Moe Hamzeh
Moe Hamzeh
Music Business Executive Founder, Temple Entertainment
inbold, the Strategy& Middle East podcast
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inbold, the podcast brought to you by Strategy& Middle East, takes a deep dive into the world of business and beyond. Each episode explores a specific industry or growing trend, from gaming to sustainability, youth and resilience. Along the way, inspiring and insightful guests sit down with our host and Strategy& experts to take you through a journey of exploration and uncover a wealth of opportunities. inbold brings professional foresight, industry expertise and practical experience into each episode, a powerful combination to help deliver your best future.
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Season 2: Lifting the curtain on the media industry
Episode 4: Music, let's play – Where’s the potential in this ever-changing music landscape?
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Season 2: Lifting the curtain on the media industry
Episode 4: Music, let's play – Where’s the potential in this ever-changing music landscape?
[00:00:09] Karim Daoud: Hello and welcome to inbold, the podcast brought to you by Strategy& Middle East where we dive into the most important topics impacting the Middle East and the world. I am Karim Daoud, and this is our second season of inbold where we’re lifting the curtain on the media and entertainment industry.
In every episode, we are covering one angle of media, and we are inviting our guests to come in and share their experience and perspectives on where the industry is going. This episode is on the music industry, episode four, so sit back and enjoy as we dive in.
[00:00:46] Karim Daoud: And we’re back to inbold here in our Experience Center in Dubai. Today, we’re absolutely delighted to have with us Moe Hamzeh ex-managing director of Warner Music in the Middle East, founder of Temple Entertainment, an independent record label.
But Moe really is a man of multiple talents. He himself is the lead singer of a band called the Kordz, so he brought some alternative rock to the region and to the world, accompanying even sometimes Deep Purple in a tour in Europe. We are absolutely delighted to have Moe because of the 360 perspective he brings to an industry that has gone through a profound transformation over the last 20 years - so welcome on board.
[00:01:31] Moe Hamzeh: Thank you for having me.
[00:01:32] Karim Daoud: ‘Ahla w sahla’. So, Moe let me get started with a 20-year perspective. I was just reading a report now about the music industry, that says, in 2001 when you were starting your career with Virgin Media Megastore in Lebanon, in retail sales, the total sales of the industry was 25 billion dollars worldwide.
[00:01:53] Moe Hamzeh: Globally, yeah.
[00:01:54] Karim Daoud: Globally, yes, and a good 99% of these was physical sales. Fast forward, 20 years now, in 2021, everybody knows that the streaming is the phenomenon that has taken the industry by storm.
[00:02:06] Moe Hamzeh: Definitely.
[00:02:07] Karim Daoud: Can you give us your take?
[00:02:08] Moe Hamzeh: First, thanks for having me here, and it is a great honor, pleasure to be with you.
[00:02:13] Moe Hamzeh: I started in 97 actually being Warner’s label manager with the licensee of Warner then in the MENA called Music Master at the time, which was basically the physical business. And our role was distribution and marketing of the physical products of an international repertoire company at the time, which is Warner of course.
[00:02:36] Moe Hamzeh: And then in 2001, I moved to Virgin Megastore, which was, the opening of the retail chain of Virgin in downtown Beirut. That was the first store, and then we expanded of course in the region and in Lebanon as well. So, at the time, the physical business was mainly focused on few stores and even before Virgin, where physical CDs were the main product that was sold. Of course, they were cassettes as well before, and cassettes were mostly produced locally, CDs depending on the company of course (which labels) so they were partly imported, or some of them were locally produced.
But at the time, I can tell you it was - the majority of the consumption was piracy and physical piracy. That was massive.
[00:03:27] Karim Daoud: Yes.
[00:03:28] Moe Hamzeh: Massive, everywhere, all over the region. So when Virgin started, because of the brand power of Virgin at the time, people wanted to go and have this experience and buy CDs.
[00:03:41] Karim Daoud: Yes.
[00:03:41] Moe Hamzeh: So that’s why you saw this massive growth. And don’t forget the prices, they were really overpriced. Even for the CD price.
[00:03:50] Karim Daoud: Yes.
[00:03:51] Moe Hamzeh: So this is why you saw this market value in the 2001s. So these were the best days for the industry.
[00:03:58] Karim Daoud: What we have seen is for the next 10 years, it was downhill. It went as low as overall 14 billion worldwide until something came to the rescue.
[00:04:07] Moe Hamzeh: Exactly, which luckily everyone agreed on this streaming model that could work, because the period after 2001, I can say 2003, 2004, 2005, and up to 2008….
[00:04:21] Karim Daoud: Yes.
[00:04:21] Moe Hamzeh: …this is where I believe the industry was lost and there were no agreement between specifically the big players. Like where do we go next? Especially with technology coming. That was exactly when Napster came out with the peer-to-peer files, file sharing, piracy grew in terms of what is going to happen. iTune came up.
[00:04:47] Karim Daoud: Yes. More for the download model.
[00:04:49] Moe Hamzeh: So the download model started taking over – but would it be adopted by everyone? So that was the period everyone was floating, but no one decided where we are going to go next. Until 2008, 2009, 2010, things started to be clear, but still, it was not very solid. What would be the model exactly within the streaming business? What sort of subscription? How it’s going to be split – that pool of revenues – between labels and the consumption? So this wasn’t structured until this period.
[00:05:28] Karim Daoud: Yes.
[00:05:29] Moe Hamzeh: And you started seeing the streaming services growing.
[00:05:32] Moe Hamzeh: I mean I remember in 2008, YouTube just started to monetize, of course. Talking the general YouTube, not YouTube music, which was recently launched a few years ago. And you had streaming services, you know, Spotify, it was still new.
I am talking 2008, 2009 e-music, Napster even later became an illegal service.
But it wasn’t really clear until, these last few years where we saw the growth all over the world. And coming to the region, of course, we are always late, unfortunately. But at least the adoption of this model started, and I can say in the past five years, things became different.
[00:06:23] Karim Daoud: Yes. So absolutely this kind of global perspective. I remember reading all across the media/press, how 2021 was the year to be celebrated because we not only recovered the peak numbers of global industry size, but we even exceeded it. So this gave hope, I guess, to the whole industry, the labels, the artists, the distributors, all the players across the chain.
[00:06:45] Karim Daoud: But since you mentioned MENA – a region that, yes, lags in the adoption of these trends, maybe from a business model perspective, finding the new equilibrium. Can you tell us some of the challenges and opportunities you see specifically for the MENA music industry?
[00:06:59] Moe Hamzeh: Sure. I mean, also I want to jump a bit back on the region versus the world.
[00:07:04] Karim Daoud: Global, yes.
[00:07:05] Moe Hamzeh: Even when we talk about the late nineties, early 2000s, with the physical sales, usually the artists globally used to tour to promote their albums and album sale.
In the region we used to release, just to promote their live business basically.
[00:07:24] Karim Daoud: Because this is where they make money.
[00:07:25] Moe Hamzeh: Because the money was in ‘the live’, and of course, this proved to be valid, even at the time when the industry was in its…
[00:07:34] Karim Daoud: Ah yes.
[00:07:34] Moe Hamzeh: …low period. So in a way, that is what helped the industry or artists mainly – we should talk about artists, for me, this is an artist-centric industry…
[00:07:45] Karim Daoud: Yes.
[00:07:45] Moe Hamzeh: Where the artists were able to sustain and still make money from ‘the live’. This is where the core business is for most of the local regional artists.
[00:07:55] Karim Daoud: Yes.
[00:07:56] Moe Hamzeh: And of course, these artists and everyone, were not believing that they are going to be just making good or enough revenue from their album or music consumption or music sales – be it of course, ‘download later’, etcetera. So there was still this period of ‘grey area’ – they did not know what to do, they did not believe in this model….
[00:08:22] Karim Daoud: Yes.
[00:08:23] Moe Hamzeh: Until recently of course, and this is the potential and the opportunities. The region is about 450 million in population. The demographic split is almost 70% under the age of 30, 35. The digital adoption is high. Internet penetration is higher than even other parts of the world. You have mobile penetration is high… and this is where you believe there is potential.
[00:08:54] Moe Hamzeh: The challenge would be how we are going to be monetizing and how we are going to be able to drive revenues from this consumption. This is where the role of the DSPs came in.
[00:09:08] Karim Daoud: DSPs perhaps for our listeners, they would not know what this is.
[00:09:11] Moe Hamzeh: A Digital Service Provider.
[00:09:12] Karim Daoud: Yes.
[00:09:12] Moe Hamzeh: Meaning, Spotify, Deezer, Apple Music, YouTube Music, YouTube overall…
[00:09:19] Karim Daoud: Yes.
[00:09:20] Moe Hamzeh: Where the potential is that these DSPs they need to grow their subscriber base, be it on the freemium tier or the paid subscriber base. And this is where you are going to jump between both the positive and the challenges – I am not going to say negative, it is challenges, which I am sure we can…
[00:09:40] Karim Daoud: Need to be overcome.
[00:09:41] Moe Hamzeh: …which we can overcome. How are we going to convert free to paid? And this is where the big challenge is. Originally, we had an issue of credit card penetration, to find the proper way for payment gateways. People were not used yet to using credit cards online and to subscribe. So it was more of a telcos payment.
So, the telcos played a major role, or they should and can still be playing a major role in terms of monetizing and act as the payment gateway with the DSPs and the service providers. So this is still a current challenge, and this shows that we have a major subscriber base in terms of ‘free’, that is why you have YouTube, one of their biggest ‘watch time’ for users is in this.
[00:10:36] Karim Daoud: Across MENA.
[00:10:37] Moe Hamzeh: Across the MENA, especially Egypt, North Africa, GCC, particularly Saudi Arabia. These are the main markets.
[00:10:46] Karim Daoud: Yes, I want to touch upon this. You did mention that the name of the game is to make this industry sustainable, the pie big enough for all players, be they the distributors, or at the beginning of the chain, the artists…
[00:10:57] Moe Hamzeh: Of course.
[00:10:58] Karim Daoud: But very encouraging statistic in 2021, and I am sure we are going to get the release soon of the 2022 one. But the growth has been 35% for us in MENA.
[00:11:08] Moe Hamzeh: Yes.
[00:11:09] Karim Daoud: By far, across all the regions from Latin America, Europe, Asia.
[00:11:13] Moe Hamzeh: It was the fastest growing market.
[00:11:14] Karim Daoud: But what I understand from a very low base, you were mentioning before.
[00:11:17] Moe Hamzeh: Yes. I mean, the market size, when you talk about 89.5 million, this is last year’s IFPI report. The market size is or value is 89.5 million for a population of around 450 million.
[00:11:33] Karim Daoud: Yes.
[00:11:34] Moe Hamzeh: It is not the potential. I mean, I used to always compare our region to Turkey. Turkey is a population of 85.3 million and its market size is 70 million dollars.
[00:11:46] Karim Daoud: 70 million dollars, yes..
[00:11:47] Moe Hamzeh: So we are 400+, we are 89.5 – so there is way more room to grow. Of course, the difference is that Turkey had and still has a much more structured industry there.
[00:12:02] Karim Daoud: Structured, yes. What do you mean by structured?
[00:12:04] Moe Hamzeh: When we talk about the music industry, it’s always the artist, the creator, the composer, the writer, the producer, where they are the core of the whole industry of creating an IP and the music itself…
[00:12:17] Karim Daoud: Yes.
[00:12:18] Moe Hamzeh: But when I say structured, it has publishers, labels, collection societies…
[00:12:24] Karim Daoud: You mean at the local level?
[00:12:25] Moe Hamzeh: At the local level.
[00:12:27] Karim Daoud: Irrespective of the majors, the global ones?
[00:12:29] Moe Hamzeh: Yeah… Local or majors. I mean, I am not talking about international majors it’s just the whole industry. When we talk about the labels, the publishers, the collection societies that collect the public performance and they collect you know, other neighboring rights. So my point: Turkey always had a better structure. Of course, it is one country, you cannot always compare just the region.
[00:12:55] Karim Daoud: Yeah.
[00:12:56] Moe Hamzeh: I mean this is also one of the misconception, mostly when we have people from abroad, there is, we cannot say MENA.
Middle East and North Africa are just one block, but again, from the potential itself…. so we can see Turkey as a good comparison. Look where they are and where we can still be.
The idea there is that they had revenues coming from public performance, neighboring rights, sync, publishing and of course the recorded business.
[00:13:29] Karim Daoud: Ah, yes.
[00:13:30] Moe Hamzeh: And ‘physical’ because, physical made 10% I think of the revenues last year in Turkey.
[00:13:37] Karim Daoud: Still.
[00:13:38] Moe Hamzeh: Still 77 % was streaming, 11% from public performance rights, et cetera.
[00:13:45] Karim Daoud: I see. So a more diversified revenue.
[00:13:46] Moe Hamzeh: Diversified revenue where, in MENA, recently, when we talk about the last three-four years, the main and the only revenue coming to the labels is from streaming.
And the tiny part from download which is still not there. And when we talk about streaming it, of course, varies from the ad-supported premium subscribers. And at the certain point in the past five years, we had the vast value-added services with the telcos, like ring tone, ring back tone, et cetera… that was also some in the early period in 2009, 2010, 2011…. a major source of revenue.
But of course this is now a tiny one. It is not a major revenue. The main revenues in MENA it’s 85.3% from streaming purely.
[00:14:37] Karim Daoud: Absolutely, okay.
[00:14:38] Moe Hamzeh: And within this streaming, if you talk about pure revenue point, It’s I can say more or less 50-50 between ad supported and premium. That’s from revenue value, but not the volume.
[00:14:53] Karim Daoud: Yes.
[00:14:54] Moe Hamzeh: In terms of the average monthly users on the DSPs, the ad-supported is a major number from the subscriber base, but this definitely is important, moving from piracy to the legitimate.
