format struggle to differentiate on user interface alone. Users are there for the content — that’s the product they’re after. So ultimately, the way to differentiate is via exclusive content that audiences eagerly want. That’s true whether the service has a paid subscription or not, but maintaining a profitable subscription tier is nearly impossible if one’s competitors are able to offer all the same content for cheaper. Differentiation requires differentiated content available in the subscription that can’t be gained elsewhere: high-quality original shows.

This past summer, Spotify launched its first Spotify Original Podcasts, including a $1 million deal with comedian Amy Schumer to develop “3 Girls, 1 Keith” (which it just renewed for a second season). Schumer’s podcast isn’t exclusive to Spotify but it’s easy to envision the streaming service signing future podcast deals as exclusives as its base of podcast listeners grows (it has rapidly become the second most popular podcast platform after Apple’s Podcasts app).

Each individual I’ve spoken to over the last few weeks who runs a leading podcast production company said they are getting approached by numerous streaming platforms about exclusive shows. Most aren’t taking the deals, at least not yet, but it’s clear the industry is about to run this experiment over the next couple years and see if consumers buy in.

A couple of the executives I met noted that the deals top podcast services are offering for exclusivity are quite lucrative, but when you factor in how much the reduced audience size that comes with being exclusive limits touring, merchandise sales, and potential for a book/film/TV deal, it’s a tougher sell.

That has been true, but I think it’s quickly changing. Given how much consumer adoption of podcasts is poised to grow, the top few podcast streaming services (by monthly active users) could each enable an exclusive podcast to still reach an audience in the millions of listeners. In particular, I’m talking about Apple Podcast, Google Podcasts, Spotify, Pandora, and iHeartRadio given their pre-existing install bases. It’s also a rational decision for each of them to overpay for exclusivity of hit shows in these early days of the market — the short-term loss on a given show is an investment in becoming the preferred streaming service for millions of new podcast listeners.

The streaming platforms don’t have the leverage to negotiate ownership over exclusive podcasts—there’s too much competition between them and optionality for podcast creators—so creators will retain rights to develop touring, merchandise, book/film/tv deals, and other revenue streams. As a successful TV producer explained to me, the consideration of turning a podcast into a TV show is the same as turning a book into a TV show: it’s about whether it’s a captivating story that engages the audience; the existing audience size will affect deal terms but a hit podcast only being on iHeart or Spotify wouldn’t inhibit it from getting a deal.

iHeartMedia

If one company is uniquely positioned to offer exclusive shows without a paid subscription tier, it’s iHeartMedia (which acquired the Stuff Media podcast network in September). In addition to its iHeartRadio streaming service, it can syndicate shows across its radio stations which reach 250 million Americans per month. That could generate more ad revenue than from a show existing solely across podcast apps and give it a bigger fan base to benefit touring and other revenue streams.

Looking at how exclusivity could impact consumers’ experience, it’s notable that people are typically on the hunt for just one podcast to listen to in a given session. With lengths typically 25-60 minutes, this is most similar to picking out a TV episode. Music services need full libraries of the world’s songs because people listen to a wide range of 3-4 minute songs in the same sitting and organize them into custom playlists of every imaginable combination. Having music divided between separate streaming platforms would be disruptive to the core experience of a music listening session. Switching apps to listen to a different podcast might not be any more inconvenient than doing so for TV shows on different streaming services.

Podcasting should embrace “listener revenue”

Direct “listener revenue” from paid subscription tiers enable a whole swath of niche content creators to make a living creating high-quality podcasts for a small, passionate audience and they enable worthwhile return-on-investment for big budget productions that audiences find deep value in. Importantly, subscription tiers across the major podcast streaming platforms would drive an industry-wide focus on shows that gain popular acclaim rather than shows that maximize initial downloads or streams (just like subscription publishing incentivizes quality over clickbait).

Breakout shows that receive pop culture buzz will be critical to any paid subscription tier in podcasting gaining traction, like the success of House of Cards and Orange is the New Black were critical to Netflix gaining respect for its Netflix Originals and differentiating from competitors. Such breakouts will likely involve a big name from Hollywood whose existing fan base drives a critical mass of initial listeners, and whose name recognition lends credibility to a potential paid tier subscriber. And it will almost certainly be a narrative format rather than another talk show.

