Station 12 to raise new Funds
Patrick Bradley, March 2018
Station 12 Asset Management, the specialist venture capital investor in Sports, Entertainment and Knowledge, is to raise £60m in two funds - one aimed at institutional investors and the other at the private EIS/SEIS sector. Station 12, which was founded just over three years ago, has already built a successful track record with investments such as Parade, the TV distributor and Nocturne, the live events operator.
Founder and Managing Partner, Patrick Bradley, said, ‘We now have an exciting, well balanced initial portfolio with a strong pipeline of new investment opportunities ranging from early to growth stages. ‘The UK is the world leader in the Sports, Entertainment and Knowledge sectors. Content produced by these industries is already worth £20bn a year in the UK and global demand continues to show dramatic growth. ‘In particular, there are growth opportunities in virtual reality, augmented reality, artificial intelligence, blockchain and e-sports, alongside the more ‘traditional’ areas of entertainment, music, audio-visual content and live events. These areas are robust in economic downturns and we do not believe they will be adversely effected by Brexit.’ ‘Consumer spending in this space is price insensitive’, comments Fabio la Franca, business development manager at Station 12. ‘It is often irrational and captive - similar in many ways to the loyalty of football fans which is why the digital media and entertainment sectors are set to grow twice as fast as UK GDP.’
Kelvin Reader, Principal at Station 12 and the leader of its deal team, said, ‘Unquoted companies in this sector have suffered from an under allocation of capital because investors have traditionally focused on the technological delivery of media rather than media content and services. Successful investment also requires specialist knowledge and experience which is why Station12 can act as a bridge between investment and the sector.’ The British Government reiterated in the 2017 budget its commitment to encourage investment in knowledge-intensive companies through the EIS/SEIS schemes as part of its response to the Patient Capital Review, saying that “tax-advantaged venture capital schemes are intended to encourage individuals to invest directly or indirectly in small, high growth potential trading companies that would otherwise struggle to access the funding they need to grow and develop.” Station12’s SEIS/EIS media entertainment and knowledge fund is currently open and raising up to £10m to invest in its pipeline.
Why we like videos
Nune Wichienkuer, October 2016
2015 was the year of praise for videos as king of content. Nicola Mendelsohn, VP of Facebook EMEA , predicted all content on the platform may be video in five years. Cisco thinks video will account for 69% of consumer internet traffic by 2017.
Without discrediting the merit of texts and audio, video is a fantastic medium that we believe will become dominant due to several reasons.
First, we consume videos with ease, speed and flexibility due to our ability to process visuals with a higher efficiency than texts and a higher ability to retain information consumed as visuals. Video can be consumed either as visual or audio, and allows audiences to multi-task while doing so. Because of its versatile quality, video provides what is lacked in stand-alone text and audio mediums.
Second, video is a commercially effective tool. It is a powerful product demo and display tool, and has been shown to boost purchase rate. It is not difficult to predict that more retailers will offer their online product display in videos. Marketeers have also reported seeing higher ROIs from video than from any other medium. Additionally, and most importantly, a significant^ proportion of advertiser money is still spent on TV — but new generation companies like Snapchat are gearing their strategy towards creation of video content that can capture that spend from TV.
Third, thanks to YouTube how-to videos, Snapchat and Facebook live, the younger generation is not only used to consuming video content in high volumes, but also creating their own content and using it for communication. Video is a fast and holistic medium for communication and real time content generation.
Fourth and lastly, the advancement of supporting delivery infrastructures, video tools and wider adoption of these tools strengthen video’s position as a medium of choice and gives it a clear advantage int completely replacing text on Facebook or anywhere else. In our opinion, these tools will increasingly address the essential key areas: discovery, in-video search capability and collaborative content production.
This shift in the market towards video content also sees value moving to producers of video, driven by advertising spend and e-commerce click through revenues. The technology supporting this will be commoditised, with content owners and producers being the beneficiaries of the increased spend, given video is the fuel that now drives individual platform monetisation.