[00:15:12] Karim Daoud: Legitimate legal distribution…
[00:15:15] Moe Hamzeh: …of remunerating the artists at the end of the day, and this is part of the challenges because when we talk about the region, unfortunately it is a cultural and educational process…
[00:15:29] Karim Daoud: To whom?
[00:15:30] Moe Hamzeh: Consumers. For them music, it is free. We are raised in a way like we don’t pay for it.
[00:15:39] Karim Daoud: Yes, we had it on the radio waves before…
[00:15:41] Moe Hamzeh: The radios and then piracy, we just like, oh, it is not part of the culture. You know what I mean?
[00:15:47] Moe Hamzeh: It is something, we think only to pay for when we go and watch an artist or a live performance.
[00:15:54] Karim Daoud: Yes.
[00:15:55] Moe Hamzeh: It is more the big restaurants or the private weddings, parties, et cetera. It’s not the proper concert festival setup. With time this has definitely changed…
[00:16:07] Karim Daoud: Okay, very good. One has to hope that what has happened globally in terms of the record labels, finding the healthy business model sustainable with diversified pools of revenue, streaming being the main engine, but then others, they seem to have found a balance…
Now, I guess the question for us here in MENA is, irrespective of the growth potentials, because consumers are more aware of the value they have when they subscribe through legitimate you call them ‘digital service providers’.
[00:16:34] Moe Hamzeh: Yes.
[00:16:34] Karim Daoud: The platforms, the convenience, the discoverability – all the advantages of doing it through a well-designed user experience.
So yes, the price points is one thing, but it is the whole experience, the sharing, the community, all the advantages you have by going legal, effectively.
[00:16:50] Moe Hamzeh: Definitely.
[00:16:50] Karim Daoud: But then you did mention a few things missing. When you compare to more structured markets where you have probably associations where you have players that cover essential needs that the whole industry needs. It seems we have more to do in the region.
[00:17:04] Moe Hamzeh: A lot.
[00:17:05] Karim Daoud: As an industry.
[00:17:06] Moe Hamzeh: At the end of the day, we are talking about an IP – a non-tangible asset. I mean, it’s an idea, it’s a concept, and it starts with copyrights.
Of course, most of the countries in the region, the copyright laws are there. The idea is, are able you to implement, and enforce…This is where we talk about the lack of certain revenues from collection societies, etc., where you protect… and the idea is, are we able to make this a career?
[00:17:37] Moe Hamzeh: Is it something you can make as a career – be it a writer, composer, producer, performer, as an artist, a musician?
Because that's the whole chain, when we talk about an industry. And then you have support functions around it from the A&R, the marketing, the manager, the tour manager, the video producer, the lighting, the sound engineer.
[00:18:00] Karim Daoud: Yes.
[00:18:01] Moe Hamzeh: It is a whole industry where unfortunately this hasn’;t yet developed, and this is where I believe now there is a big need to first educate and help the younger generation play this role. We have a major lack in a lot of these functions.
[00:18:21] Karim Daoud: But when you describe what is needed for this to happen, it seems that the big players, the record labels – perhaps governments or industry associations as well – have a huge responsibility…
[00:18:32] Moe Hamzeh: Definitely.
[00:18:33] Karim Daoud: You mentioned IP enforcement, you mentioned collection associations, and typically these are roles of associations or governments. And do you think now there is more awareness across MENA?
[00:18:43] Moe Hamzeh: Big time. For now and always, the GCC is core to the industry and as a market…
[00:18:49] Karim Daoud: Yeah.
[00:18:51] Moe Hamzeh: So now I believe in the UAE and in Saudi Arabia, they are heavily working and just getting to launch CMOs – like what we call the ‘Collection Management Organizations’ – to collect rights, to enforce rights. So there is definitely a lot that has been done. That is…
[00:19:08] Karim Daoud: Excellent.
[00:19:09] Moe Hamzeh: … a very good sign. Again, this is when we talk about the opportunity. And it’s happening fast…
[00:19:14] Karim Daoud: So the Gulf will be ahead in putting this infrastructure…
[00:19:16] Moe Hamzeh: Of course.
[00:19:18] Karim Daoud: Then you mentioned Egypt, North Africa, the Levant…
[00:19:20] Moe Hamzeh: Because the infrastructure was already there. So this is where I believe the focus should be, on the GCC. And this would drive…
[00:19:32] Karim Daoud: …the rest of the region of course.
[00:19:34] Karim Daoud: Okay, understood. Allow me now to go to another dimension of the whole industry, which is something all record labels would heavily get into.
This is one of the biggest value-added for the artists they represent which is marketing and promotion. I understand the technology platform, social media, has changed drastically the way record labels, launch artists and launch discs or releases. Can you give us your perspective?
[00:19:59] Moe Hamzeh: Look when you’re managing the label, of course it has, its' positives and its’ sort of negative aspect, but I can always think of the positive. It is a good way to discover talent. Think about it differently. Before when you had an A&R (Artists & Repertoire), you had to travel, watch events, see and discover new bands, discover new artists or they need to send you demos and you go and listen to them, etc.
[00:20:24] Karim Daoud: Yes.
[00:20:25] Moe Hamzeh: So you see this technology sort of eliminated this. Now you can see a lot of artists on YouTube, Tiktok, Instagram…
[00:20:33] Karim Daoud: So you are talking about the way to discover now.
[00:20:34] Moe Hamzeh: That is the discoverability, and that is very important. It doesn’t mean that it is going to replace the human factor.
[00:20:40] Karim Daoud: Yes.
[00:20:40] Moe Hamzeh: This is where we get to the importance of data where you can use such data to decide that there is a potential in this artist or that band. That’s the positive side, of course, from the other point is that – where you have the content available, you need to think how the trend moves and you can have moments of songs used in UGC (User Generated Content) that would help promote a certain song or a piece of music.
[00:21:10] Karim Daoud: So are you, but just to make sure I understand, and for clarity, are you saying that with the amount of information you can gather, you can listen and anticipate trends of the types of music genres or sub genres that are picking up in parts of the globe and then make decisions on artists?
[00:21:28] Moe Hamzeh: To be honest, there is no science. If someone tells you, they know that, they can crack that code. I mean, I would have a private jet probably now, or a billion dollar question. I would say.
When you discover an artist, let us say you see, there is a potential there, they have this much followers and this much streams and this much shares, etc… that means they are a very good or potential superstar artists… People forget that the value of the song.., is very important.
The composition, the lyrics, the production, the asset itself, the music itself…
[00:22:10] Karim Daoud: Yeah.
[00:22:11] Moe Hamzeh: So this is something a lot of people are forgetting. That should be focused on. This is where we need to give it time and develop.
The problem I think with the industry recently is just trying to catch up with the trends on all social media. So the life cycle of a product is way less now. Things are going quickly, quickly, quickly…
[00:22:33] Karim Daoud: So it peaks very quickly, but then it fades fast.
[00:22:35] Moe Hamzeh: It fades quickly.
[00:22:36] Karim Daoud: Yes.
[00:22:36] Moe Hamzeh: Exactly. Before we had a longer life cycle for a song.
[00:22:40] Karim Daoud: Yes. I see, so you did mention before, I mean, we speak about MENA as one block, but it is very heterogeneous. Yes. From an economics perspective we touched on this. When we look at the size of the pie, and the structure of the market, but let’s move now to the artists themselves and the genres and sub-genre styles of music that you are seeing in the MENA region.
I know you worked with a local record label before Melody, and then more recently you were in charge of Warner Music. And everybody claims that they have an interest in local talent, local artists, locally-generated IP.
[00:23:15] Moe Hamzeh: Definitely.
[00:23:16] Karim Daoud: My question to you is: what are you seeing as trends in the MENA region by subblock?
[00:23:21] Moe Hamzeh: This is very important, so let’s talk about the split between domestic and international.
[00:23:26] Karim Daoud: Okay.
[00:23:26] Moe Hamzeh: So domestic was always, I can average it, it was maybe a 60-40% over the whole region. Of course, this would vary from one country to another. Egypt can be 80% domestic and 20% international.
Saudi Arabia may be 45% international and 55% domestic. UAE is 90% international and 10% domestic. Iraq is going to be probably 90% domestic and 10% international.
[00:24:00] Karim Daoud: Yes.
[00:24:01] Moe Hamzeh: Lebanon would be maybe 50-50%. And we know over the years, if you take the split between per capita, how much content you have, it is unfortunately…
[00:24:16] Karim Daoud: …well you mean we still produce very little music.
[00:24:18] Moe Hamzeh: If we index, we are under-index per other countries or other cultures, way under index, and not only in music, in general, all Arabic content, if you think about books, films, and music – we are under index. So there is a major need that we need to have more and more content.
[00:24:43] Karim Daoud: Understood, yes.
[00:24:44] Moe Hamzeh: So this gets me to the point that there is need for content and because you have the audience, you have the need for it. And so when we talk about domestic, of course over the years, what we call mainstream pop, is the main genre that is popular.
[00:25:04] Karim Daoud: Yes.
[00:25:04] Moe Hamzeh: However, there are some trends that are coming up, depending on each territory. So you see in North Africa, there is a major growth in the hip-hop.
[00:25:15] Karim Daoud: In hiphop.
[00:25:15] Moe Hamzeh: In what we call North African hip hop, because it is different from other hip-hop in other regions.
[00:25:21] Karim Daoud: Can you give us an example?
[00:25:25] Moe Hamzeh: El Grande Toto, a lot of artists in Algeria, Tunisia, and North Africa.
When we talk about North Africa, so there are a few French words because that is part of their local dialect. But the advantage of North Africa is that, the North African diaspora is big in France and in Europe in general. So the local artists have the ability to travel, and they are able to generate higher revenues because of better monetization in Europe.
[00:25:59] Karim Daoud: Excellent.
[00:26:00] Moe Hamzeh: In the per-stream value is higher in Europe than the region overall, not just North Africa.
[00:26:07] Karim Daoud: Yes what else?
[00:26:07] Moe Hamzeh: Egypt, and now we can say the local Egyptian hip-hop as well, not just hip-hop in general or just the mainstream pop. Mainstream pop is always very important.
[00:26:18] Karim Daoud: It is here to stay.
[00:26:19] Moe Hamzeh: Yes it is there. But the Egyptian hip-hop is massively growing. You have artists that are becoming bigger than even the main big mainstream pop artists in Egypt. You have, for example Wegz is for me now is a superstar.
When we say Egyptian hiphop, it has its own sound, it is different. It is built on what we call the ‘electro sha'abi’ or ‘Mahraganat music’ that is popular there.
[00:26:46] Karim Daoud: Yes.
[00:26:46] Moe Hamzeh: Local Khaleeji sound, which is, I can call it ‘the mainstream pop Khaleeji’ that is also still big, and still has room to grow and the potential to come up with new sound – this is very important. You see what we call the Indie pop…
[00:27:02] Karim Daoud: Yes.
[00:27:03] Moe Hamzeh: …that is coming as well from Jordan, and has the ability to cross over. And this is where we need to talk about the pan-Arab stars versus now. We are not seeing much the ‘Ragheb’, the ‘Elissa’, the ‘Wael’ because of the way content was pushed, of course it was the TVs, the radios… It was a one way push. It is now totally different.
[00:27:28] Karim Daoud: So the whole machine was actually creating these stars, is what you are saying?
[00:27:31] Moe Hamzeh: Of course.
[00:27:31] Karim Daoud: And not anymore?
[00:27:33] Moe Hamzeh: Not anymore.
[00:27:35] Karim Daoud: So nothing replaced this…
[00:27:37] Moe Hamzeh: Nothing replaced… the idea of a pan-Arab star is going less, and we’re seeing more local, like you’re going to see a big superstar in Saudi Arabia. And the good thing is that this artist can have a sustainable business in Saudi Arabia because the market is going to be hopefully well developed, where they can have a sustainable income be it from their releases, live, they can tour….
[00:28:05] Karim Daoud: Yes.
[00:28:06] Moe Hamzeh: …so you can have a whole market. You know when you have a star in the US, and you make it in the US, you can be fine... This is what is important – we need to create artist careers, and when we talk about artist career, that also means the industry around it.
[00:28:23] Karim Daoud: Yes, since you are bringing up those new sounds the new trends. I was reading how some artists now were kind of going straight to the distribution platforms and not being produced and marketed by labels in the traditional way.
How do you see the respective roles of players there? Yes, you have the artists and then you have the distributors, and then you have the labels who were dominant and as you said, contributed, creating perhaps this pan-Arab identity before… How do you see things evolving now?
[00:28:54] Moe Hamzeh: Good question. Yes, it’s very good. It is very important now if you have the talent, you can go and record and make your music at home.
Before it was not the same ease/economics because you needed to go to the studio and book the studio and then you record and you need to release it and print CDs, vinyls, tapes, whatever. So it had a different model, business model and economics. So now the ease is there. So you have way more content….
[00:29:26] Karim Daoud: So yes it is actually more difficult to be discovered…
[00:29:28] Moe Hamzeh: The potential for you to pop out of it and you know be noticed is less, it is harder now. So this is where I believe, you can be an artist, you can do your own thing, you can put your music out. But how would you be able to market it? So this is where the labels are still playing major roles. You need a marketing machine behind you, and budgets, and people to help you develop your talent and career, and sound, and work with you.
[00:30:00] Karim Daoud: Yes.
[00:30:01] Moe Hamzeh: It does not mean that the artists on their own, they cannot do it. But eventually…. I used to say DIY, ‘Do It Yourself’ artist, a lot of artists say that we are a DIY artist. It’s not really the case because even when you are on your own, you need support, you have your friend who are supporting you probably doing some marketing for you. You have your family probably giving you some money to produce a video. You have your connections to help you do some promotion here and there. But you always need people around you.
[00:30:39] Karim Daoud: Yes.
[00:30:40] Moe Hamzeh: Some well established artists, or independent artists, they were able to become big, but they would come to a certain threshold, ceiling, where you would need then the big machine behind you, or the big support. And again, I am not talking about be it major or independent label, I am talking about the label concept itself. You have someone with you, helping you, investing in you…
[00:31:08] Karim Daoud: …professionally,
[00:31:09] Moe Hamzeh: …professionally and putting you on a global network.
