TikTok is one of those “overnight sensations that took years” that you hear about in Hollywood and in Tech. George Clooney is a great example as he toiled for years in Hollywood before he broke out in the hit TV show, E.R., in the 1990’s. TikTok is a good tech example – they have been popular in China (operated as Douyin) for over five years, but have only been “discovered” in the U.S. in the last year or two – partly due to ex-President Donald Trump’s threats to ban TikTok in the U.S.
Recent data from Sensor Tower, a well regarded global app intelligence and data company, was reported by Technotification.com, saying TikTok was the most downloaded non-gaming app in the world for July 2021, with more than 63 million downloads globally. TikTok has also had spectacular results with huge numbers of downloads in many countries over its short life. It is estimated to exceed over 1B users along with its sister app in China, Douyin. TikTok and Douyin held the same top status throughout 2020 worldwide too.
Both Douyin and TikTok are owned by the very large Chinese interactive media and entertainment company, ByteDance, which has been rumored to be heading toward a public IPO sooner than later. Currently the Chinese government has been challenging some of the biggest Chinese digital companies regarding public offerings, M&A and
cash movement, etc. ByteDance, Tencent, Didi, Alibaba and others are all good examples of companies that have to be very careful as they maintain their relationship with the Chinese government, operating as large International enterprises.
According to the Sensor Tower data, the greatest number of installations came from Douyin in China (15 percent ), followed by the United States, at 9 percent. Also in 2020 and during the first half of 2021, the app is reported to be at very top of the revenue rankings.
Certainly in the U.S., and probably around the world, there is a huge amount of room for TikTok to move into the realm of the few, huge, gigantic monetizers of Internet traffic, namely Facebook/Instagram, Amazon AMZN-0.6% and Google.
TikTok is not only growing rapidly but also has very satisfied and engaged users. The app has great tools for easily sharing creations and content across numerous digital platforms – even email for old people! The engagement numbers are astounding with many, many viewers spending over an hour a day watching TikTok.
Everyone says the secret sauce for TikTok is their “algo” – the algorithm that the TikTok computers are constantly analyzing and learning from (machine learning) to determine what content to offer you, what content will engage you, what content will you share, and what content is monetizable or leads to monetizaeble actions?
When Quibi was launched with huge capital and big Hollywood names, few folks were even talking about TikTok, and today Quibi is a failed interactive media brand that burned through over $1B dollars. I analysed why Quibi was failing and why TikTok was going to grow dramatically in a Forbes.com piece posted almost a year ago. Quibi was expensive, the content was too long, the distribution was too limited, and perhaps, maybe, the Hollywood guys aren’t really up to speed with the tastes of the Millennials and Gen Z that drive our society and our economy. Perhaps they didn’t “get it”.
The numbers are clear, TikTok is “getting it” and, TikTok is “killing it,” in the more common vernacular of today’s society. TikTok is short, “non-professional” content, ridiculed by some, yet adored by hundreds of millions. I bet TikTok continues to accelerate its success worldwide.
Former CBS CEO Joe Ianniello and former ViacomCBS Chief Digital Officer Marc DeBevoise have filed with the SEC to create a special purpose acquisition company (SPAC). Argus Capital Corp. plans to raise $300 million in an IPO to target private companies in the media, entertainment and sports sectors that they can merge with, thereby taking that company public, in contrast to a traditional IPO, or a direct listing.
The SPAC, Argus Capital, filed with the SEC on July 22 and they will now go through a review process with the federal regulatory commission that handles public stock regulation.
When that review process is completed and the SEC has deemed Argus to be “effective” then they can commence the IPO. Once the IPO is successfully completed Argus will seek to find companies in their areas of expertise that they believe would be good performing public companies.
The SPAC market has been under a lot of scrutiny from the press, investors and the SEC over the recent months and many SPAC IPOs have been delayed, curtailed or cancelled. Many other SPACs are lined up with approval from the SEC, but are waiting to conduct their IPO. The IPOs provide part of the investment cash needed to fund a proposed merger, along with, usually, a PIPE (private investment in a public entity). Both the IPOs and the PIPEs have become difficult to execute in the last few months in the SPAC markets.
