Facebook launches gaming app to take on Twitch

Facebook has launched its own gaming app to tap into the fortunes currently being claimed by the likes of Amazon’s Twitch, Microsoft’s Mixer and Google’s YouTube.

While it might seem like a foreign concept to the vast majority of those who are above the age of 30, streaming gaming content is fast becoming big business. Whether it is following organised competitions or individual gamers, millions of Generation Z members are logging onto the content streaming platforms. This is a major advertising opportunity for any company which can build a substantial userbase.

“Investing in gaming in general has become a priority for us because we see gaming as a form of entertainment that really connects people,” Fidji Simo, who leads activities for the gaming app, said in an interview to the New York Times.

“It’s entertainment that’s not just a form of passive consumption but entertainment that is interactive and brings people together.”

The original plan was to launch the app in the summer, though the dramatic increase in gaming during the coronavirus outbreak encouraged the team to bring the debut forward. Facebook Gaming is now available to download in the Google Play store, while the team is still waiting for approval from Apple and the App Store.

Similar to the aforementioned apps from internet rivals, the app will act as an aggregator of content such as commentary on gaming videos, tips and tricks, highlights or live streaming of organised competition and all other forms of user-generated content. This gaming voyeurism might sound unusual, but if you have a look at the numbers Twitch boast, there is a major advertising opportunity; this is the Walled Garden business model which made Facebook a financial heavyweight in another setting.

Founded in 2011 as a spin-off of the general-interest streaming platform, the business was acquired by Amazon in August 2014 for an eye-watering $970 million. This might seem like a huge investment, but the same was said about Google spending $1.65 billion on YouTube in 2006.

Over the last nine years, Twitch has grown substantially:

  • Four million unique content creators stream on the platform each month
  • There are 15 million daily active users on average
  • More than 600 billion minutes of content were streamed through the platform over the course of 2019

While the platform was originally developed for gamers, Amazon has also built a bridge between this platform and the Amazon Prime entertainment product. Watch Parties on Twitch allows content creators to build new content on top of the existing content in the Amazon Prime library, layering commentary over TV shows or movies. Although still in the testing stages, eventually the content creators will be able to do this live, potentially taking Amazon further into the sports world.

With these sorts of numbers, and potential to diversify the service into new fields, this is the foundations of the Walled Garden business model.

This is a simple model in theory but a complicated one to get right in practise, as demonstrable by the number of companies who have failed. First, a company needs to create a free platform for users which is engaging. Secondly, the platform owner charges third-parties access to this audience through advertising services. The platform owner theoretically remains in control of the data, meaning advertisers have to come back month-on-month, creating recurring revenue streams.

Facebook was the first to take this idea to mainstream and generate billions in profit from it, and while others have tried, success has been incredibly varied. Google, for instance, has achieved this dream-scenario with YouTube, but has failed numerous times to create its own social media platform. Twitter sits somewhere in the middle, as it has cultivated an excellent platform and userbase, but has often struggled to monetize.

The gaming world presents a new opportunity, as can be seen from the Twitch numbers, but this is perhaps only the tip of the iceberg.

Although the gaming segments have been growing healthily over the last few years, the COVID-19 outbreak has acted as an accelerator. Without school to distract children or pubs to lure adults, there is much more free time in the household; some of this has been directed towards gaming.

According to Newzoo, revenues in the global gaming industry have grown from $138.7 billion in 2018 to $152.1 billion in 2019, with the team forecasting this growth to continue through to $196 billion in 2022. The benefits from the coronavirus might only be temporary, though this is a segment which is growing rapidly regardless.

UK doubles down on White House irritation with digital sales tax

With the UK already testing the strain on its special relationship with the US following the Huawei decision, the introduction of a 2% digital sales tax is hardly going to help matters.

Although the introduction of such a tax has been in the works for some time, the timing could be better. It will certainly aid the UK Government, just as it announces expensive support measures for SMEs in the 2020 Budget statement, but the easily irritated US President might have a thing or two to say in response.

The new digital sales tax was not mentioned during Chancellor Rishi Sunak statements today, but there was plenty of reason for the UK Government to want to secure additional tax revenues. A £5 billion emergency fund will be offered to the NHS, a £500 million hardship fund will be created for councils in England and business rates in England will be abolished for firms in the retail, leisure and hospitality sectors.