[00:31:12] Karim Daoud: Okay, very good, yes thank you. So look I will take us just to a more forward looking dimension. I know you are here in Dubai, you attended a blockchain conference.
We hear a lot about how this technology is impacting several industries. So how do you think this will impact the music industry?
[00:31:32] Moe Hamzeh: Definitely it will impact and it is already impacting. However, the good thing about it this time, the industry is not fighting it versus how it fought Napster at the time in 2000. The industry was really late. This is when we saw this curve.
They were still pushing for the CD format over and over until they missed out this period – until recently, the streaming helped bring back the industry. I think now they are not shying away. There are a lot of the labels, everyone is jumping into blockchain, which is based on web3, the metaverse, the NFTs. But the good thing about it is the decentralization, the smart contract. At least, if we are not talking about the consumption aspect, it is going to help the transparency and the way to help artists have a direct link with their fan base, the ability to have the micropayments. You know, it is going to change the industry, but it is something inevitable to happen. So this is not something we should push…
It is going to happen because look at the gaming industry and where it is now. It is going to impact as well our industry, and the way people are consuming music.
[00:33:01] Karim Daoud: Okay, very good. So look, I have a final question arising from a very interesting piece of data. In 2021, for the first time, physical sales, globally I'm talking, increased again.
[00:33:15] Moe Hamzeh: In some territories.
[00:33:16] Karim Daoud: In some territories, yes, why is that?
[00:33:17] Moe Hamzeh: Especially, vinyl.
[00:33:19] Karim Daoud: Vinyl?
[00:33:21] Moe Hamzeh: Even CDs. In some territories CDs still are important, but mainly vinyl, especially in markets like the US, France, Europe in general. Because it is not just the older generation that is still buying vinyls. It is the young. And this is when we talk about the fandom and the artist. If you are a big fan of a band artist.
[00:33:45] Karim Daoud: Yes.
[00:33:46] Moe Hamzeh: People want to have this physical…
[00:33:48] Karim Daoud: …vehicle of ownership….
[00:33:49] Moe Hamzeh: …ownership where you can, not just consume through it, just the fact that I want that ‘memorabilia’, maybe with other things related to the physical products, the limited edition... So there is a high trend, especially with younger audiences… So the ownership of the physical product is still important. There is a lack of production and the supply chain last year, especially after covid, with the global issue of supply chain in many aspects...
[00:34:22] Karim Daoud: So you mean we could not produce enough vinyls to cater for the demand…
[00:34:24] Moe Hamzeh: No, not at all. I mean a lot of sales were missed because of the fact that they could not get products on the shelf and at the right time because of the issue of shipping and production itself.
[00:34:36] Karim Daoud: Interesting.
[00:34:37] Moe Hamzeh: So even getting back to the region, there is this part as well that has the potential, because, again, we follow trends and there is a need and I see the potential but this is still tiny now, but it has room to grow.
[00:34:53] Karim Daoud: Okay. Very good. Well, thank you very much Moe for sharing these insights.
[00:34:57] Moe Hamzeh: Thank you for having me.
[00:34:58] Karim Daoud: We went through all the loop. If I can just summarize the main takeaways I get from this. First of all, in our region, we are growing faster than the global average. A phenomenal growth in 2021.
Your hope is the main engine of growth for all of this is those digital platforms where the hybrid model of ad-funded versus paying subscribers streaming here is going to help.
[00:35:21] Moe Hamzeh: Of course, and have more paid subscribers.
[00:35:23] Karim Daoud: Exactly, more paid models. You said telcos were a great way to get into this. They are expected to continue, but there should be now with increased credit card penetrations, direct subscriptions...
[00:35:32] Moe Hamzeh: 100%
[00:35:33] Karim Daoud: Once people get convinced of the convenience of subscribing legally to all of these services and consuming the music – now the music coming from international repertoires, but also created domestically.
And here what you shared is some very interesting insights about how we moved over the last 20 years, from a kind of pan-Arab culture of music that again was pushed perhaps by the local labels we had, by the Pan Arab tv. And then when we moved more into streaming local communities, we seemed to be headed towards regional versions of this.
[00:36:07] Moe Hamzeh: 100%
[00:36:08] Karim Daoud: The Gulf versus North Africa versus Egypt versus the Levant. So an interesting space to watch there, and it probably means a lot of opportunities for local artists. To be directly discovered through the local communities.
You did touch upon the importance of data as well, that is expected to change the way artists are discovered, and of course the way they are marketed and promoted, leveraging the social media platform etc.
So the future is bright, I would say for anybody listening to us in the music industry.
[00:36:38] Moe Hamzeh: Definitely super bright. So the future is bright and definitely there is again the need to create the infrastructure and the support system for the younger talented artists.
[00:36:54] Karim Daoud: Very good. Well, great to finish on this positive note and outlook. Thank you very much Moe for taking the time to join us and enlighten us your experience.
[00:37:02] Moe Hamzeh: Thanks for having me.
[00:37:06] Karim Daoud: You have been listening to the Strategy& Middle East podcast, inbold. Stay tuned for more, and see you next time.
Partner, Strategy& Middle East
Karim Daoud
Partner, Strategy& Middle East
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How can labels, artists, and producers strike the right note? In this fourth episode of season 2, Moe Hamzeh – former MD of Warner Music Middle East and founder of Temple Entertainment – joins Strategy& partner Karim Daoud as they take a closer look at the music industry to uncover how it has been impacted by the rise of streaming services and social media platforms. Join us as we explore the unique challenges and opportunities that exist in the Middle East region, and how different players have adapted their business models to these changes.
Episode 3: New fashion for a new dimension – how is the metaverse reshaping fashion?
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Season 2: Lifting the curtain on the media industry
Episode 3: Here comes a new dimension – what do Web3 and the metaverse mean to brands and consumers today?
[00:00:00] Karim Sarkis: Hello and welcome to inbold, the podcast brought to you by Strategy& Middle East, where we dive into the most important topics impacting the region and the world. My name is Karim Sarkis. In the second series of inbold, we are looking to lift the curtain on the media and entertainment industry. In every episode, our guests will share their experience and perspectives on where the industry is going. So sit back and enjoy as we dive in.
[00:00:33] Karim Sarkis: Hello, you join us today in our Experience Center in Dubai. I am very excited about having a conversation with Shashi Menon, co-founder and CEO of UNXD. UNXD is known for many things, but most notably, the work it’s done with premium fashion brands to bring them into the Web3 and metaverse space.
[00:00:49] Karim Sarkis: Shashi, how are you?
[00:00:50] Shashi Menon: Great. Thanks for having me.
[00:00:52] Karim Sarkis: Looking forward to our conversation today.
[00:00:53] Shashi Menon: Likewise.
[00:00:53] Karim Sarkis: But before we get into the whole meat of the topic, as we say, if you could give us a bit of an idea or background of how did you actually get into this space?
[00:01:01] Shashi Menon: Sure. Well our vision at UNXD is to bring iconic luxury and culture into the Web3 space and the metaverse.
And we are one of the only teams today really centrally operating at the intersection of luxury and crypto, which are two worlds that historically have not intersected. And for good reason. The origins of the crypto movement are fairly anti-establishment, and to that audience, luxury very firmly represents the establishment.
[00:01:28] Shashi Menon: So for a long time people just did not really believe that these two worlds could merge. But our background actually comes from both of these worlds. So in the crypto space, I've been trading crypto since 2015. I first got into the space when I met this random hippie who happened to be here in Dubai, and I think he was on the run from the authorities because every time I met him he used a different name and he used burner phones.
But he got me into the crypto space, and I started trading in early 2015. Fast forward a couple of years – in 2018, I launched a small fund with some friends and we got some exposure to a whole bunch of different crypto projects, and we got close to some teams that today are much larger companies and the most notable of which is a company that today is called Polygon.
Back then was called Matic, and we got very close to the team over there. So when we were getting started on our journey at UNXD, we reconnected with them. Their team had just moved to Dubai in early 2021, and we ended up building with them. But our background in luxury is actually much longer.
[00:02:25] Shashi Menon: In 2009, a friend and I started a company called Nervora, which is a media company. And since our inception, we have been working very closely with a company called Condé Nast, which is the world's most premium publisher of content in the parents of brands like Vogue and Vanity Fair and Wired and GQ. And we actually launched their first publication in the Middle East in 2012, which was a digital fashion publication.
We ran that for a few years and in 2016 we became the youngest team to ever launch an edition of Vogue when we launched Vogue Arabia. And that was a rather unique launch for Vogue. It was the first time that the brand ever launched Digital First. And so the time that we launched it, it was 125 years old, roughly, and we were the first edition of that brand to launch Digital first, which today probably sounds like a little bit of a quaint idea, but back then was non-traditional for a brand like that – that historically has been based on print. So we launched Digital First, six months before we launched the magazine.
[00:03:21] Shashi Menon: We also launched to an entire region at once. It was the first edition of that brand to be launched to an entire region versus just a single country. And today it is the only edition of Vogue that is fully bilingual, and we publish it both in digital and in print, bilingually. So we spent the last six years growing Vogue Arabia into one of the largest editions of Vogue globally.
And along the way we launched a few other editions of Vogue, targeting men and art and design. And then we also launched Wired in the Middle East in 2019. And so we have kind of been operating at this intersection of fashion, technology, and culture, for a very long time. And I think really the defining word here is culture.
That is the lens through which we look at the world. So we do not actually see ourselves as a technology company, but we see ourselves as a culture company that happens to be enabled by technology. And that entire ethos is driven by over a decade of really being creators of culture ourselves.
[00:04:13] Karim Sarkis: I like very much the fact that you sort of came in from the industry or from the business side or from the luxury side of things. And then that, I assume, that built a level of trust with your clients or partners, that then allowed you to bring them into, sort of what is still, a very novel space.
And I think maybe that will help us explain to our listeners a bit how you managed to convince global brands to get quite early into the NFT space and the wider metaverse space. But we are still at the stage where metaverse is a very broad term. Even in your answer, you have mentioned a lot of things.
You mentioned Web3, you mentioned Crypto, you mentioned NFTs. You know, we talked about certain players that are blockchains and so on. If we are going to define it for somebody who is not a techie, somebody who is not in love with the whole technology aspect of it, but wants to understand opportunities, how would you define the metaverse?
[00:05:04] Shashi Menon: So today people kind of use several terms interchangeably, and they are actually a little bit different. So blockchain, crypto, Web3, and metaverse are often used synonymously, and I will try to separate them into slightly different but interrelated concepts.
So blockchain refers to the underlying technology architecture that powers everything. And the most primitive way of thinking about a blockchain is a shared public database that is not controlled by any single party, but is a single source of truth. So it is run through a series of decentralized computers, where at any point in time, anyone in the world can look at that public source of information and see the exact same thing and not change that information. So this concept of immutability is very intrinsic to the concept of a blockchain.
[00:05:54] Shashi Menon: Now, crypto refers to tokens that are built on top of the blockchain. So essentially a software layer on top of the blockchain sometimes used for currencies and economic purposes, sometimes used for utility purpose as access or tools to run a specific process, and sometimes used for nefarious purposes – which maybe we can chat about that a little bit later.
Web3 is more of a social movement, more than anything else, and it represents an evolution in how consumers interact with the internet. So when thinking about Web2, which was the last phase of the consumer internet proceeding where we are today, it was generally controlled by a few centralized companies or centralized platforms, like Facebook, Instagram, and Google.
And the difference there is these platforms controlled everything. So users interacted with these platforms, but all of the value, all of the data, all of the economic value really accrued to the platforms and not to the users, even though the users were building out those networks.
The idea behind Web3 is that the users in any given network actually participate in the economic value that is being created and through the use of tokens, which can be fungible or non-fungible, and we will talk about the difference between those as well, these users are able to participate in the value that they are creating. So it is a slightly more decentralized approach to things, and it is really a change in mindset that the participants in a network should be able to share in the value that is being created as opposed to that just accruing to a single centralized entity.
[00:07:32] Shashi Menon: Now the metaverse is the consumerization of the internet and it broadly describes a network of interoperable virtual worlds, that are more immersive and more 3D that consumers can participate in. And today we are very, very early in what that looks like. There are a few platforms that are kind of primitive, but can broadly, describe what that experience looks like.
So there are open platforms like Decentraland and The Sandbox, which are open virtual worlds that you can interact with through an avatar. And there are closed platforms like Roblox and Fortnite that would describe themselves as metaverse companies as well. But I think for the average person, the metaverse will broadly look and feel like a little bit of an interactive video game.
[00:08:25] Karim Sarkis: That is an interesting reference you make to gaming because one of the things that we frequently see now is that games like Roblox like Fortnite are sort of calling themselves now a metaverse or being labeled as the metaverse, at the same time we have Hollywood's version of the metaverse, which was Ready Player One…
[00:08:40] Shashi Menon: Yeah.
[00:08:41] Karim Sarkis: …which now maybe your average person, a consumer who does not get into the whole definition, thinks about. Where are we on the spectrum between: it’s just a relabeling of the online gaming or online worlds that we used to play games in, versus it’s this thing that is going to be all consuming.
[00:08:56] Shashi Menon: Yeah, I think to some extent it depends on whether you believe that the future is going to be utopian or dystopian.
I think that is maybe the difference between how the companies in the space believe the future will be and how Hollywood believes the future will be. Obviously, a dystopian future is a little bit more intriguing as a story arc for a film.
Today we are really early in creating that. I think kind of the exciting part about being in the space is that, every company that is kind of building the space has somehow a slightly different interpretation of what that will look like, but everyone is co-building and experimenting in real time this sort of patchwork that will form what the metaverse will eventually be. Some of them are doing it in a very closed fashion, some are doing it in a very open fashion.