Incumbents moving into podcasting from music streaming (or that are operating systems able to pre-install their app) have a distinct advantage here over startups dedicated to podcast streaming. Established players can expose millions of existing users to their own shows and bundle premium podcasts into existing subscription plans. Podcast streaming startups hoping to break through will need a lot of initial capital to develop their own shows and will need to seek bundling partnerships with companies that already have distribution — like mobile carriers and subscription video platforms. Luminary Media in NYC, founded by Matt Sacks of NEA, might be the first to launch with this approach: with a $40 million seed round, it’s aiming for a majority of content on its upcoming subscription streaming service to be its own originals within 3 years. Don’t be surprised if a couple other VC-backed podcast apps take this route in the year ahead as well.

It is likely we will see a combination of exclusive shows and paid subscription tiers develop on several platforms over a period of the next 18-36 months. It won’t happen overnight, but looking at the precedent set in other content formats and having spoken to two dozen senior figures in the industry during the past month, we seem to be in the early days of this shift, driven by the growth of podcasting from talk shows into a broader entertainment medium.

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Unifonic, dubbed the Twilio of emerging markets, closes $21M Series A round

Those of you familiar with the incredible rise of Twilio, which came along to utterly disrupt the communications world, will be interested to hear that another player plans to do the same, but this time in the staid and tricky area of emerging markets.

Unifonic, which has been dubbed “the Twilio of emerging markets” has today closed a $21M Series A funding round led by Saudi Technology Ventures (STV), and the emerging market specialist fund Endeavor Catalyst, which is backed by LinkedIn co-founder Reid Hoffman, among others. Other participants include RTF ELM, and Raed Ventures.

At $500M, STV is the largest VC fund in the region, and anchored by the Saudi Telecom Company (STC), the largest telecom company in the Middle East. Former Googler turned VC Abdulrahman Tarabzouni lead this round.

As far as we can tell, the is the largest Series A funding in the history of the Middle East technology sector. Appropriately, it shows the sheer growth in the region and comes on the heels of our recent and highly successful TechCrunch Startup Battlefield MENA in Beirut, as well as the Series C round announced by the “Uber for Doctors” in MENA Vezeeta’s Series C.

The capital will be used by Unifonic to scale the company across the MENA region and globally, and invest in the platform.

Unifonic is similar to Twilio in that it is a B2B cloud communications platform, a space that is sometimes called Communications Platform as a Service (CPaaS).
With 100+ employees spread across nine regional offices, and over 5,000 B2B clients, many of whom are giants in the MENA region, such as Souq.com, Aramex, Al Jazeera, HSBC, Uber, FedEx, Carrefour and others, they are the MENA region’s clear No.1 in this arena.

Started by two brothers – Hassan and Ahmed Hamdan, they were funded 5 years ago by Endeavor since July 2013. They now regularly compete against their European counterpart, MessageBird, which recently raised $60M (led by Accel and Atomico), and their US benchmark, Twilio.

Hassan told me: “Unifonic’s competition in emerging markets are small players that operate in a single country not cross the region like Unifonic. The product suite is designed for both the non-tech-savvy with last-mile tools already built to plug and play, localized to telecom infrastructure, hosted on multiple clouds, geographically in the region, to increase reliability and minimize latency so transactions are processed in milliseconds.”

In a joint statement Reid Hoffman, Linkedin co-founder and chairman of Endeavor Catalyst and Linda Rottenberg, Endeavor’s Co-founder and CEO said: “Endeavor selects and connects the most promising global companies and entrepreneurs with experienced business advisors to help drive growth and economic development around the world. The founders of Unifonic were selected as high-impact Endeavor Entrepreneurs in 2013, and we are thrilled to announce the Endeavor Catalyst fund is now investing in Unifonic alongside STV as the company continues scaling up.”

Why should you care?