It's not a Flash in the pan
Neil Allcock, October 2016
It seems that everyone else is starting to think the same way as us at Station 12. No sooner had Netflix pumped all sorts of money into creating new and original content, than we see the old giants of Telco, AT&T spending $86b on their own content arm.
Time Warner has been punted around in the recent past of course, with both Fox and Comcast looking at all or part of the media group but not going through with the deals.
So what has made Time Warner that much more appealing this time — and at such a premium. It is quite clearly their quality of content and the Pay TV platform in combination.
Game of Thrones has gone from strength to strength, they are starting to develop all sorts around their DC Comics rights. The HBO roster is amazing, and even CNN is up there especially with their fun and games with Donald and Hilary.
However, as we said around Sky TV last blog, if you have this high quality content and the platform, in this case DirecTV — the US’s largest Pay-TV platform bought by AT&T last year — then your offering is near unbeatable. This is AT&T’s first major foray into content in 150 years of being in business — they had a content dabble with DirecTV and then followed up with an $86 billion buy — so they must see something in it!
It may feel like bad news for the streamers like Netflix, but it won’t be for the independent content providers, as the platform will probably be forced to keep the content provision open to others outside the new AT&T network in order to allow the deal to go through the regulatory bodies.
Another great new market therefore for our Parade content, and another good reason to invest in quality content creation.
Stranger Things have happened
Neil Allcock, October 2016
So Netflix subscribers are on the up again – not it appears based on any pricing or demographic movement, but as we surmised on our Content With Your Content piece, Netflix say it is all about the new original content they have added to the roster – in this case Stranger Things - Science Fiction thriller and Luke Cage – another Marvel super-hero type creation.
It could be that Netflix are justifying their investment in these and their other intended 1,000 hours of original programming, and linking it to a relatively unexplained rise in subscribers, but it feels more likely that these new subscribers are indeed largely attracted by the content, and there is a constant hunger for new content watched in the comfort of your own home.
Historically, for example, when we track the subscriber effect of Sky in the UK market, you can track the two massive surges in their subscriber numbers to two very distinct points – the purchase of all Premier League football and the giving away of the platform for free by massively subsidising the set top box and installation.
Original content is powerful, original content and owning the platform is near unbeatable.
As other players have entered Sky’s platform market, and of course broken their football monopoly, they have responded by gobbling up as much content as they possibly can in other genres, and developed new and increasingly successful channels like Sky Atlantic.
There are several other players in the online streaming space of course, and Netflix have realised that original content is their only way to maintain a commercially viable future.
They struggle to get hold of any of that truly original content from the big studios, which stays in the hands of the major broadcasters and gets to Netflix when it has been through more viewing windows than the Louvre Pyramid. You don’t pay top dollar for something you have seen before of course - if indeed any dollar.
However, the price of original content shows no sign at all of dissipating, and there is enough margin in there for the content distributor to exist happily as well. Such is the demand from the numerous broadcast and streaming players in the market, and the insatiable demand for original content from the end consumer.
Station 12 have very recently invested in Parade (see press release below), a distributor of around 1,000 hours of content in the food and travel, home and garden, health and fitness and factual genres. We will continue to invest in others as well, as long as this constant and increasingly global demand for television content continues and subscriber numbers rise with the platform owners.
Station 12, S4C and Media Rocket invest in Parade Media Group
Patrick Bradley, October 2016
Station 12, S4C Digtial Media and Media Rocket have agreed to invest in TV distribution business Parade Media Group.
Be content with your content
Neil Allcock and Nune Wichienkuer, October 2016
In a world of continuing grumbles and groans over Brexit and the like, it is still amazing us how resilient the world of media in the UK remains, especially around the consumption of quality media content even though Britons are paying staggeringly high amounts for this consumption. Recent research shows that Britons pay almost twice the price for premium TV subscription packages compared to Germany. Combining that with other subscription packages, such as Virgin, Spotify and Netflix, this could get close to £200 a month for in-home entertainment content.
Britain is a great testament to our thesis that consumers will continue to pay for and demand quality content wherever this content resides, even if they have to subscribe to multiple packages. It is no secret that the UK has superior original TV programming much of which is still shown on linear and terrestrial TV. As a result, Britons are not the biggest VOD watchers in the world, which makes them much less likely to “cut the cord” in the near future (at 15% UK vs 32% World) according to Nielsen survey.