We will chat about that a little bit more. And there is a big difference between people that are building out the software layer of it and the hardware layer of it. I think my personal belief is to get to the broad adoption of the metaverse, we are missing the hardware experience to be able to enable that, and specifically like near-eye wearables.
[00:10:02] Shashi Menon: So what Apple is working on and will eventually release – which is more of a mixed reality headset, I believe, or like near-eye wearables, like glasses or contact lenses that are enabled with the software layer – is what we are missing to be able to get out to the broader consumer version of it.
But gaming is an interesting starting point because it’s a really easy onboarding into what that space looks like. So for people that are interacting with Fortnite and Roblox, the tens or hundreds of millions of people that are doing that, it is a really good on-ramp to get into the space. And tools like crypto and web3 are just going to be embedded in what that looks like. And eventually people would not even realize that they are interacting with crypto or blockchain.
[00:10:43] Shashi Menon: The same way that when you access the internet today, you do not really need to know about HTTP or TCP/IP or any of the network protocols behind the internet. It is just embedded in what the experience is, and you care about what the consumerization is of that, not the underlying technological hardware.
And that’s what I think the metaverse will end up resembling.
[00:11:04] Karim Sarkis: And if we fast forward to the point where we do not have to worry about the tech exactly as you said, you had mentioned an interesting way of framing it. You said you work at the intersection of fashion, culture and technology.
[00:11:15] Shashi Menon: Yeah.
[00:11:16] Karim Sarkis: Media, culture and technology. And that is a nice way of framing it. When you think of it in those terms – and we have the element of NFTs, but you mentioned culture – could you explain a little bit more about why you think this is a cultural movement or a cultural field?
[00:11:33] Shashi Menon: Yeah, I think the generation that we are seeing today, starting with millennials and Gen Z, it is really the first generation of people that grew up with the internet being the landscape for them. They did not really know what a world was like before the internet. I am old enough to remember what pre-internet looked like when I had to go to the library and do research and if something new happened, I had to wait until next year before it was in a book.
[00:11:58] Shashi Menon: But people today that grew up in the nineties and the early two thousands, they do not know what that world looked like. So the internet is actually their form of reality, and culture is just formed on the internet. There is really no distinction between what is happening offline and what is happening on the internet.
So that is from a consumer perspective, that is where the culture comes from. But as it relates to NFTs, I personally did not understand NFTs when they first really emerged. So in late 2017, there was a project from a company called Dapper Labs called CryptoKitties, and it was basically cartoon forms of cats that were bought and sold and traded.
[00:12:37] Shashi Menon: And there was a big moment in late 2017 where a lot of economic value was created, and I just did not understand why someone would pay for a picture of a cat. And at the time I was trading crypto, so I understood crypto and I understood the economic side of it. I just did not understand the NFT side and why people would care about that.
So I spent a couple of years just casually looking at the space, but really not getting it at all. And then I had friends that started to make a lot of money in NFTs in 2020. And by late 2020, early 2021, I started to develop a thesis around NFTs. And there was a really big moment in the NFT space that happened in February of 2021, when a digital artist named Beeple sold a piece of art that was auctioned by Christie's and it sold for about $69 million. And it was bought by a young crypto wealthy person from India who operates under the pseudonym Metakovan.
And that was a really defining moment for the space for a couple of reasons. Most importantly, you had this legacy auction house, Christie's, that for the first time in its 100+ year old history, auctioned a piece of digital art as opposed to physical art.
[00:13:50] Shashi Menon: So it was really a stamp of approval from the establishment that digital art was going to be a thing and so that kind of started this frenzy. And I think the realization that we had at that time, really the light bulb moment was that, NFTs are not about technology they are actually a product of culture.
And that was just a single kernel of truth that defined everything that we did afterwards. And what we realized at that time was that, everything that we’d done as a company in the last 12 years in the media space was really about creating these small moments of culture. And we understood what that looked and felt like, and we also had a unique perspective on luxury.
[00:14:31] Shashi Menon: But because these two worlds were not connected, we were some of the only people in the world that we are at that specific intersection. So it was a little bit by chance, but we decided to go after it, and we started chatting with some of the brands that we worked with, and we managed to persuade Dolce & Gabbana to enter the space with us. And then everything that happened after that really started from that specific moment.
[00:14:57] Karim Sarkis: I have heard you speak about how involved Dolce & Gabbana were (…) and we will talk a little bit more about what you actually did for them, but you said you spoke to many partners, and this is a fairly new topic.
Maybe something that is quite the opposite of the luxury fashion world where, you know, there is an aesthetic that you are feeling, you are touching, you are wearing, and so on. Was it difficult to convince fashion brands? Was Dolce & Gabbana, do you think they are going be one of many that will do this?
We have seen many more venture into the space since then – maybe not in the same way – but do you think this is going to become the norm or, do you they see it as an opportunity, or do you think, there is always going to be some of the naysayers or ones that are skeptical about this whole aspect of digital goods and digital presence?
[00:15:40] Shashi Menon: Yeah. All of the above, I guess.
Fashion has not typically been seen as an early adopter of technology and luxury within that, definitely, definitely not. Luxury kind of missed the first wave of the internet, and the second wave of the internet. So was late to get in into the internet overall, was late to get into social media, was late to get into e-commerce.
[00:16:00] Shashi Menon: And I think that’s one of the things that’s driving their exploration of the space – is not wanting to miss another cycle of the internet.
But when we first had a conversation with Dolce & Gabbana, we knew going into the conversation that we had to contextualize it in a way that would resonate with them. And that meant NOT approaching it from the perspective of blockchain or crypto or NFTs, just because it was a concept that would completely go over their heads and it would not matter to them. So literally the first thing that we told them in the first conversation that we had with them was: If you remember nothing else from this conversation, remember this, NFTs are about culture, not about technology.
And we framed the entire conversation around culture and creativity, which are the things that mattered to them as an organization, because at their core, Dolce & Gabbana see themselves as artists. And fashion, and the products that they create, are just a byproduct of their artistry. So when we framed it from the perspective of creativity, and culture, they understood that what we were describing was just an extension of everything that they had actually been doing for almost 40 years.
[00:17:04] Shashi Menon: Which was culture, which was creativity, which was storytelling, and eventually was commerce. And it was just happening in a new domain. So once we framed it that way, they kind of got it. And I think most miraculously from the first conversation that we had with them, it took them less than 24 hours, and this was signed off personally by Dominico Dolce and Stefano Gabbana to move forward in the space. And this is a multi-billion dollar company. I have never had this experience in my life that something like this could be approved so quickly, and especially in a space that was so emerging as NFTs, because at the time that we started with them, which was mid-2021, there had been nothing that was done by luxury brands in the NFT space.
Outside of the very small ecosystem of people within crypto and Web3 and NFTs, most people were skeptics, myself included. And so I think it took a lot of resolve and adventurism from them, and of course a lot of context setting and enthusiasm generation from us, to go down this path. But I think that the result of this journey with them essentially created the category of luxury NFTs.
[00:18:15] Shashi Menon: We were the first in the world to really do this, and a lot of other brands have followed us into the space which has been really tremendous, because the mainstreaming of Web3 is very much going to be a product of other brands, other organizations that people have trust in entering the space as well.
[00:18:34] Karim Sarkis: Why do you think they were drawn to it? Yes. You explained to them that it is about culture, so maybe that is an extension of how they see their role and the relevance of their brand. Was that the main driver? Was that them thinking, okay, my future consumers, or my future buyers, are going to be ones that grow natively within this environment, and therefore I need to get in there early. Was that a motivation, was it curiosity to try something out? Was it the money? Because we were still in the hype cycle of NFTs at the time. What do you think was the main driver for them?
[00:19:06] Shashi Menon: I think it was less about the money than anything else. Like money was going to be a byproduct of us accomplishing what we set out to do, but was not the initial goal.
I think it was really this idea of creativity that inspired them because through this conversation around creativity, what we are able to present to them was an opportunity to create something digitally that was not constrained by any of the rules of the real world. So understanding that the designers see themselves as artists, we presented to them an idea that they could create without having to be bound by the rules of physics, by the rules of materials, by the rules of cost. And to them, and to an artist, that is just a really exciting idea that I can just create without having any constraints at all.
And so that was how we started, and that ended up being reflected in part of the first collection that we released, there was a subset of products that we called the Impossible series, where we actually designed digital products that could not physically be created in the real world and that excited them.
[00:20:06] Shashi Menon: But when we had this first conversation with them, we told them that there were really two rules, before we went down this path with them. The first was, in entering the space they had to be willing to be committed to the space long term, even if we failed, initially. And that was really meaningful because again, coming from this idea that the crypto space has long viewed the establishment with a little bit of skepticism, it was important that as a traditional brand entering the space, we had to be seen as entering it for the right reasons and that it wasn’t just about press, it wasn’t just about money, but it was a commitment to be in the space and to experiment in public in real time. And this ethos of experimentation is so central to everything that is happening in the space that it was very important for us that the brand was committed to being in the space to be able to do that.
[00:21:00] Shashi Menon: And the second thing that we talked to them about was, really trying to understand the why of what we were doing. Because for a brand like Dolce & Gabbana, and for a category like luxury, NFTs were not the most logical thing necessarily for them to get into, because they were not early adopters of technology. So we really wanted to talk to them and understand from them like what were the core authentic reasons about why we were doing it.
[00:21:27] Shashi Menon: And that kind of led us to design our first release in the way that we did. And we understood from our time in the luxury world that for that space, physical artistry and physical craftsmanship matters a lot. And so we ended up designing this first collection with a portion of the collection to actually be linked to physical products as well.
And we were the first in the world to really attach physical products to NFTs as opposed to looking at it as digital only. And that was something that I think was not only intrinsic to the luxury space, but was something that a luxury brand could do that just a startup Web3 native brand couldn’t have done.
So that really helped position that first collection differently.
[00:22:06] Karim Sarkis: You mentioned - so if I could summarize: One, understand the why and for a fashion brand, for a premium luxury brand, the creativity aspect of it was very important. So that is a clear message. I think the second message that is very clear is that, you should be in this for the long term, show some commitment.
This is not a flash in the pan type of endeavor. But at the same time, there is a lot of experimentation. You do not know what’s going to happen. You just need to put it out there and, and see, and gage the reaction.
What was interesting to me was that the buyers were all, as you call them, crypto natives. So these were not typical Dolce & Gabbana or premium fashion or luxury fashion consumers. These were people coming from the crypto space. Was that surprising to you when it happened and do you think that will remain the case or will we get to a point where we cross over and you know, we no longer have this distinction?
[00:22:56] Shashi Menon: Yeah, it was a little bit surprising, but I think we engineered the process to cater to that specific audience, even the way in which we announced and rolled out the storytelling aspect of this first collection.
So when we first announced that we were partnering with Dolce & Gabbana to launch this collection, we did so with just a single tweet from their Twitter account and our Twitter account, and it was a short video that did not really say that much. It did not say, what we were doing, or even why we were doing it, just that we were doing something.
And we dropped that tweet, I think it was July 15th or July 16th of 2021, but it was during a very important Ethereum conference that was taking place in Paris, and we happened to be in Paris at the time.
[00:23:39] Shashi Menon: And so we knew that once we dropped that news, it would start to be seeded – if it worked well or if people cared – among a community of people that were gathering already, around the biggest ecosystem in crypto for developers, which is Ethereum. So we dropped that tweet and to our, I guess, delight, it spread incredibly rapidly.
[00:24:01] Shashi Menon: Because again, we had an environment where, NFTs were starting to be taken seriously and very seriously from within a very specific community of people, but they craved adoption from the mainstream world, and luxury was a part of that.
So when we announced it, it was the first luxury brand that was doing anything, and I think people were surprised and intrigued that a brand with the stature and status of Dolce & Gabbana would be entering the space, and they viewed it curiously and maybe even a little bit skeptically, because we did not really explain the reasons, just this tweet without any other context. And we let that sit for a week without giving any other context.
[00:24:40] Shashi Menon: But every major crypto publication covered the news at the time, which was interesting for us. And so it went very viral and then we waited a week and we dropped a little bit more information, and then we hosted a live audio where we started to give a little bit more information, not about what we were doing, just about the ethos behind why we were doing it and what our background was.
[00:24:58] Shashi Menon: And so that started to spread and over the next six to eight weeks, every couple of weeks, we released a little bit more information. And so it started to generate enthusiasm and interest from the crypto community because we were targeting them on platforms that matter to them. So we were not really rolling it out on Facebook or Instagram, but really targeting Twitter, which is where most of the crypto community congregates.
[00:25:19] Shashi Menon: But when we got into the space, I think kind of naively, we weren’t sure whether we would be attracting an audience of traditional luxury consumers and bringing them into crypto or attracting an audience of crypto consumers and bringing them into luxury. And I think most, basically, we just kind of assumed that it would be half and half.
[00:25:37] Shashi Menon: And what we found along the way was that it was just way more interesting to a crypto audience. And when the collection was released, 100% of the buyers were crypto natives, and they were not existing or preexisting luxury consumers, they just happened to be people that got really inspired by what we were doing.
They understood, and were committed to NFTs and to Web3 and to crypto overall. And we had an opportunity to bring them into a space that they’d never really been a part of, but in a form and a format that was native to them. And this is one of the big trends I think that is really important that we are tapping.
[00:26:21] Shashi Menon:When you look at every new generation of wealth that is created, you tend to see this migration up the consumption ladder towards more traditional assets that people consider to be valuable, whether it is real estate or whether it is luxury. And most recently you saw that happen in China with the tier one cities and then the tier two cities and the tier three cities.
And within crypto you have an audience of people that over the last several years, maybe ignoring the current bare market, but before that, just by virtue of being in the space over the last several years as it grew, have amassed a level of wealth that puts them very squarely into the demographic of being luxury consumers.
But because of the origins of this space, they just simply don’t self-identify as luxury consumers. So we actually have an opportunity to bring this new luxury consumer, that does not consider himself or herself to be a luxury consumer, to bring them into this space, but again, in a medium that they are more native to which is crypto, which is NFTs.