On the bright side many SPACs have performed quite well and have allowed strong companies to go public with the benefits of a SPAC, such as the ability to project out-year earnings, ability to approve your major investors, some certainty with regard to capital raised that will go on the balance sheet, and speed/ease of the process vs. a traditional public IPO.
Argus said in their SEC filing, “Within these (media, entertainment and sports) sectors and other sectors, we seek to partner with late-stage growth companies as well as mature companies with the potential to accelerate growth through organic and transaction-driven strategies,” adding that “we also intend to leverage our management team’s considerable industry relationships to seek out potentially mutually beneficial corporate carve-outs from existing conglomerate companies.”
Verizon Communications Inc announced their financial results today, describing the second quarter of this year as a “record Q.2 performance.” However, Verizon showed a continued decline in the traditional Fios TV subscribers that they have relied on for past growth. Fios TV ended the first half of the year down 270,000 subs from the previous half-year. In the second quarter Verizon lost 62,000 subs versus 81,000 subs lost last year in the same quarter.
A recent national research study I conducted among adults in the U.S. indicated that 13% of all those 18 and older in the U.S. said they were “extremely likely” to cancel their pay TV subscription. Last year the number was only 8%. The intent to cut the pay TV cord is highest among people in the U.S. who are 18 to 34 years old. This year 23% of them said they were “extremely likely” to cut the cord, while last year it was 17%.
The good news for Verizon centers around their mobile phone business. They have been very active in building out their 5G system which will enable faster and better high-bandwidth content and services.
Verizon has also reported strong results regarding their Internet access service provided through Fios broadband. They gained well over 400,000 subscribers to their high-speed internet service, up from the previous year.
Verizon’s total operating revenue rose 10.9% to $33.8 billion in the second quarter, compared with estimates of $32.74 billion, according to IBES data from Refinitiv.
The Verizon CFO, Matt Ellis, touted their quarterly record and expressed enthusiasm for the confidence of his company, “The strength in our core business is driving higher revenues and strong demand for our products and services.” He added in a statement, “We delivered strong operational and financial performance, giving us positive momentum as we end the first quarter. High quality, sustainable wireless service revenue growth, a recovery in wireless equipment revenues, strong Fios momentum and excellent Verizon Media trends led the way.”
Clearly Verizon has no interest in focusing on the expensive mistake they made buying AOL and Yahoo, which they are now selling for half of what they originally paid. It appears again that the power of Verizon will be in providing the essential infrastructure for businesses and consumers required today, with increasing demand in the future. Verizon’s current content strategy is focused on distribution partnerships with numerous TV and film outlets.
As the country eases out of the Covid pandemic lockdowns, many people are returning to sports, travel, events, and other activities that were limited during the past 16 months. But that doesn’t mean that all the increases in gaming, video viewing, and other at-home activities will disappear. My research shows that consumers will ease back into movie theaters and many will maintain much of their increased level of video viewing and consumption of other at-home entertainment activities.
The SVOD (subscription VOD) services were often noted as big winners throughout the Covid pandemic, but even these behemoths of content are starting to see slowing in their growth and recent price increases have not gone unnoticed by the consumer.
What will Netflix (and others) do to keep their revenue expanding at a dramatic rate (which their stock prices seem to demand). They have many things they can consider doing:
Limit sharing of passwords
Add free content that is advertising supported or even create a branded Advertising Supported Video on Demand (AVOD) service .
Add sports content and charge a supplement for sports content
Add games that would generate advertising, in-app purchase, or supplemental charges for gaming content.
Wall Street analyst Michael Nathanson of MoffettNathanson Research recently pointed out the dramatic slowing in Netflix’s subscription growth suggests Netflix might have to look at adding revenues from the advertising and sports businesses.