The two are of course not related, the UK would have most likely pursued the digital sales without the extra expense associated with the coronavirus outbreak. From April 1, firms where revenues exceed £500 million worldwide, £25 million of which would have to derive from the UK, and operate either a social media, search engine or online marketplace service will be subject to the 2% digital sales tax.

And while the US Government might protest to such a prospect, it is of course very fair and reasonable. Tax laws were created for the analogue era, meaning many digital businesses today can bend around the rules, derive value from their interaction and engagement with a user base but shifting tax responsibilities to a more favourable market. It leaves some Governments out of pocket for no other reason than legal loopholes and creative accounts finding work arounds.

While it is perfectly logical for a company to pay taxes in the country where it creates value and profit for itself, President Donald Trump has been a very vocal opponent. According to the Commander in Chief, this is an attempt to raid the successful US economy. When you add the digital sales tax to the Supply Chain Review conclusion, the UK/US trade talks might be somewhat of a tense occasion.

The last time UK and US representatives faced-off over the concept of a digital sales tax at the World Economic Forum in Davos, Steven Mnuchin, the US of the Treasury, suggested it was a discriminatory tax directed towards the digital fortunes of the US. Mnuchin even went as far as to suggest there would be a retaliation from the US.

The UK is of course not alone in its pursuit of a fair and reasonable tax system, designed for the 21st century. France has introduced its own 3% digital sales tax, as has Italy. In response, the US has been targeting French cheese and fashion for trade tariffs, while it would surprise few to see something similar levied towards the Italians.

Although Silicon Valley will feel the pinch of the new sales tax more than anyone else, perhaps the US politicians need to appreciate this is not an act of aggression towards the country. It the statements of opposition, the US feels it is a victim of European bureaucratic oppression, but it is not. This is not a tax directed towards US digital companies, but towards the tax dodgers in the digital economy, some of whom are headquartered in the US.

These companies are a victim of their own success and shadiness. If the tax avoidance was not done to such an extreme level, these governments probably wouldn’t feel the need to pursue so aggressively. Instead, these companies, who could be based anywhere around the world, wanted to have their cake and eat it. That’s not how the real-world works, eventually it catches up, just like it has done so here.

NBC’s opportunity to cut through the streaming noise with Olympics

With NBCUniversal set to launch its own streaming service in 2020 the risk of content fragmentation is becoming more apparent, but this only underlines the importance of a niche.

Although many of these streaming services might think they are doing something innovative or novel, in reality they are copycatting Netflix. The big issue is that Netflix is already moving onto the bigger and better. Original content is the new frontier, though NBCUniversal might have stumbled across another unique selling point.

“Peacock will be the go-to place for both the timely and timeless – from can’t-miss Olympic moments and the 2020 election, to classic fan favourites like The Office,” said Bonnie Hammer, Chairman of Direct-to-Consumer and Digital Enterprises business unit.

The Olympics, and live streaming sport on the whole, is an area which the streaming giants have largely ignored to date. Amazon has dabbled with tennis, NFL and has a few English Premier League games for the 2019/20 season, while Twitter (admittedly not a streaming service) has got a partnership in place with the PGA Tour. YouTube has toyed with some live events, but never nailed it. It’s a bit sporadic, rather than a coherent assault.

With the Tokyo 2020 Olympics, NBCUniversal has a great opportunity to carve a niche and create a unique position in streaming ecosystem.

Through the NBC Olympic channel, the company has produced every Summer Olympics since Seoul in 1988 and every Winter Olympics since Salt Lake City in 2002. It has all media rights on all platforms to all Olympic Games through to 2032, paying $7.75 billion (US rights) in 2014.

This is a major attraction for consumers around the world and could form the central cog of a new type of streaming service if the team plays its cards right. Olympics coverage averaged 27.5 million viewers across all platforms, with streaming growing particularly. Nearly more than 2.71 billion minutes of coverage was streaming from the Rio Olympics, more than double the previous two events combined.

This is what the new streaming challengers need to understand; they cannot replicate the success of Netflix.

Disruptors to a fast-evolving ecosystem often try to do this and it fails due to the rapidly changing landscape. Netflix found success in being a content aggregator, bringing together titles from a variety of different sources. This model is dead. It cannot be replicated.