[00:27:22] Karim Sarkis: So I can understand that in terms of accessing this new consumer base that maybe I would not have through traditional means if I am a luxury brand – do you think we’ll get to a point where the other side of consumers, their existing customers, are then wanting or demanding that they also be able to buy digital products, or to be able to wear the fashion brands in the metaverse or in these online worlds?
[00:27:49] Shashi Menon: Yeah. I think that will happen. What’s missing today is really the context of why digital fashion and why the digital world is useful for people. There aren’t really environments that are satisfying or compelling for people to use digital fashion today in a really meaningful way.
This is where we think the physical side of what we are doing with physical product and physical experience is so important because it helps to contextualize why all of this matters.
For us as an organization, I think one of our big perspectives is that while we are very much digital maximalists in how we view the world and we see the digitalization of everything, we are not digital absolutists.
[00:28:35] Shashi Menon: That was one of our big takeaways from this whole pandemic era that, while the internet can solve for a lot of things, it is actually not yet great at solving for physical experience or physical intimacy.
And so what we are trying to create is very much this intentional intersection between the digital world and the physical world, and I think that positions us a little bit differently than a lot of companies in the space. We very much do not want to see a world that is digital only. And I think it is just not that interesting.
And I think really for the luxury world as well, the physical side is so important. Whether it is physical artistry or physical craftsmanship or physical experience – there is real magic that can be created there.
[00:29:13] Shashi Menon: And so a lot of what we are trying to do is bring people from the digital world into the physical world. But the reverse will happen as well, and so as the digital world and the software around it and the hardware around it creates a consumer experience that can be a little bit more interesting, a little bit more satisfying.
I think the physical product that we have will end up being a really good on-ramp for traditional physical fashion consumers or luxury consumers to enter this space because we are able to present to them something that they already value. Like if you are an existing consumer of Dolce & Gabbana or Dior or Valentino, you care about the physical product and if we are able to present that to you with other things that come from that, that starts to become interesting. But what you care about first is the physical product.
So we are still maybe 12, 24, 36 months away from that. But all of this is very much done by design.
[00:30:05] Karim Sarkis: I think for most listeners, even 12, 36 months sounds much faster than they anticipated. So you mentioned like a two-step process, which is interesting because typically there is two views of where this is all going.
Now that, we have gone over the hype cycle, we have gotten into the “crypto winter”, or whatever term you want to call it, and interest has subsided, there shouldn’t have been two narratives making the round.
So one narrative is okay, we have gone over the hype of “apes” and “JPEGs”, and now we are getting into utilities. So NFTs are just gonna be a means that reinforces the physical aspect of things in the sense that they are going to be, you know, this proves ownership, it allows you to trade things in a more secure or trusted way and so on.
[00:30:48] Karim Sarkis: So that’s one view. The other view is, no, we’re going towards this more immersive world. It’s a matter of time. All the big players, Meta, Apple, etc., are investing in it.
And so we’re going to get to a point where this generation that is growing up now is not going to care about the physical world. They are going to care about their representation through avatars in a digital world.
[00:31:07] Karim Sarkis: And so these two seem to be two contrasting views where we are going to sort of have a generational schism, if you like, but you seem to see it as the first one, as an onboarding process. So I am gonna get my typical consumers to get to know NFTs by linking them to physical products, and then as the digital immersive world develops, then they naturally transition.
Did I capture that well?
[00:31:30] Shashi Menon: Yeah. We do not see them as mutually exclusive. I think that there is an interplay that will exist there. Because truthfully, there are things that you can do in the physical world that you can’t do in the digital world, and the physical world is better for that, and that should be celebrated and embraced and experimented with.
And there are things that you can do in the digital world that you can’t do in the physical world. And the digital world is better for that and that should be celebrated and embraced.
And so we want to build for both of those experiences. And then we see magic that can happen when you kind of intersect the two.
[00:32:00] Karim Sarkis: If we take the digital aspect of things, if we take the “manufacturing” of digital fashion, which effectively is all digital and hence does not have any of the issues around sustainability and ethical practices and child labor and so on, that have dawned on the industry for some time. And if we think that there is going to be mass adoption, do you think the business of fashion itself is going to drastically change? In the sense that, if most of the value is being created through the sale of its digital or virtual products, it will actually change what these companies are doing physically on the ground. Whether we still need the factories in the same way, whether we still need to have these global supply chains, or we just end up, you know, the physical goes back to maybe the origins of couture where it was just very unique, very special one-offs, and actually the mass is all in digital?
Is it going to be that extreme, or is it always going to be this balance between the two?
[00:32:54] Shashi Menon: I do not think it will be that extreme. I certainly hope that it is not that extreme. That’s not an outcome that I think I would very much enjoy living in. I think the couture side of it is interesting to us, because of the attention to detail that’s involved in the physical craftsmanship of items that are that are created.
We saw a real parallel between just the fundamental idea of couture, and the idea of NFTs, because physical couture is really about creating these one-off bespoke items that are only ever created once, are incredibly unique, are incredibly valuable, and are pieces of art. And that is how we saw NFTs as well.
[00:33:34] Karim Sarkis: There also seems to be two different approaches to creating digital fashion. So we have the examples where there is replication of the traditional, or like you mentioned with this “twinning” of physical and digital. But there also was the example of “digital first” fashion houses, or if you can call them fashion houses, like the Fabricant.
[00:33:54] Shashi Menon:Yeah.
[00:33:54] Karim Sarkis: There is also Nike acquiring Artefact. And then the most recent development where a sneaker that was created as a digital product ended up actually being created as a physical product, so it came in the other direction.
[00:34:05] Shashi Menon:Yeah.
[00:34:06] Karim Sarkis: Is this just an aspect of the sneaker world or is this something that you think will become more and more common?
[00:34:11] Shashi Menon: I think it will be more and more common. So we have experimented with digital first collections that are forged into physicals, not just with sneakers. So we have a collection that we released called “Route to Parallela”, which stands for, or which translates to parallel reality basically in Italian. And it was a collection of t-shirts, hoodies, and sneakers that started as a digital first release, but then physically forgeable, and then a custom production run that’s happening right now, will be released to people.
[00:34:38] Shashi Menon: And it’s an interesting approach to sustainability. And that’s not really the narrative that we had going into it, but it is one of the byproducts. It’s an entire physical production run that is mapped one-to-one to demand.
We released this collection of NFTs to our community, and then they could go through a redemption process to then choose their style, choose their size, and then the production happened afterwards. So we are basically mapping the entire production run to what people actually want.
So there is no wastage. I think that will happen more and more. I think it kind of taps into some of the dynamics of the Web3 space about being able to participate in the creation in a way, being able to trade. And for the companies themselves it is a very interesting approach to production because you have all of the production funded before the production happens, and then you have no wastage.
[00:35:30] Shashi Menon: But Nike has been a really great example of what experimentation looks like. Their acquisition of Artefact was brilliant. Artefact is one of the companies in this space that I think everyone looks at with a great deal of respect.
[00:35:43] Karim Sarkis: I also noticed that even companies like Fabricant, who are meant to be entirely digital and, maybe in the Web3 world still wanted to go to known fashion designers to maybe give some validation of the product that they are creating. And so that seemed to reinforce your point about, you know, it is not enough to just create any digital work.
So is that something that you think will survive? Any digital transformation or technology impact that the fashion world is experiencing? This focus on the individual narrative behind the fashion house or a brand or a designer?
[00:36:15] Shashi Menon: Yeah. I would contrast our approach I think a little bit to The Fabricant. They were early in the space, and I know the team over there very well. I think they have a different perspective on what the future will look like for fashion, they very much want to go into this digital only world, whereas we see the physical side of things mattering quite a bit.
They’re doing a lot to embrace emerging talent and kind of cultivate that space. We started more on the established brand side. And part of that I think comes from this idea that, in order to get people to be excited about the space, you need to give them context in something that they care about.
[00:36:53] Shashi Menon: If I look at the first collection that we released, without it being a major brand, I just don't think it would have been as successful, even if we did everything else the same.
The art could have been as beautiful. The story could have been as beautiful. But the fact that it was this big established brand that came with legacy, that came with heritage, that came with a footprint in the real world – that gave it context. And that was really important.
But there is a role that legacy brands and upstart brands will play in the space. I think both add value. I think legacy brands have a lot that they can bring to the table.
[00:37:29] Shashi Menon: Building a brand is incredibly difficult. Building a brand in the luxury space is incredibly difficult. There is no replacement for time. When you are talking about heritage in the craftsmanship process, and most of these brands that we are working with have been around for 10, 20, 30, 40, 50, 60 years.
[00:37:45] Shashi Menon: It’s very hard for a new brand to come in and claim to be a heritage luxury brand, it is actually impossible. So that I think matters. And these brands have spent decades really honing the process of creation, honing the process of physical craftsmanship, honing the process of experience in the real world.
And there is so much magic that comes from the intimacy and the storytelling in the real world that these brands do, that can be translated into the digital world if done in the right way.
Where upstart brands have a little bit of an advantage in this space is, of course, they can experiment more quickly. Of course, they are not restricted by any sort of legacy infrastructure. And I think these upstart brands that are forming just in the Web3 space today, have a little bit of an advantage in that they kind of understand the culture of the internet better than some of the more traditional brands.
[00:38:43] Shashi Menon: But both have a role to play in the ecosystem. I think the role that we have as an organization is try to bridge the two.
[00:38:49] Karim Sarkis: We’ve been talking about brands that actually have already had their foray into the Web3 space and are committed to it. There’s a lot more that have not yet, although the list keeps growing. It is grown a lot since the Dolce & Gabbana project. The list does keep growing, but there’s still many that have not entered the space.
How do you advise those players, whether in the fashion sector or more broadly in terms of getting into the metaverse and getting into the Web3? Are there sort of some baby steps that they can take to familiarize themselves? Should they go all in from the beginning? Is it an experiment on the side? Should it be something that is coherent with their overall strategy? How should they think about entering the space?
[00:39:25] Shashi Menon: Yeah, I think they should all start by starting.
Definitely, it is a space that can be intimidating because it’s different, and the audience of people is different, and it moves very quickly. Established brands can struggle with that because the cycles in crypto are just very compressed. And so every six months and sometimes even shorter, the landscape changes quite a lot.
So even, for us, being very early into the space, the things that worked for us a year ago, even six months ago, won’t work anymore. And so the playbook has to change. So if you have an organization that is used to spending six months, nine months, a year assessing something before doing it, by the time the assessment is complete, the conclusions would not actually be useful for the space as it exists at that specific moment.
[00:40:20] Shashi Menon: So that I think is where the biggest difficulty exists for traditional organizations. So you have to completely change the mindset to be in the space. Once you get past that, approaching it from a position of experimentation and humility is very important
So once you have figured out the “why you are committed to being in the space”, everything kind of follows from that. I do think that every organization will need to have some kind of strategy for being in this space, whether you call it Web3 or the metaverse.
[00:40:58] Shashi Menon: It’s just where the world is going and I think if, technology cycles have taught us anything, it is just that the consumerization of technology is just an ever moving force. And so ignoring it does not really get you anywhere.
[00:41:14] Karim Sarkis: Shashi, when we started this conversation, the description of UNXD would have implied you are technology company. You mentioned working at the intersection of technology and culture and media and fashion, but then you were using terms – I noticed when you were answering the questions, you were using terms – like, “we were fussing over the details of a dress” or “the collection that we released”, or “we wanted to make sure that the creativity was evident” or you mentioned “uniqueness”, “beauty”…
Are you a technology company, or are you a hybrid fashion design company? Has this whole experience changed how you think of yourself as a business?
[00:41:46] Shashi Menon: No, I think we’ve always described ourselves as a culture company. I think technology to us as an enabler and not the end goal. What we have taken away from being very deeply in the luxury space for a long time is a level of obsessiveness with the detail. We care about things that maybe a lot of people would not notice, but the people that do really care about.
[00:42:10] Shashi Menon: There’s this anecdote from many years ago when Steve Jobs was creating the first iMac, he wanted the screws on the inside of the computer to be polished, and nobody would ever see this unless they actually took apart the computer. But he actually really obsessed over this detail, because he wanted that level of obsessiveness about the product itself.
That’s something that kind of stuck with us, and we care about those details, and the people within luxury I think care about those details as well. Consumers, and at least the ones that notice that, also care. But I think the ethos that we have of being a culture company is born from having created culture ourselves, and I think understanding what media is – it’s just a vehicle for culture creation – has very much informed the approach that we have.
[00:43:05] Karim Sarkis: Shashi, thank you for a great conversation. I think it is still early days. I look forward to hearing a lot about UNXD pushing the envelope further in the whole space between fashion, technology, and culture. Thanks a lot.
[00:43:16] Shashi Menon: Thanks very much.
[00:43:17] Karim Sarkis: You have been listening to the Strategy& Middle East inbold podcast. Make sure to subscribe and stay tuned for more. See you next time!
Shashi Menon
Shashi Menon
Founder and CEO, UNXD and Nervora
Partner, Strategy& Middle East
Karim Sarkis
Partner, Strategy& Middle East
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Is the future of luxury fashion all digital? In this third episode of Season 2, Shashi Menon – Founder and CEO, UNXD and Nervora – joins Strategy& partner Karim Sarkis to demystify blockchain, crypto, Web3, NFTs, and the metaverse. Join us on this journey as we explore the intersection of fashion, culture and technology, from the perspective of the company that was the first in the world to create luxury NFTs.
Episode 2: Governments, let's enable – how can governments and big media players keep the sector in the spotlight?
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Season 2: Lifting the curtain on the media industry
Episode 2: Governments, let's enable – how can governments and big media players keep the sector in the spotlight?
[00:00:00] Karim Daoud: Hello and welcome to inbold, the podcast brought to you by Strategy&’s Middle East team, where we dive into the most important topics impacting the Middle East and the world. My name is Karim Daoud, and this is my colleague and friend Karim Sarkis from Strategy& in Dubai.