Well, this comes on the heels of the first tech wave in the MENA region (culminating in Amazon’s acquisition of e-commerce player Souq.com last year, and large funding rounds for ride-hailing leader, Careem), this funding represents that Middle East investors are now starting to bet on B2B. It’s also STV’s 3rd publicly announced investment, as they previously invested co-led Careem’s Series D in December 2016 and last month led Vezeeta’s Series B.

As I wrote last year, Middle East startups are growing fast, and that’s even before the flying taxis arrive.

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SoftBank leads $35M investment in sports engagement startup Heed

Heed, a startup looking to create new ways for sports leagues and clubs to engage with fans, is announcing that it has raised $35 million led by SoftBank Group International.

As laid out for me by CEO Danna Rabin, the company sits at the intersection of sports and IoT — which makes sense, since it was founded by Internet of Things company AGT International and talent agency Endeavor .

“Our primary mission is to connect the young audience with sports leagues and clubs,” Rabin said. “[Those] audiences are consuming less broadcast TV, consuming less of anything linearly. Sports clubs and brands are having more and more issues connecting with and reengaging those younger audiences.”

To create that connection, Heed places sensors around the match or game venue, even potentially on players’ clothing and equipment.

For example, the team let me make a couple punches using gloves with sensors inside, which were created for the mixed martial arts league UFC. Afterwards, I could see the measured force of each of my swings. (I didn’t really have any points of comparison, but I think it’s safe to say that my numbers weren’t too impressive.)

Heed

Rabin emphasized that Heed’s real focus isn’t on building fancy hardware, but rather on the artificial intelligence it uses to take that data (which can also be drawn from video and audio footage of the match) and transform it into a general narrative that can be viewed on the Heed smartphone app.

Pointing to the UFC glove, Rabin said, “We extract, only from this sensor, 70 different data points. What’s happening is, the fusion of these data points is what creates the stories.”

Put another way, the goal is to replace the generic commentary that you often get in sports coverage and live games with unique details about how the game or match is unfolding. Those aren’t just numbers like how hard someone is punching, but also inferences about a player’s emotional state based on the data.

“One of our core promises is that it’s not editorial driven,” Rabin added. “The AI is selecting what’s interesting in a match. Of course, we have a creative team that designs the formats, the visuals, how the packaging should look like, but that’s incorporated into the technology, which is automatically selecting the moments and creating the experiences with no human interpretation.”

So does Heed aim to be a technology provider or a sports media company of its own? Well, Rabin said it didn’t make sense to simply provide the tech to individual leagues or teams.

“A specific club does not have the breadth of technologies to keep evolving,” she said. Plus, she argued that the audience isn’t looking for just a one-off site with stories about one team, but an all-around destination where they can “get a bit of everything.”

In addition to the UFC, Heed is also working with EuroLeague (the European basketball league), various soccer clubs and Professional Bull Riding. In the latter case, it’s not just creating content, but actually working with the organization to create a more automated and objective form of judging.

“By leveraging AI and IoT, HEED has developed a unique platform that is changing the way fans watch and interact with sports,” said Softbank President and CFO Alok Sama. “HEED is taking a traditionally static experience and providing fans with deeper insights into the physical and emotional aspects of the sporting event by gathering and analyzing large, complex data in real time.”

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Live streams of karate and niche sports are terrifying major sports leagues

Of the 100 most-watched live telecasts in the US in 2005, 14 were sporting events; in 2015, sporting events comprised 93 of the top 100 telecasts. That shift occurred because TV shows are shifting to online or on-demand viewing, and live broadcasts of the biggest sports are the main thing TV networks have left to draw in live audiences. But the need to keep those sports on TV and off streaming services is only accelerating the rate at which young people are tuning into other sports leagues instead.

The rapid adoption of subscription video streaming services like Netflix and Hulu and of social live streams on Facebook, YouTube, and Twitch is enabling massive growth by sports leagues that you won’t normally see on TV. In the streaming era, more sports – and new types of sports like esports – keep thriving while interest in traditional pro leagues like the NFL and MLB declines.