The creation of Peacock is another sign of content fragmentation. From next year onwards, Netflix viewers will no-longer be able to view titles such as ‘The Office’, ‘Parks and Recreation’, ‘Brooklyn Nine-nine’ and ‘30 Rock’. This is a consequence of each of the newly emerging platforms. When HBO Max emerged, Netflix lost ‘Friends’, ‘The Fresh Prince of Bel-Air’ and ‘Pretty Little Liars’. With Disney+, all Marvel content will be removed from the Netflix library.

This is a dangerous position for any challengers. The Netflix model is dead because everyone wants to home their content exclusively. The value to the consumer of the aggregator model which drove Netflix in the early years is dwindling away as the content landscape becomes increasingly fragmented.

This is the importance of original content for the streaming services; it allows the creation of a selling-point beyond price. Admittedly, the Netflix original content will not appeal to everyone, but it has big enough budgets to create the breadth and depth, so each show does not have to be a catch-all, mass market product. Anyone who thinks they can compete with Netflix on original content will have to spend a lot of money to do so.

With coverage of the 2020 Election and the Tokyo Olympics on the NBCUniversal streaming platform, there is a notable opportunity to create a proposition which can cut through the noise.

Another very interesting opportunity for NBCUniversal is a fast-emerging trend in the content world; interactivity. This was a notable theme at IBC 2019, and sports presents an opportunity like few other genres.

Viewers could personalise their experience through the selection of different cameras or commentators. Value add content can be generated for months prior to the live-streaming of the event. Technologies such as virtual and augmented reality have a natural home in the sports ecosystem. Partnerships can be developed for additional monetization. There are endless troves of data points to engage every niche of viewer. The opportunity to build a more complete story all the way through the year is very evident.

The question is how aggressive NBCUniversal will be. Will it expand into other sports and live events? Will it look to drive engagement outside of the US market? These are unknowns and will largely be dependent on the delivery of the Tokyo Olympics, though it has a very good opportunity.

Apple expected to launch half-baked streaming platform

Rumours are swirling around the Apple content business once again, this time pinning an April launch date on a streaming product which would offer third-party bundles in-app.

The aggregator platform for content is one which is becoming increasingly popular as the industry starts to realise how difficult it is to be a content creator. Apple has tried over the years, with only a sprinkling of success, but it seems it is hedging this new position by bundling other premium subscription services into the same content platform.

According to CNBC, Apple will create a video content platform to host its own content, which will be free to those who own Apple devices and offer the option for users to tie in premium subscriptions from third-parties. This sounds like an excellent idea, the fragmentation of content across different platforms is a frustration for users, though the absence of some might be a significant stumbling block.

As it stands, Apple has been unable to negotiate a relationship with HBO, though this is still a possibility, while the report also claims Hulu and Netflix will not be on the platform. For such an idea, and it is a good one which will appeal to consumers, all the various options need to be available. As it stands, with some of the most popular streaming services absent the appeal of the platform is severely dented.

“Any move is long overdue and comes at a challenging time for any new player,” said independent analyst Paolo Pescatore. “We’ve seen an explosion in OTT SVOD services.

“For the service to be successful it will need stand heads and shoulders over rivals, great content, great UX, a one stop shop destination. Unfortunately the market is hugely fragmented and consumers do not want to sign up to numerous services. There is an opportunity to unite all of these services. Whoever gets this right will be in pole position. If Apple has serious aspirations to compete in this landscape it needs to make a significant acquisition.”

But what could be the issue? Rumours are pointing towards the terms and conditions set forward by Apple; they might be asking for too much.

Looking at the App Store, Apple has traditionally asked for a 30% slice of any subscriptions bought through the platform, a number which decreases to 15% in the second year. It also demands 30% of in-app purchases, leading some developers to take users off-app to complete any transactions, creating a loophole in the terms and conditions. It seems these terms ate being extended to the aggregator platform and might be the reason Apple is finding difficulty in negotiating with partners.

Anonymous sources quoted by CNBC are suggesting HBO is resisting so far as Amazon Prime offered better terms than Apple. Sticking to its guns might sound like an attractive move to the management team and investors, but unless Apple gets a decent level of premium content on the platform to supplement its own mediocre library the platform will not be a success.