So in the second series of inbold, we are looking to lift the curtain on the media industry, global trends, how they apply to us here in the Middle East... So we will be inviting over the next couple of episodes, guests who will share their experience and enlighten us with their perspective of where the industry is going. So sit back and enjoy as we dive in.
[00:00:50] Karim Daoud: Welcome everyone to our Experience Center here in Dubai. Today we are sitting again with Nick Grande, CEO of Channel Sculpture, and founder of MENA TV.
One episode was obviously not enough, Nick. You have so much to share with our listeners who I am sure enjoyed very much the first episode. We are here today to discuss the solutions to the problems we highlighted in the media industry at the previous episode. Thanks again for accepting our invitation.
[00:01:17] Karim Daoud: We know government here in our region plays roles in different ways, the typical government kind of sector grower and enabler. But also they are an integral part of the ecosystem through the public service operation that they do. What do you think governments should be doing to bring the sector to more success?
[00:01:35] Nick Grande: Good question. There is lots to unpack from this one. I think, first of all, we need to recognize that Pan Arab has not helped here. So when you look at broadcasters, a state broadcaster typically will be looking at its domestic audience. And then anything externally is treated as a commercial wing, and it makes it much more straightforward, you know, within the domestic audience, you know, what your civic responsibility as a state broadcaster, you know, what you are trying to do in terms of education, in terms of public order, and all those kind of things.
[00:02:09] Nick Grande: And you know, there are examples internationally of how state broadcasters can compete, but without spoiling the pie. But I think what I’d say in answer to your point, first of all is we need to be understand what governments do. Governments are not only straight broadcasters. I mean, the most positive aspects are not actually the broadcaster pieces. It is for example, the investment in media zones. It is the investment, as you say, in infrastructure, investment in bringing talent.
And I think the fact that you have got intergovernmental competition, on a massive scale now, on an epic scale. You have so much money being spent by the Saudi government on building a media ecosystem locally, trying to rival the Egyptians in terms of production.
[00:02:53] Nick Grande: That is great. In terms, particularly in the environment we are in now, where there is this need for higher value productions to feed consumers who have got used to a diet of US European budgets and expect the same thing from now. If they are gonna take an Arab show, they want it to be particularly drama. They want it to be high value.
So you need the governments up to a point to step in and take some of the load. And I hear stories of NEOM offering like 55% rebates and stuff. Obviously twofour54 you know, Abu Dhabi's been offering like I think 30% rebates for some time and have obviously done some really spectacular deals with the likes of Star Wars and so forth.
[00:03:37] Nick Grande: I think that helps bring the talent up locally. I think it is not all imported people, but anyone who has worked as Karim and I both have with these media zones, know that the hard part is keeping people there. So it is not enough to have a great edit facilities and a massive sound stage and so forth.
You also need to have reliable schools. You need to have good healthcare. You need to have some kind of provision for, you know, family life and the potential for – even as the UAE is doing now, encouraging people to think about spending their retirement here. Those are important for this sector, just like any other sector.
[00:04:15] Karim Sarkis: Agreed. And these are all roles that unquestionably the government should play. But what about the other roles, the public?
[00:04:21] Nick Grande: I will come back to you, this is really positive.
[00:04:23] Karim Daoud: Really positive.
[00:04:24] Nick Grande: So when we come back to this question of public broadcasters, I think that if you look at the really… okay. Let us split between free-to-air and pay to start with.
So within the free-to-air space, the reason the public broadcasters have tended to go sort of out with a commercial mandate is because they are competing pan regionally. And I think there is always going to be this pressure. You see it everywhere in the world, but like I think having more domestic markets, more focus on digital delivery within markets is good because it will mean that there is more focus for public sector broadcasters to spend money on things which will engage an audience, regardless of the ad spend. They actually want to get the message across. You need to have good content, otherwise nobody’s gonna listen or watch. So, I think that will make life easier for everybody, if that happens.
[00:05:17] Nick Grande: But I think the other thing related to this is entrepreneurialism. I mean, I think there are a number – and we will probably talk about this in a bit – there are a number of quite interesting startup businesses and how they are changing the ecosystem, but actually also at a management level, within these corporates, including the government corporates, you need an entrepreneurial mindset.
So you need the people who are looking at the industry, and able to respond, particularly the sort of the private broadcasters, you know, example like Roya TV in Jordan, which is a private business, but the number one TV network in Jordan, and it is a profitable broadcaster and it is run in an extremely tactical way.
[00:06:03] Nick Grande: You know, the way they use Youtube to drive to their own AVOD platform. The way they use Facebook stories similarly, the way that they have an academy that sits alongside the channel, that they promote their own talent… They are extremely effective in creating ecosystem within that Jordanian sector.
[00:06:21] Karim Daoud: And they live off Jordanian advertising going about. Yeah.
[00:06:24] Nick Grande: Yes. Although, interestingly, their AVOD platform is now pan regional and they are starting to see themselves as pan regional. Now, it may be that the state broadcasters cannot resist being pan regional. They are looking also at the soft power within the region. They want their platforms to be seen.
So I can see how there are a number of agendas at play. If you are a Dubai TV or an Abu Dhabi TV or a Saudi TV, or even an MBC, you could arguably argue, or Al Arabiya. But I think to your point, at least from a commercial point of view, it will be easier when there is more focus on domestic audience because it will be clear what everybody's role is.
[00:07:00] Karim Sarkis: Or even if you are, you know, as you are alluding to – if my objective is: I am out of the UAE, but I want to be viewed in Saudi because it’s important for me to get messages to the Saudi audience about what’s going on in my country and so on.
You could still do that as, a government, and make that the measure of your success. And then maybe enact some policies about, well, if I am paying somebody to produce content, I want them to be producing it in my country because I want some economic benefit. Or if somebody is producing something for me, they need to contribute to the talent development of my own ecosystem – rather than try to be a competitive commercial player at the same time.
[00:07:39] Nick Grande: I don't know, whether you remember this, but one of the leader summits that we did, there was an idea tabled of public sector broadcasters removing ad sales from their mandate.
[00:07:51] Karim Sarkis: Exactly.
[00:07:51] Nick Grande: Which I think is a really interesting idea, and it’s much more tenable in a world where you are purely in domestic media. Why is it that a government-backed state broadcaster is required to have a revenue stream for advertising.
I mean, if there are good examples of how you could still be profitable, I mean, if you look at – I am sorry, because I am a Brit, I’m gonna do this again – but if you look at BBC studios again, which is the international arm of the BBC, that is a profitable, mandated to be profitable company. It is effectively a production house. They do co pros with all the big players in Netflixes and the Amazons and everybody else. But then the BBC domestically relies on its license fee and it does not carry advertising. And ITV and the main competitor in the UK of course – there are a number of commercial broadcasters there – but its inventories fully sold in the UK. So there is a case for that. It does not mean that ITV out-rates, the BBC, they both have really great shows. It can work. So I think that is interesting.
[00:08:55] Nick Grande: And on this point of advertising as well, I mean the market's so undervalued in the Middle East and market by market. I mean the example of the UAE, I will go back to because: here you have a country of 10 million people, GDP per capita – do not quote me, but I think it is something like 40- $45,000 a year – and you compare it with Hong Kong, Israel, Singapore, all these economies, similar or smaller in size, similar or lower GDP per capita. Hong Kong's almost like for like slightly loaded GDP per capita. Hong Kong guys have a TV advertising revenue of a billion dollars.
How is it that the UAE domestic ad spend is somewhere in the ballpark of 25 to 50 million dollars? Everything else is pan regional. You know, there is a huge amount of money on the table here, and it is, and somehow it is not, you know, why is it we do not see Al Rostamani Exchange and Sharaf DG and the tourist board and all these entities advertising domestically to a UAE audience? You know, there is an awful lot.
[00:09:59] Karim Daoud: And why you think?
[00:10:02] Nick Grande: Because everybody is obsessed with the pan regional model and you know.
[00:10:06] Karim Sarkis: Or they have digital channels now that they can use to reach their consumers?
[00:10:09] Nick Grande: Well, even more practically, if I put my ad on Abu Dhabi or Dubai or MBC or whatever, it is going to everywhere, including Saudi.
So, you know, I am half, I am forced to monetize from my biggest market first. So to the extent that we can fix the domestic markets, it will create a huge leap in revenue opportunities and digital is the best way. By the way, digital includes IPTV. It is not only about AVOD platforms and everything else.
[00:10:36] Nick Grande: However you get there, if you can ring fence each market, I mean, MBC have been innovating in this. They put up spot beams years ago for Egypt and they are building Iraqi channels and Morocco channels. They understand this, trying to create audiences domestically, but I think digital is so much more measurable, so it’s much better.
[00:10:57] Karim Sarkis: I want to extract some like do's and don'ts maybe from our conversation to try to wrap up the thinking. I think on governments what we are saying is: please continue to support on the enablers, on the talent, on the infra, on the right policies, on the incentives.
[00:11:13] Nick Grande: Absolutely.
[00:11:13] Karim Sarkis: Please get out of the way of commercial players in terms of the state backed media.
[00:11:18] Nick Grande: Well more than that, encourage startups. Because we did not talk so much about entrepreneurs, but there are some great example. I am fortunate, I am 14 years into to my own business, and I am still here. It’s not easy this sector. Media is not, as you rightly said earlier on, it is not a profitable area for many people. But there are other companies that are very much more successful than mine. I mean, look at Starz Play and what Maaz Sheikh and Danny Bates have achieved there. Look at SAWA Media and what Ali Ajouz has achieved there.
These are quite big players in the market, completely independent companies. Of course, Starz Plays now got a huge investment, but I mean, they are still very entrepreneurial. I was with Danny Bates last night and just chatting about their sort of plans and, he is so bought into that business, the change in ownership.
[00:12:06] Nick Grande: I was curious whether they would be in some way, kind of soft peddling now that they have got all this new money. Not at all. They are going, they want to be a unicorn. That is, you know, that is their intention. A double unicorn I think actually. But there are others, you know, look at what Emad Morcos and Amanda Turnbull have with this Rise Studios business. They have just acquired five major production houses. They have got US money coming in. So this is good. This is how you create a solid ecosystem.
[00:12:35] Karim Sarkis: So not only support entrepreneurship, but also look at how you incentivize outside investor investment FDI and direct investment into the sector.
[00:12:42] Nick Grande: Yeah. How did they do that? They got US money coming in for a MENA based business, and that was deliberate. They wanted that. They did not want to have the control issues that they might have faced with the shareholders. That is my understanding, and I think it is very smart. Not that there’s anything wrong with investment here, per se, it is just that for them trying to export back to the international markets, they needed to pitch the Middle East story internationally.
So it is not enough only to provide the tools. You also need to really encourage the entrepreneurs.
[00:13:15] Karim Sarkis: Okay.
[00:13:15] Nick Grande: In a big way.
[00:13:16] Karim Sarkis: That is on the government side. If I am a large private, semi-private media player in the region. What should I be doing?
[00:13:26] Nick Grande: It really depends. I think you can look at the success stories. They be my first thought on this. I mentioned Roya tv. They’re not perfect. One of the things about being an entrepreneur in any sector is, you are always frustrated with what you have not done, you forget what you are achieving.
But if you are a private or semi-private business, clearly you have to have an idea of how you are going to evolve and, are you ad supported or are you subscription? In subscription, we started that conversation, but we did not finish it about the government role in subscription TV and how that plays out.
[00:14:06] Karim Sarkis: Yeah, I think context is very important.
[00:14:07] Nick Grande: Yeah.
[00:14:08] Karim Sarkis: Because if there are some markets where the government has made it very clear in this part of the world that they want to control.
[00:14:13] Nick Grande: Yes.
[00:14:14] Karim Sarkis: All media, traditional media, let’s say, because they can’t control digital in the same way. They have made it very clear. So if I am a private media player, first I need to understand what market I am playing in. If I am playing in the market where the government has just come out and said: ‘I own everything’. Get out of the way. This is not a private market anymore.
[00:14:30] Nick Grande: What that in itself does not mean you should not play in that space. Because governments do not always read the market as well as private businesses.
[00:14:38] Karim Sarkis: But maybe then you go out of the main door, but you come back in through the digital window, and through the better targeting, and through a different product then.
[00:14:47] Nick Grande: You have to be scrappy.
[00:14:48] Karim Sarkis: Yes.
[00:14:48] Nick Grande: Just look at Starz Play, winning the Serie A rights. You can imagine how BeIN felt about that. I mean, it was a really bold, really intelligent move and completely unexpected for most people. And so I don’t think just because a government's playing in a space, it should preclude an entrepreneur from coming in.
Some of the smartest deals have been done by the middle tier private sector business. Going back to this point about entrepreneurial, it is not only about startups.
If I think about, for example, Tarek Mounir when he was running Turner. He is now running a $30 million business – “Enhance Fitness”. He is an entrepreneur through and through, but he was hired by Turner, the Warner business to run their kids channels. And he saw what was happening in audience measurement. Turner decided they did not want to play by the conventional rules. They did not want to rely on the effectively recall data, they wanted to go direct to client. And so given that their product was appealing to kids, Cartoon Network Arabic, he literally went to advertisers like Mattel, like Lego, and said: Look, pick your retailer, pick your product, and we will measure before and after the campaign for the product that you are promoting. And if it goes above a certain level, this is what you pay me. If the retail sales do not hit that bump, you do not pay me anything.
That was a very entrepreneurial way of dealing with a very systemic problem.
[00:16:24] Karim Sarkis: Okay, so that is your point. Even with the government control, there is ways to reshape your offering. He did not continue doing the status quo. He did not consider: I am a TV channel that needs to be measured by its audiences and turn eyeballs into advertising. He found a different way to place value, and others can do the same.
[00:16:42] Nick Grande: What is interesting is that the situation globally is so fluid now that it is really incumbent on anyone – whether they are running a medium sized broadcaster or an AVOD startup, whatever – you have got to read the room.