OTT is where the growth is

The central narrative in the global film/TV industry right now is the response of incumbent companies to the growing dominance of Netflix, Amazon, and other streaming (aka “OTT” or over-the-top) services. The incumbents are merging to consolidate ownership of must-have shows onto a smaller number of new OTT services that will each be stronger.

The majority of American households have a Netflix subscription (i.e. access to one of Netflix’s 56M US accounts), another 20M have a Hulu subscription, the number of OTT-only households has tripled in 5 years, and 50% of US internet users use a subscription OTT service at least weekly. Almost one-third (29%) of Americans say they watch more streaming TV than linear TV, and among those age 18-29 it’s 54% (with 29% having cut the cord on linear TV entirely). People, especially young people, want to watch shows on their own time and on any device, and they get more value from a few $8-40 per month subscription platforms than a $100+ per month cable bill.

Meanwhile, social live-streaming platforms that got their start enabling people to either vlog or watch video gaming are expanding to all sorts of live broadcasting: Twitch averaged 1 million viewers at any given point of day in January, and there were 3.5 billion broadcasts over Facebook Live in the first two years after it launched (with 2 billion users viewing at least one).

We’ve hit the pivot point where media is streaming-first. Netflix is now the leading studio in Hollywood, spending $13 billion this year on content. Linear TV viewing is declining: every major cable network (except NBC Sports) has declining viewership and aging viewers. Between 2007 and 2017, the median age of primetime viewers on ABC, CBS, NBC, and Fox went up 8-11 years and are all in the 50s or 60s.

Major pro sporting events are the last bastion of TV networks because the dominant brands are, for the most part, only available live on TV. Beyond those, the only content getting large audiences to tune in simultaneously are a couple Hollywood awards shows and premieres or finales of a couple hit shows (Big Bang Theory and NCIS).

The exclusive broadcast rights to those live sports events – particularly the NFL, NBA, MLB, and top NCAA basketball and football games – are the last defense for major broadcast networks. They are the reason for younger Americans to not cut the cord. ESPN makes $7.6 billion per year in carriage fees from cable companies paying for the right to carry the main ESPN channel (the other ESPN channels add another $1 billion); that number is increasing even as ESPN’s viewership is declining.

Disney (ESPN’s owner) and other leading broadcasters don’t want to let people watch major sporting events online instead (at least not easily or cheaply) because doing so would pull the rug out from under their traditional revenue stream and OTT revenue (subscription + ads) won’t make up for it quickly enough. This problem is only exacerbated by the fact that TV networks are paying record sums for exclusive broadcast rights to top sports leagues out of fear that losing them to a rival could be a nail in their coffin.

This strategy is delaying, not stopping the shift in consumption habits. More and more young people are tuning out (or never tuning in) to the major pro sports on TV, and the median age of their audiences shows that: 64 for the PGA Tour, 58 for NASCAR, 57 for MLB, 52 for NCAA football and men’s basketball, and 50 for the NFL…and all are getting older. (Cable news networks, the other holdouts who are still doing well on live TV face the same situation: the average age of Fox News, MSNBC, and CNN viewers is now 65, 65, and 61 respectively.)

The major pro sports staying on linear TV has expanded the market opening for new sports to fill the open space with young people who mainly consume content online. In fact, a growing marketplace of different sports leagues (including esports) developing their own fanbases is an inevitability of the shift to OTT video as it lowers the barrier to entry to near-zero and let’s geographically dispersed fans unify in one place.

1. Lower barrier to entry for distribution

Lawn bowling is no longer your grandfather’s sports league. Mint Images/Getty Images

Niche sports leagues – or frankly, even big sports leagues that just aren’t at the scale of professional football, baseball, basketball, and hockey – have always had a hard time getting coverage on television. But you can produce and distribute video for an online audience more cheaply than for a television audience.

In fact with Facebook Live and Twitch, you can stream live video for free, and you can share clips across every social channel to attract interest. To launch your own OTT service or partner with an existing one, you don’t need to start with a massive audience from the beginning and you don’t need millions of dollars from sponsors just to break even.