Another indication of demand for quality content is the rise in HD penetration among UK households, the format which is used mainly to watch high quality programming (especially top sports matches, films and drama series). HD is mainstream, and consumers are now on the march to UHD which looks like being another winner.
On the supply side, 64% of video service providers and 73% of producers believe consumers are willing to pay 10–30% more on their subscription to access 4K UHD content according to a survey by S&P Market Intelligence.
A small survey of Station 12 employees implies that may well be true — even at the £200 level. However, that is countered by the lessening ability to sell technical enhancements as subscription extras — the days of multi-room additions and HD surcharges are surely numbered. The value is all in the content and its prime delivery mechanism.
Content demand appears insatiable — and the production companies and live event broadcasters keep on finding more and more. We always stress that quality content will prevail — and who knows what genre is going to be the winner. Always a risk, but all of them seem to have their day –singing contests, antiques, building things, and even baking the ultimate scone. Who’d have guessed?
Produce high resolution high quality content and there are plenty of consumers who will demand it — and are willing to pay for it.
But who is funding and investing into the producers of content? The media corporates and major studios remain the main source, but there lies an opportunity to become a provider of independent capital, which is a gap that we at Station 12 aim to fulfil.
Gonna Start Me Up.....
Neil Allcock and Kelvin Reader. September 2016
Music remains an extremely popular place to create startups. It is very accessible to all, and there appears to be a constant demand for music innovation from the users. The result is an explosion of technology driven music startup services including subscription services, discovery of music, artists and events, collaborative production and management of the revenue streams which drive much of the music business.
It is also a very tough place to make startups a success. There are a lot of wannabee players in it, and not enough revenue to go around.
Music has for many years been a surprisingly junior member of the media royalty and licensing club. As an industry it seems to have taken a series of poor directions with the result that it has been a long and constant struggle to return revenues to the relative level of their glory days — before the advent of digital.
This means that the market is relatively small. It is also complex because of the way in which revenues flow, hampered by the proliferation of an already incredibly over-complicated licensing system.
Two recent high profile failures show us that you can a have high amount of funding available for your idea in the case of Crowdmix, or amass a highly talented team and do the hard yards in obtaining music licences in the case of Omnifone. It is still really difficult to be successful especially in the higher revenue subscription service and playout arena — now a busy place with some big players. Again — not enough revenue to go around.
At Station 12, most of the more recent music ideas we have seen are around content/music enhancement, production collaboration or events. All good ideas, all with a very natty technology engine sitting in the middle and alas pretty much all without any revenue currently flowing or some don’t even appear to have revenue models!
Revenue is so important — not for the quantum at this stage but always for the proof. Can your idea take money out of this crowded market, is it unique enough to attract new subscribers or consumers and if so will that scale? Critically, is there indeed a proven market for the product?
Scaling is still a challenge and there are exits to be had for a scaled product without any revenue, but they are much harder to get.
At Station 12 most of the music service ideas put in front of us have been innovative, useful and well produced. They look and feel great and are always cool. However, when you look at many of them from a high level, what an innovator sees as a unique and exciting product can often look to us like a mimic of an existing or recently invested product albeit not exactly the same.
The differentiation needs to be higher and you need to prove that it can earn revenue or take revenue off a similar supplier of that service.
The theory seems to be that you build a presence with lots of users — generally non-paying — and then try to monetise it. However, the process of getting that extra money out of the consumer’s wallet proves extremely difficult — especially the type of consumer who buys a lot of music — not always the one with the most disposable income.
The performance of music startups is dire. Very few make it into mass market. The lesson is relatively easy:
· Build something which generates revenue early. Investors like revenue proof, especially in industries where failure is prevalent
· Build something that is truly unique — too many think their product is unique because it has a particular feature held within it, but from a high level that doesn’t hold — it looks the same
· Build something that really solves a major pain within the music eco-system — perhaps not the cool areas like Discovery, Production or Playout, but instead the boring bits. Take their pain away.