You have really got to see where there is a potential that may or may not have been spotted by others. By all means, copy existing models. You know, globally, there are good examples of businesses that wait and they come in second or third with a particular idea, and sometimes that is a smart thing to do. But this situation is very fluid, so I think there are opportunities to be more creative right now in the way you run and to create new revenue streams.
[00:17:22] Karim Daoud: Now let’s shift to the incumbents, the traditional media players that have observed this tectonic shift that also invaded our region, like everywhere else in the world. What do you think the MBCs of our region should be doing to remain relevant and to continue winning?
[00:17:39] Nick Grande: I got stuck on MBC within that question, and I think that MBC are so important right now within the ecosystem, not only because of the level of funding that they have, but because the vision that they have managed to manage and continue.
So the fact that for the last many years, they have been looking out five, six years ahead and reading the room – I keep seeing this expression, reading the room – reading the market well, seeing what needs to be done. And this now, this transition and this focus on this two-pronged attack of: Shahid massive investment in the originals for Shahid, creating a genuine alternative to these global players that has regional relevance, and MBC studios fueling Shahid, yes, but also potentially creating content which can travel and therefore create a commercial model that works for MBC as a group in the same way that you see ITV Studios doing, and you see all around the world, big broadcasters, whether they are state funded or private. They recognize that you have to play in a global space, even if you want to compete domestically.
[00:19:02] Nick Grande: So it is great to see that. The only sad thing is they are so much bigger than everybody else now that, it is frustrating, I think, knowing that they are occupying so much of the production capacity and so forth. You kind of want some other entities to be in the play, in the game, but that takes nothing away from them strategically. Look, they may have a lot of funding, but they are extremely clever, extremely strategic and effective in the way they execute.
[00:19:24] Karim Daoud: Now, we know the big players we have not talked about are the telcos. They typically look at this as an adjacent sector that truly differentiates them. How do you see the ecosystem benefiting from a telco play in media, in video, in TV?
[00:19:41] Nick Grande: Well, I think first of all, if we accept that the future of the industry is domestic markets, you can’t do that without the telcos. We are not about to put a whole load of transmission masks up. So the industry needs the telcos and the question is always, when you get the telcos involved, how much of an influence should they have?
And we have seen like businesses like AT&T globally, they are not media companies and they realize that media is a different industry. And so they come in, they come go out quite frequently. Obviously right now, Etisalat& (E&) is very aggressive in the content space, and I think they are kind of getting it right with Evision so far.
They seem to have, through this acquisition or partial acquisition of Starz Play, they have created outreach for themselves across a number of domestic markets, and they can manage each of those markets separately. I don’t think every telco should be doing that and you know, that is, an expansive approach. It is not necessarily the only approach. If you look at their competitor, DU in the UAE, they also have had a good track record in content over the years. But I think that the thing that telcos don’t do, and all should be doing, is measuring and sharing. So I will explain what I mean by that.
[00:20:58] Nick Grande: So, I am obviously biased, you know, we are working with all the telcos, but specifically, Evision and Etisalat on their audience data. We also work with DU on their audience data. There is a reluctance amongst digital players to share data. And I think if I was Netflix or StarzPlay.
[00:21:16] Karim Daoud: Even in an aggregate way, yes?
[00:21:17] Nick Grande: Yeah… Or Starz Play… I can see as a business why I don’t want to share my data with anybody except very selectively because it is a competitive resource. But as an operator, if you are actually providing an ecosystem for these businesses to play in, you can help them grow by sharing how they are doing with them and with the market.
[00:21:39] Nick Grande: You are keeping them honest. You are encouraging them to do better. You are showing them how their competitors are doing. And best of all, because you have your own ecosystem, you are actually causing them to program according to your viewers. So what the telcos don’t necessarily think about is the advantage of sharing audience data, and when you do that, you will have a – in the linear space we see it – you will have a broadcaster, all the decisions that they are making are based around your audience. And so they are much more inclined to favor things that work for the audience. So you end up with a better product, more skewed to your customers. These are customers leads that you are monetizing, and you are giving them a better product without having to pay anything more.
[00:22:21] Karim Daoud: And do you think today, telcos across the Arab world, are they doing enough?
[00:22:26] Nick Grande: Not at all. I think they can do so much more. There is a dilemma for telcos as to how they get into the platform space. Do they do it via their own platform, in the way that DU and Ooredoo and Etisalat and Vodafone in Qatar, for example, have done? Or do they go the partnership way, and then work with StarzPlay, for example? Of course, STC are more of an OTT player, but their product is a platform that can be taken by other operators. I think probably because of the way technology is going, it is going to be more the latter. It is going to be more a case of..
[00:23:03] Karim Sarkis: Telco as aggregator
[00:23:04] Nick Grande: Telcos taking solutions that might work across, rather than having to have their own box and their own, all of the expenses that comes with that. There are advantages to have that in terms of linear channels, but they are less and less needed. You could see a situation where a telco can potentially have their entire ecosystem within an app eventually.
[00:23:26] Karim Daoud: Yes.
[00:23:26] Nick Grande: But the message I would have for them though is: be more willing to be Switzerland, you know? Share the data with everybody. Maybe charge them for it, in fact, definitely charge them for it. Work with us if you want to, but make sure that the data is there, allow it to bleed into the market, because then you will help inform the market. Market is starved of information.
[00:23:51] Karim Sarkis: This role goes beyond data I think as well, Nick. I mean in terms of Telco as aggregator, telco as a viewer acquisition vehicle.
[00:23:57] Nick Grande: Yep.
[00:23:58] Karim Sarkis: I think we have gone from one extreme to the other, in terms of telco's attitude to media. We went from I need to own my own content. I need to own the buy companies, I need to have my own platform too, I do not want to have anything to do with it. Somewhere in the middle. The fact that telcos – especially in a world where we have fragmented markets in MENA, where we have inefficient markets and we do not have those national borders to help us build the local markets that you mentioned – telcos as a means for me to reach an audience and monetize it is actually a very viable play and them playing an aggregator role, I think is a win-win for both them and media companies.
[00:24:31] Nick Grande: Absolutely. And there were several attempts over the years for the telcos to partner with each other in the content space. Because obviously when you look at buying content rights, it is a clear, these are very wealthy companies, but it is pointless them buying pan regional rights for football, for a domestic audience alone. They can only do it as a conglomerate.
So history has shown that is harder than it looks. So I think actually it is more efficient to have an aggregator like OSN or BeIN do that piece. But then the more of them, the better, and as a telco, make sure that your ecosystem, your domestic ecosystem, is as easy to work with as possible. And using your marketing tools and everything else, and particularly the measurement – I will keep coming back to this, because I think it is vital – it’s the other missing piece. Once you have broken up the markets, you have got to be able to measure them effectively.
[00:25:22] Karim Daoud: Thank you for your view on the telcos. Very clear. I think perhaps the only category we have not properly covered now, is from a producer's perspective. What would you say is happening in the region?
[00:25:33] Nick Grande: Well, first of all, MBC is so pervasive and taking up so much of the mind share, both at a consumer level and at an industry level, it’s easy to overlook the other opportunities. So I think as a producer, you already know that there is demand and you know that – as we have talked about – the price of content is going up, so the potential for higher production values are there.
And from what I have seen, you know, even the talent, you know, whether it is the camera operators or the DOPs and whatever else, there is quite a significant demand, obviously being driven in quite a large part by MBC. But the thing to remember as a producer is there are other players, I will give you an example: View Clip who we have not really heard that much about recently. But, I was chatting with their head of content yesterday, and they are really quite aggressive in terms of, they are funded by PCW.
They have a clear slate that they are working on. They have significant investments in content production in various places, not only in the region, but also Turkey. So these are a potential channel for partnerships for producers. Weyyak, you know, the Zee Arabic platform, Roya TV I mentioned before, in Jordan.
In answer to your question, there are a number of quite big AVOD players out there that are in a position to work with producers.
[00:27:10] Nick Grande: And then at the same time you have almost like a reorganization of the production industry towards this higher value ticket size of episodes. And so seeing something like Rise Studios coming in, what does that tell us about what is possible for producers? If they club together and they coordinate and they start thinking about external markets, so not only the local players – what would it take to make a show that could be bought by Amazon? How do you go about doing that? You know, this is key.
[00:27:42] Nick Grande: I think everyone for years has felt that this market is capable of producing a Squid Games. It is. If you look at the consumption of media originating from the Arab world over the last 20 years globally, it is huge. But it is all news or stereotypes.
But actually, as a non-Arab, I love stories that open up new perspectives on things I thought I knew all about. And if you look at the streaming audience, they are much more sophisticated. Storylines have to be much more satisfying. Audiences are becoming more discerning and guess what?
[00:28:23] Nick Grande: This region is rich with opportunities in that area. You can pick, you don’t have to do conflict zones. You can literally just pick, for example, the life of a Saudi woman the last 10 years. You know, just pick a moment in time. That’s fascinating viewing, if you’re sitting at a home in Stockholm or in Denver or whatever, like something you’d never even think of. There are so many stories like that. If people actually really think about what they watch on Netflix International and they start thinking about what stories come out of the Arab world that have that depth of characterization, that depth of story, then layering the fascination that the world has with this region, you’ve got a wonderful cocktail.
[00:29:10] Karim Daoud: Thank you.
[00:29:11] Karim Sarkis: I would say that, of all the different parties we have spoken about, the production companies, or producers, are the ones who stand most to gain. But for them to take advantage of this opportunity, they have to do a few things. One - they need to know who they are selling to – selling to a national broadcaster versus a regional OTT play versus a global OTT play, are very different propositions.
They need to move away from being in love with the idea of their content, versus pitching themselves to the needs of who they are selling to. A global OTT player looking at somebody pitching a content to them is not only thinking about their local audience, they are thinking, can this travel? They are thinking, how does this compare to other things that I have, that I can get from other parts of the world?
And also, take advantage of the fact that even though we are talking about the cost going up, relative to the global market, we are still a cheap, relatively cheap, place to produce content. So actually.
[00:30:04] Nick Grande: With rebates as well.
[00:30:05] Karim Sarkis: Yes. If you add rebates, even more so. A local content producer who creates global quality content, is actually a great investment from a global OTT player's perspective, because it is lower cost than many other parts of the world. And the third is: up to your game through collaboration and through partnerships, they need better technical expertise. Hire people who have done it before. Collaborate with producers from outside the region and bring them into joint ventures with you, and bring yourself up to the level that these players expect from you. I think if it is definitely an opportunity for the take.
[00:30:40] Karim Daoud: So I should go and open a production company.
[00:30:44] Karim Sarkis: You specifically? Absolutely not, but other people. If I look at the media ecosystem.
[00:30:51] Nick Grande: Okay you raised an interesting point there. So Karim, you did launch a production company once upon a time. In fact, he was my neighbor in the building. So my question to you then is, would you do it again? Mr. Partner at Strategy&?
[00:31:06] Karim Sarkis: I think today, starting a production company that invests in the development of its IP, that understands the needs of its target customers, that takes the budgets that are available now and invest them in the quality of the content, not in the bottom line – because let’s face it, before much of what we saw as budgets actually just went to profit rather than to quality on screen – definitely it is a better time than before.
With the points you are mentioning Nick, about there are not enough buyers. I think back then, there were not enough buyers, back then there was not enough transparency. Back then, there was not enough value attributed to content. Very different world now, but at the same time, the standards are higher. You cannot be the guy with the two pages of a 30 episode description going around pre-selling it before you have actually given any thought to the plot line, the characters and so on.
[00:31:54] Nick Grande: Selling orientation.
[00:31:57] Karim Sarkis: Yes. That does not work anymore.
[00:31:59] Nick Grande: Okay. I got another question for him. Before you launched this production house that you owned and ran, you also had another interesting job. You were the executive director of television at Abu Dhabi TV in a past life. So my question to you is: if you were in that role now, what would you do?
[00:32:24] Karim Sarkis: I would ask my board to be very clear about what identity and what objective, what identity they want for their state media and what objective they have behind spending so much money on it. I think this duplicity and objectives and trying to be all things to all people, trying to be both a commercial player and a national broadcaster, trying to appeal to a domestic audience as well as a regional audience, trying to compete with commercial players while at the same time having to abide by government laws around procurement and payroll. It does not work.
[00:32:58] Nick Grande: So what is the answer? You said have a very clear rule book.
[00:33:01] Karim Sarkis: Choose what it is that you want, and then measure success accordingly. Do not try to be both commercial and public, and do not try to be both revenue driven, but at the same time treat yourself as a subsidy platform.
[00:33:15] Karim Daoud: Well, that was certainly a very interesting debate. Thank you very much, Nick, for taking the time to come and share some words of wisdom with our listeners.
If I were to summarize in a few words what I heard. Again, whole sole outlook for us in the MENA region in media sounds very promising. You gave concrete examples of players who recently entered, kind of attracted by the perspective of healthier business models now establishing with a new ecosystem.
So thank you on behalf of all our listeners. I certainly hope that whether they are in government or our fellow producer, they benefited from some of the thoughts and ideas that were shared.
[00:33:54] Nick Grande: Sounds wonderful and thank you guys. I think this is really valuable what you are doing. It is a great idea to have a proper in-depth conversation. The fact that this is not a panel session, this is an opportunity to really dig into the ideas, and I am looking forward to seeing who you bring in. I hope that they don’t show me up too much, but I am really excited to see what they have got to say, and how it relates to my business. So thank you for doing this. It is a brilliant idea.
[00:34:29] Karim Daoud: Thank you, Nick, for coming in again, we know how precious your time is. This has been a very insightful discussion with lots of takeaways for governments, for producers, for media houses and for telcos. We hope our listeners learned as much as we did today with your expert insights.
See you next time, everyone, and make sure to like and subscribe to the Strategy& inbold podcast.
State media house or pan-Arab media house – how can governments impact a sustainable media market? In this second episode of Season 2, Nick Grande joins partners Karim Sarkis and Karim Daoud once again to recommend solutions. They take us on a journey to explore the media industry’s playbook where everyone can flourish – from governments, to producers, media houses, and telcos.