“Apple’s strength has always been seamless integration between hardware, software, services and now, presumably, content,” said Ed Barton, Chief Analyst at Ovum. “It has a lot of strengths to leverage in launching a video service. It’s problem is launching a video service in 2019 is about as hard as it has ever been, the competition is insanely strong and very well established in audience viewing habits.

“More well funded competitors are launching this year and making enough shows to attract and retain audiences is getting harder and more expensive. I don’t doubt Apple can launch a great video service, whether apple can sustain a great video service over the longer term in the brutally competitive environment for premium video is the question.”

Another strand of the software and services push will take Apple into the world of magazine subscriptions. Similar to the plans above, premium magazine subscriptions will be offered to users through the iOS news app, though considering the strife traditional content providers are in, Apple might be able to throw its weight around a bit more.

This is perhaps the problem Apple is facing; it thinks it is more powerful and influential than it actually is. Of course, Apple is one of the most respected and dominant brands on the planet when it comes to consumer hardware, though the software world is a completely different dynamic. It cannot bully companies like Hulu, Netflix and HBO into its own terms and conditions, as these are companies which are successful in the content world in their own right. Apple is trying to break into a new space, not necessarily the other way around.

That said, Apple does have a very strong relationship with its hordes of loyal customers. It can add value to any business it partners with, but perhaps it needs to realise it is only one hand amongst hundreds which is trying to lure customers onto its platform. What is clear right now, is that without enough headline grabbing content on the platform, the idea will certainly fall flat.

Apple turns to gaming to crack subscription conundrum – sources

Apple has been searching far and wide for alternative revenue streams to reduce its reliance on the plateauing devices market, and the latest venture might take it into the world of gaming.

With content being an incredible bust for the business, Apple is reportedly in hot pursuit of the blossoming gaming segment. This is an area which would seemingly tick all the boxes for the iLeader; recurring revenues, a chance to grow organically and in before the segment has become popular and saturated.

According to Cheddar, Apple is in discussions to create a gaming platform which would bundle various titles together behind a paywall. It sounds like it could be a Netflix for gamers and would certainly give the status quo of gaming a bit of a poke.

Looking at the gaming segment, this is an area which is becoming increasing popular with users while profitability is certainly heading in the right direction for the developers and platform owners. There is already a lot of money flowing around this space, but as more games evolve away from single- to multi-player, internet focused experiences, popularity seems to be growing in the mainstream markets.

Recent figures from the Entertainment Retailers Association (ERA) in the UK suggest gaming now accounts for just over 51% of the three segments in the entertainment world (video and music being the other two), doubling in revenues since 2007. Netflix and Amazon have proven the subscription OTT segment has legs, normalised the idea in the mind of the consumer, so why shouldn’t a gaming platform work as well.

Of course, for this to work Apple would have to convince the developers to join hands behind the paywall. This is where Apple’s venture into the world of content has failed before; it didn’t create good enough content to be considered a realistic player. This will certainly be a big change in the status quo for the developers and it will be interesting to see what the results are. Apple not only needs high quality content, but a broad enough portfolio to make it value for money.

Here is where Apple is swimming against the tide. Single purchases might have been the way developers made money in the past, but the popular route is now free-to-play with in-game purchasing options. It has proven to be very successful and there might be some resistance to move to another business model. Don’t fix what isn’t broken might be a relevant phrase here. What Apple is suggesting in a completely new approach to revenue sharing as the games are bundled together behind a paywall. Theoretically it can work but change scares the majority.

If Apple can balance the equation, it would certainly be a relief for CEO Tim Cook who must be feeling some pressure right now. A less than enthusiastic earnings call demonstrated Apple is floundering in the software and services segment. Yes, it is growing, but not at the rate of knots which Apple investors have come to expect. Apple hasn’t really done anything exciting or applaudable in this segment yet, most of the gains are through iTunes or Apple Care for example; differentiation and diversification are desired above all else.

Apple is certainly stepping out of its comfort zone here, and we strongly suspect it might fail because of this. However, it might just lead the way for a fast follower (Netflix perhaps?) to reap the rewards.

In fairness though, you have to give Apple credit for creative thinking and an interesting idea. Those recurring revenues might not be that far away for the iGiant.