Having signed over 150 new deals this year alone for its 20+ sports verticals (which will stream 2,500 live events in 2018), Austin-based FloSports has established itself as the go-to OTT partner for sports leagues with an established, passionate following that aren’t massive enough to garner regular ESPN-level coverage.

From rugby, track & field, and wrestling to bowling, competitive marching band, and ballroom dance, millions of Americans have participated in these activities in their youth and through clubs as adults but rarely see them on television. In fact, the rare instances when such sports are on TV – like their national championships – the league is usually paying large sums (potentially hundreds of thousands of dollars) for that airtime rather than getting paid by the broadcasters.

FloSports gives a home to the superfans of its partner leagues, with full coverage of the sport and commentary meant for real fans. It produces events in the manner best fit to highlight the action and turns superfans – who generally pay a subscription – into evangelists who recruit friends. There are numerous sports that have millions of participants yet no active, high-quality event coverage; those are underserved markets.

By tapping into this, FloSports properties (like FloWrestling, FloTrack, etc.) have gained hundreds of thousands of subscribers and created a surge of interest in teams like Oklahoma State’s wrestling team, which saw an 144% increase in live stream viewing and 68% growth in event attendance after joining FloWrestling (leading to them to set an all-time attendance record in the university’s basketball arena of 14,059 people). In the first half of 2018, FloSports’ various Instagram accounts collectively received 307M video views, more than the collective accounts of Fox Sports or of all NFL teams (and NFL Network).

2. Going global right away.

Johanne Defay of France at a World Surf League event. Mark Ralston/AFP/Getty Images

The top pro sports leagues have geographically concentrated fan-bases that fit the geographic restrictions of TV broadcasters, which end at a country’s border. Online streaming empowers sports that have large fan bases who aren’t geographically concentrated to aggregate in the digital sphere with enough eyeballs (and paying subscriptions) to drive engagement with the sport’s content through the roof.

Since being acquired in 2015 and renamed World Surf League, the governing body of professional surfing has developed a large global following – with 6.5M Facebook fans and 2.9M Instagram followers – through the launch of live streams and on-demand video on its website and mobile app, plus partnering with third-parties like Bleacher Report’s OTT service B/R Live. Only 20-25% of WSL’s viewers are in the US but since its competitions are streamed direct-to-consumer online, they were able to reach surfers around the world right away. After seeing WSL’s Facebook Live streams garner over 14M viewers in 2017, Facebook paid up to become the exclusive live-stream provider for WSL competitions for two years, beginning this past March.

3. Immediate data on audience engagement.

As with all offline-to-online shifts, OTT video streaming captures dramatically more data on audience demographics and engagement than television does, and it does it in real-time. This makes it easier for emerging sports leagues to partner with advertisers and show immediate ROI on their sponsorships, plus it informs their understanding of how to produce their particular type of sporting event for maximum audience engagement.

Karate Combat is a year-old league that builds off the existing base of karate participants and fans around the world (numbering in the tens of millions) with a new competition format specifically intended for OTT. The league allows full-contact fighting and sets the match in a pit (rather than a traditional fighting ring) for better camera angles. It also replaces the traditional focus on having a big in-person audience (which is expensive) and instead sets the fights in exotic locations (like the fight this coming Thursday night on top of the World Trade Center).

Like many emerging sports leagues, Karate Combat is vertically integrated: the league organizing the competitions is also the one producing and streaming the event coverage over its website, mobile apps, and social channels. This not only means it captures the content-related revenue from subscribers, advertisers, and numerous OTT distribution partners, but it sees every data point about fans’ viewing behavior and their interaction with various dashboards (like biometrics on each fighter) so they can optimize both online and offline aspects of the production.

4. Online means interactive

Jujitsu fighting is now an OTT service. South_agency/Getty Images

Online viewing creates the opportunity for functionality you can’t achieve with linear TV: interactive displays overlayed on or next to live video. Viewers can pull up and click through real-time stats, change camera views, or switch overlays (think the the yellow first-down line in NFL broadcasts or coloring around a hockey puck to help you track it on the ice). Ultimately, a more interactive experience means a more social and more entertaining experience (and the sort of deep engagement advertisers value too).