I think there are other areas Netflix could consider too – such as games, as well as perhaps some “creator” platform down the road, more want YouTube and TikTok offer creators, influencers, and the ordinary person.
Nathanson, and I share his interest, is particularly focused on the opportunities for Netflix (and presumably for the other SVOD services) in driving new revenue through advertising. “Although Netflix management continues to strongly dismiss the idea of advertising, we think that view will be seen as a strategic mistake if future rates of subscriber growth start to fall short of Street expectations,” he said.
I have seen in my own consumer research a broad range of reactions to advertising and content – some folks say they want no ads, and are willing to pay, others say they will never pay for content and are fine with watching ads, and of course, many folks fall in the middle. A recent study by Hub Entertainment Research confirmed that there is a real opportunity for advertising on content that is usually or had previously been advertising free. Also, remember that a few of the VOD services have had hybrid arrangements where you pay for the plan, but some content still has ads. Most notably Hulu had this model for many years.
Other notable executives in the media industry share this point of view of Nathanson’s. Dave Morgan, long-time advertising digital technology entrepreneur, said in an email exchange with me, “There is no question that Netflix will continue to dominate subscription based video on demand, but if it doesn’t soon build its own ad-supported streaming service, it’s going to have to buy one in three or four years. Netflix needs revenue streams to compete with the adjacent market subsidy power of players like Amazon and Apple since they don’t need to make money selling video subscriptions.”
Nathanson projects a revenue CAGR for Netflix in the years ahead at 14% and asks, “Is a 14% revenue CAGR over 2021-2025 enough to justify Netflix’s premium equity valuation? Compared to other Internet names, Netflix stands out with lower anticipated revenue growth than peers despite a relatively high valuation.”
Netflix has raised its prices and altered its terms of service for multi-person families (limiting password sharing to some extent) in the past, including recent changes, and no doubt, Netflix will continue to explore their options for driving more revenue through price increases. I imagine future price increases will be modest and will result in some customers abandoning Netflix. It is unlikely that price increases can bring Netflix back to high revenue growth numbers.
Adding advertising to some of the content, or to another tier of content, makes sense to me. The things that make a successful SVOD service are many of the same things that make for a successful AVOD service – lots of good content, available on multiple devices, with easy to use, rapid technology. Netflix is a noted user of analytics for business decisions and they can easily test and evaluate this approach. Maybe they already are?
As Nathanson also suggests, sports content is an opportunity for Netflix to bring in more revenue. Netflix might try and find some content to acquire like European Football, which NBC added to their programming quite successfully a number of years ago, at a reasonable price. If Netflix wants to capture near-exclusive deals for NFL, MLB, or NBA games, the price tag is going to hit them hard in the EBITDA. A big sports play by Netflix would be a hail mary pass, but I expect Netflix would only do that if they saw some great receivers open down the field.
Other further “out” new revenue ideas might cover gaming as well as a platform for creator content (formerly called user-generated content).
In the gaming area, Netflix could develop games that are focused on their IP as well as launch new IP, just as they have in video. Such games could be attractive to many consumers across the various platforms of mobile, Web, PC and console, not to mention ConnectedTV (an emerging platform for games too). Netflix could offer a game-subscription for additional revenue, or it could monetize their games through advertising and in-app purchase, which would not be consonant with Netflix’s pass monetization practices. Or Netflix could drive the creation of new and IP-games that would be sufficiently attractive to get new customers to sign up for the Netflix video package just to get the games. Amazon has tried an Amazon Prime video program around gaming and game content (Twitch) to unknown success.
Even further out is the idea of Netflix creating a platform, with creator tools, for their customers to make creator content – videos, audio, games, interactive story-telling, etc. The creator content will be distributed widely across the Netflix consumer audience, immediately competing with YouTube, and that creator content may become another reason for people to join Netflix and stick with Netflix.
Likewise, perhaps other competitors in the VOD space will move into gaming, creator content, and content focused on the Connected TV. Sounds like the business people in streaming have plenty to work on to build their growing revenue and profitability.