IN STORMY ECONOMIC WEATHER, MEDIA AND ENTERTAINMENT SAILS THROUGH......
Nune Wichienkuer. August 2016
Brexit, recession fears are everywhere in the papers, TV, news, but should we be worried about our core sector, media and entertainment? Recessions are nothing new, so does media consumption decline in an economic downturn? The United Kingdom experienced recession (a state of negative GDP growth for two consecutive quarters) in 2008 and 2009. Intuitively, spending on media and entertainment should have declined significantly and all was gloomy, yes?
We researched historical data and found that the majority of consumption in media and entertainment has a low correlation to the economic cycle and even showed healthy growth during the last recession.
Film (box office revenue), online television, and live music events in the UK actually grew during the last recession (while traditional media advertising, namely TV advertising did not). As a matter of fact, some sectors within UK media and entertainment experienced growth that is significantly higher than the global average. During 2009, while global music record sales dropped 7%, the UK experienced sales growth. The live music events sector also experienced higher growth in the UK compared to global average, growing 9% compared to the global average of 3% in 2009.
Consumers do decrease their overall non-discretionary spending in a recession, but it is incorrect to assume that all spending within the category is reduced. Consumers substitute spending on leisure (expensive holidays) for spending on media content and live performances. This is one of the reasons why media and entertainment performed well during the last recession.
The fact is that the media and entertainment sector is more affected by factors such as market trends, consumer behaviour and technology than economic cycles. The introduction of 3D films (or 7D these days), for example, contributed to the increase in the value of spending in cinemas. The proliferation of mobile devices resulted in online television (now steaming) and digital advertising growing exponentially during and after the crisis.
Platform proliferation continues and quality content is being generated at higher volume and at a much faster pace to meet consumers who are demanding more choice, but who are also willing to pay for this on the new streaming platforms.
But is Brexit something new and dramatic which will alter media’s robustness to an economic downturn? A recent article by Variety explained the specific impact of Brexit on our sector. Other than factors relating to economic outlook and the weakening of the pound, the article voiced concerns that UK content will not be qualified within EU quotas (which might impact the price paid for that content), and that European channels with headquarters in the UK may no longer be covered under the EU Audiovisual Media Services Directive (which could result in those headquarters being moved to another European country).
However, we believe the UK will successfully mitigate these impacts in the medium term and we maintain our view that our sectors are driven more by other fundamental factors – by constant change, in tech, consumer behaviour and the growing appetite for knowledge on a global basis.
Media and entertainment spend is resilient in economic downturns, and, as our research shows, continues to grow, making it a sector that investors should allocate into, when switching out of other sectors which are vulnerable to recessions and Brexit.
Our views on Brexit
Patrick Bradley, July 2016
Brexit is happening – as we all know. Will it be good or bad for the UK – we don’t know, but our hunch is we’ll get through just fine, although some sectors, finance, property, will be impacted.
Will it impact our sectors – media, entertainment, knowledge and education? The simple answer is that it won’t – the world’s appetite for content and education continues to grow. International buyers aren’t going to stop acquiring our music, TV shows or watching our football and Britain won't cease to be a centre of excellence in education and knowledge.
Things are changing – but our sectors are driven and enhanced by constant change, in tech, consumer behaviour and the growing appetite for knowledge, globally. And change is what provides us with great opportunities to develop new businesses to take advantage of those changes.
So we remain very optimistic about our sectors – Brexit or no Brexit.
Britain will continue to be a world leader in media, entertainment and knowledge.
Media Rocket Joint Venture Fund agreed with S4C
Patrick Bradley, August 2015
Station 12 and S4C have agreed a joint venture fund which will launch 5 new media start-ups over the next 12 months. The fund will be specifically targeted at developing new venture building opportunities - growing businesses from the ground up across the media and entertainment sector.
Station 12 completes deal for Blenheim Palace
Patrick Bradley, January 2015
Station 12 has announced its first deal, alongside Neopolitan Live Events to stage a series of concerts in summer 2015 at Blenheim Palace.