FloSports’ ju-jitsu live streams (FloGrappling) give subscribers multiple live cameras each covering simultaneous matches on different mats so they can click between them. This is a more personalized experience than passively watching one broadcast on TV and it gets that subscriber actively engaged, with their behavior providing valuable data points for FloSports and their deeper interaction likely more compelling to event sponsors.

The display might also highlight live comments from friends or friends-of-friends in order to draw viewers into a more social experience. Discussion of a specific live stream with others watching it has been a central feature for Twitch and Facebook Live and enables the league or team streaming the event to directly engage with fans around the world.

An exception to the OTT-first strategy may be in sports that are entirely new and have zero existing base of participants or fans. Karate, surfing, and video-gaming all have millions of passionate participants around the world, going back decades. A new league like the 3-year-old Drone Racing League (DRL), which has raised $21M in venture capital to develop the sport of competitive drone racing, has to artificially stimulate the development of a fanbase if it doesn’t want to wait years for grassroots competitions to create a critical mass of fans even for a niche OTT service. It’s unsurprising then that DRL has focused on striking TV deals with ESPN, Sky Sports, ProSiebenSat.1, and others to thrust it in front of large audiences from the start, like a new game show hoping its format will entice enough people to take interest.

Power is in the hands of the league owners

Ari Emanuel, chief executive officer of William Morris Endeavor Entertainment. Jonathan Alcorn/Bloomberg via Getty Images

The best position to be in right now is the owner of a sports league that’s rapidly growing in popularity. The competition for audience by both traditional media companies and tech platforms leaves a long list of distribution partners eager for must-have, exclusive content – especially content like sports events that fans want to want live together – and willing to pay up.

Moreover, vertical integration to control your fans’ content viewing experience and own your relationship with them has never been easier. There are direct subscriptions, advertisers, event sponsors, event tickets, a portfolio of possible OTT distribution deals, and merchandising. The potential revenue streams a league can develop are only more numerous when you add in launching a fantasy sports league – like World Surf League has done – and the recent nationwide legalization of sports betting in the US.

Endeavor, the parent company of Hollywood’s powerful WME-IMG talent agency, seems to have recognized this and is an early mover in the space. It bought two sports leagues that have relied on TV deals and event attendance revenue – UFC for $4B and the smaller but rapidly growing Professional Bull Riders for $100M – and, since they each own their content, launched direct-to-consumer subscription platforms (UFC Fight Pass and PBR Ridepass) for super-fans and cord-cutters. (Endeavor also paid $250M to acquire Neulion, the technology company whose infrastructure powers the OTT services of the UFC, PBR, World Surf League, and dozens of others.)

There’s opportunity for new streaming platforms focused on being the media partner for these emerging sports leagues. Inevitably, the opportunity for bundling will consolidate many of the niche subscriptions onto a small number of leading sports OTT platforms, and that’s a powerful market position for those platforms.

What is unclear is if they can defend themselves as the incumbent media and tech companies come around to this phenomenon and commit billions toward capturing the market. The leading sports broadcasting companies all have OTT offerings and want to make them as compelling to potential subscribers as possible even if they exclude content from the biggest pro sports. A larger company that can afford to spend huge sums on exclusive sports streaming rights (like Disney with ESPN/ABC, Comcast with NBC/Sky Sports, CBS with CBS Sports Network, or Discovery with Eurosport) might opt to buy a company like FloSports as part of their deep dive into the space or they might just aim to outbid them when a league’s contract comes up for renewal.

The hope for an independent OTT platform devoted to emerging sports leagues is they get big enough, fast enough that they can afford to keep winning the rights to emerging leagues as those leagues grow and offers from competitors bid prices up. These dedicated OTT services will likely have to secure long-term – think ten years – streaming rights deals or acquire control of some popular new sports leagues outright to hold their own.

Like online distribution triggered an explosion of digital publishing brands and social influencers for every imaginable niche, the rise of high-quality live streaming and subscription OTT services will allow a lot more sports leagues to build an audience and revenue base substantial enough to thrive. There’s more variety for consumers and resources than ever for those with a rapidly growing league to attract fans worldwide.