Episode 1: Take a front seat – have we changed the way we consume media?
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Season 2: Lifting the curtain on the media industry
Episode 1: Take a front seat – have we changed the way we consume media?
[00:00:00] Karim Daoud: Hello and welcome to inbold, the podcast brought to you by Strategy&’s Middle East team, where we dive into the most important topics impacting the Middle East and the world. My name is Karim Daoud, and this is my colleague and friend Karim Sarkis from Strategy& in Dubai. So in the second series of inbold, we're looking to lift the curtain on the media industry, global trends and how they apply to us here in the Middle East.
[00:00:36] Karim Daoud: We'll be inviting over the next couple of episodes, guests who will share their experience and enlighten us with their perspective of where the industry is going. So sit back and enjoy as we dive in.
Welcome everyone to our Experience Center here in Dubai. Today, we're sitting with Nick Grande, CEO of Channel Sculptor and founder of MENA TV.
[00:01:02] Nick Grande: Thanks very much guys. Look, I really appreciate being invited and having the opportunity to talk with two people I respect enormously in this space, and I hope that we can fix a couple of things along the way and, you know, have some good ideas on the industry.
[00:01:17] Nick Grande: So, yeah, my background, I have been in the TV industry for 30 years now, and 22 of those years were in the Middle East, and I started here with Showtime in 1999, and I set my own business up in 2008. Originally, I guess it was a time when TV channels were all the rage. I just launched MTV Arabia with Viacom and Dubai Holdings and I was being approached by lots of people to launch TV channels.
[00:01:44] Nick Grande: I think, I don’t know whether you're involved in that report where Booz did back when Showtime was almost IPOing, and there were 140 TV channels, and everyone said it is under-sustainable. And by the time I launched Channel Sculptor, they were already close to a sort of 800 and then they went over a thousand.
[00:02:00] Nick Grande: So I kind of rode that wave to start with, and was working with all these broadcasters. And then of course, you know, things started to consolidate. There were lots of telcos and I changed my business accordingly. We realized that the telcos needed to have relationships with these many TV channels. And so as a result, we ended up sort of providing that gateway.
[00:02:22] Nick Grande: So we are working with DU and with Saudi Telecom and with Vodafone and Orange and various companies. But nowadays, actually, how do I put it? Around 2016, I could see that linear was no longer quite as hot, and the broadcasters themselves were really starting to worry about revenue streams. And so I initially started looking at this as revenue opportunity for them if they looked at their libraries and how they could monetize them.
[00:02:51] Nick Grande: And so we built this marketplace initially to help particularly the Free to Air big Arab broadcasters to monetize their libraries. But of course, quickly you realize there is a whole market here attractive to the producers, whether they are in South America, in Asia, in Europe, obviously, in Africa, all wanting access to MENA buyers and not only the broadcast, but all these new streaming platforms that were coming up and so has become for us as a business – it is a labor of love. We are still working out how to make it work. I have learnt through the process that it is not a simple thing to connect buyers and sellers in the TV world, but yeah, that is the journey we are on.
[00:03:36] Nick Grande: And finally, I suppose it would be remissible not to mention the fact that we love transparency. We love audience data, and we've managed through our partnership with Evision, to bring audience data to the region, to passive measurements. So literally measuring the activity on boxes to help broadcasters and the industry understand what's going on without any intervention.
[00:04:00] Nick Grande: And so we're about a year and a half into that relationship now. You know, it is amazing. We've got like 5 million viewers, you know, 1.3 million households that we are looking at the daily data for. And you have got broadcasters like Disney, like Warner Discovery, like using the data also free to air people like DMI, Sharjah TV, Roya TV in Jordan. Lots of different broadcasters finding new use cases for this data.
And so I think for me as a business, I have realized we're probably never going to be the huge SuperTanker, you know, a StarsPlay type of business or you know, you look what's media have done in the B2B space. But what we can do, and what we do do, is create a lot of transparency for the industry and hopefully create more liquidity at the same time.
[00:04:47] Karim Daoud: Thank you very much and from what you are describing, you do sit in the middle of this very interesting triangle. I mean, you have the consumers who we know are actually evolving a lot in their consumption patterns here in the region, as you know, from a global trends perspective. Then you have the industry players, the platforms, initially broadcasters, but increasingly moving to digital platforms, and then you work very closely, I mean you are also with the creators, the people who create the content.
[00:05:14] Nick Grande: Exactly.
[00:05:14] Karim Daoud: And I love what you mentioned about the currency, you know, the data, the transparency that allows the whole ecosystem to make better decisions.
So, I think we're in for a very interesting discussion and debate because again, you sitting in the middle of this, having started at the stage when the industry was somewhere, and 10 or 15 years later, it evolved so rapidly – and be able to share with us tremendous insights. So perhaps start with what is happening globally. Yes. This year is 2022. Waking up away from the pandemic, a revival of the whole entertainment and media industry. All reports show a phenomenal rebound in 2022.
And then some internal studies we've made at Strategy& PwC show as well, this is meant to continue at a very healthy growth rate, to 2026 reach a 3 trillion industry, this whole entertainment and media industry. So this is globally. What is your take on what is happening, global events perspective, shaping the media globally?
[00:06:13] Nick Grande: Well, it is really interesting to hear those numbers, Karim, and I'm sure Mr. KS over here will have something to say on this one as well. I mean what is intriguing to me is seeing how the industry globally is waking up to the need for profitability. And so you mentioned this growth prospect, and obviously within that there is a trend towards more advertising supported content, you know, Netflix being a prime example, and even bringing businesses like Microsoft into the TV content space to work with them, which is very exciting, I think, because you know what that might mean for the way advertising is measured. You know, because for such a long time globally, advertising has been controlled by META and by Google in large part.
And you know, having another multi-trillion dollar entity in the mix. And one which has a different perspective working with a business like Netflix, which is so, how do I put it? I really admire the way the Netflix management team have built that business. It is been a very organic process. they are extremely surgical in the way they run their operations, and so the fact that they are, admittedly it looked like a knee-jerk reaction where they made that move, but it feels now more and more like it could work.
[00:07:31] Nick Grande: I was initially quite skeptical, I must admit, because, you know, Microsoft has a LinkedIn Ad business, but it is microscopic compared with these other guys. So, going back to his point about profitability, if you look at what's happened with the Disney stock price, you know, and then currently obviously Bob Iger coming back in, what that means, for the business, potentially this recognition that they can't go completely hell for leather into to D to C. They need, I mean, I do not know how this guy is going to adjust the plan, but clearly profitability is on the shareholder's mind.
[00:08:05] Karim Daoud: Yes.
[00:08:05] Nick Grande: And these are all private entities. Post-merger, what does it mean for Warner's Brothers Discovery in terms of HBO Max, for example? I think we are all expecting HBO Max to launch regionally as part of its international rollout next year.
I think it is now fair to say, that could be years away. You know, and this is part of this, I think, this realization that just acquiring subscribers without consideration of bottom line is no longer tenable.
[00:08:32] Karim Sarkis: Nick, I wanna pick up on some of the points mentioned, and sort of zoom out a little bit into the global trends that these examples that you're giving are basically representing.
I think we can all agree that one constant so far has been in the media industry that although it is changing drastically. The increase in consumption from a need for more media and different types of media has been a constant. We had COVID was a blip, if you like, now in hindsight, back then maybe we had different forecasts and people weren't sure, but we've come out stronger.
[00:09:02] Karim Sarkis: So to me, the demand for content, because the consumption is increasing is only getting stronger and stronger, and that is something that is really driving a lot of the growth of the ecosystem. You mentioned the shift of profitability. Yes, what markets are expecting from OTT players is changing and it is leading to people like Warner being more focused on the bottom line.
It’s leading to Netflix launching an ad-funded business and so on, but the globalization of OTT continues, right? And that from sitting where we are sitting, that is a good thing because it also means that local content is becoming more and more – not only relevant to the global players, but also opening up markets for it beyond its immediate markets. I'll go through a couple more and then I'd love to hear your reaction to them.
[00:09:47] Nick Grande: Yeah. I must admit, I’m just thinking about what you're saying, I do not know whether I can even, because there were so many points packed into that, but I think the key question I would ask from a regional perspective, whether I was in any region, is how do we feel about the global market being controlled by this oligopoly?
And what does that mean for us, you know, whether we're in Latin America or in Asia, whatever, for our homegrown streaming and like, to what extent are we gonna see the producers just trying to get into the good books of Amazon, of Netflix and so forth, and bypassing, and what does that mean for the industry?
[00:10:22] Nick Grande: Because I mean, YouTube is providing a model here. You know, YouTube is a global platform, which is basically taking content producers from all over the planet and putting them into their space. And you know, I was having a chat at a trade show yesterday with a platform which is not a streaming platform in their words, but they are entirely on YouTube.
[00:10:42] Karim Sarkis: Why is it a bad thing if YouTube takes MENA creators, gives them a platform to access MENA consumers?
[00:10:48] Nick Grande: If you're lucky they'll end up taking 55% of your revenue, that is the problem. Yeah. So, like, you know, they are controlling, you might as well go back to the bad old days of industry.
Look, I'm, again, I'm being controversial with YouTube, but I think that when one entity controls the delivery, controls the ad wrapping, controls the rev share, literally controls how much airspace you have – is that good? You know what happens if you have another Twitter situation? You know, like, is YouTube under Google a United Nations entity? No, it is a company, it is a business, and they are there to beat the competition just like every other business.
[00:11:28] Karim Sarkis: So I would say, precisely because it is a company, precisely because it is a business, that is actually what we need in the Middle East. I think one thing we've been suffering from is that we haven't been treating this sector as a business, we've been treating it as a sort of subsidized industry. And as a result, we've been sitting on our backsides for a very long time.
[00:11:47] Nick Grande: Absolutely.
[00:11:48] Karim Sarkis: And the one thing that has shaken the status quo is these global players coming into the region. Scaring the heck out of everybody.
Governments are worried they are gonna lose access to their consumers. The local players are worried they are gonna lose their audiences. Everybody's worried they are gonna lose their advertising revenue. What better way to get everybody innovating than to have some real competition in the room?
[00:12:06] Nick Grande: I think we'll be talking about the region in a minute, Karim.
So like, I think at a global level, I question whether this is good? This is my point. Is it good that you have an oligopoly controlling how and what is getting produced? Is it better if you can have more regionalized – and look, MENA is a special case in point and I think there is a lot of reasons why it is good to have somebody like setting the bar.
I absolutely agree. Whether it is somebody like YouTube or somebody like MBC Studios, even, you know, within the regional players.
[00:12:38] Karim Sarkis: Okay, let's agree on, do we agree that the rise of a creator economy where individuals can have direct access to audiences and maybe they are not all making massive amounts of money, but at least a few of them are building business, and even those few are actually many more than the production companies that were able to survive in creating professional content in the previous ecosystem. Can we agree on that?
[00:13:00] Nick Grande: We can, and I'm being deliberately mean, but truth, you know, without YouTube, we've never would've had Bassem Youssef. Like there are some great creators that have come out of it, and having that large ecosystem, having the audience being able to be in one place is great.
It is just, it is a shame in my mind that it can't be more like satellite in a sense that they control the delivery, but they do not also control the measurement, the rev sharing, all the other pieces. If there was some way globally, there was a bit more of a sharing of responsibility between entities and there was some kind of independent measurement.
[00:13:34] Nick Grande: You know, people are very critical of audience measurement in region, but I would point to the fact that if you look at – again, I feel like I'm Facebook and Google bashing, but it is the truth – like if you look at Facebook and Google, both of them control their entire ecosystem, you know every part of it. So you have to agree to their rules to play in their world.
And If all the great producers are coming up through that ecosystem, they are benefiting from that.
[00:14:02] Karim Sarkis: Nick, let me challenge that a bit. How is this different from the old system where basically three or four executives in three or four media companies decided what goes on air?
[00:14:12] Nick Grande: You're talking about MENA now yeah?
[00:14:13] Karim Sarkis: No. Even before, in the US, that is where media started. It started for gatekeepers who basically controlled what everybody saw. How is that any different?
[00:14:22] Nick Grande: Since the 1980, you have had people metering, globally. I mean out of the 50 biggest economies on the planet, there are only five that do not have people metering.
[00:14:30] Karim Sarkis: Yeah but then the measurement aspect of it…
[00:14:35] Nick Grande: Three of which are in this region.
[00:14:35] Karim Sarkis: Agreed that is a good point.
[00:14:37] Nick Grande: But it is really important.
[00:14:38] Karim Sarkis: But that comes after the content is decided. So, to me, being in a scenario where rather than four executives at four dominant, “traditional” media companies controlled what people were allowed to see, and then we measured that. We did not measure the totality of content out there. We measured what the viewership of content that these four executives, effectively in any given market, decided what you are going to see. Now we're in a scenario where, yes, maybe we do not have, we have multiple measurement ecosystems and it is a big issue.
But this is where advertisers and things like IAB and things like pressure on standards comes into play and that we let the market has to play a part in that as well as government. But we are in a scenario where actually we have multiple paths to the consumer. You have multiple paths for different types of content to reach them.
So I see this as an improvement, not as a step backwards.
[00:15:28] Nick Grande: It is actually really interesting listening to you because I agree with your points in many respects, but I think at the same time I would liken it to what's happening in the music industry. So once upon a time, as a band, you needed to find an A&R person who believed in you to get you signed, but once you were signed, you have got the whole backing of a label and your CDs were being sold for, you know, $15 a piece, and you'd rapidly have marketing machine behind you.
You would have the big tours and so forth. I think the consumer was a net beneficiary, because what that meant was there was serious work going into records at scale, I mean in volume. So you had a number of artists, some of whom would fail, but they would still spend six, nine months in the recording studio working on a record that would get released.
[00:16:16] Nick Grande: If you look at the situation now, yes, it is much more democratized. So you know, it is much easier to get an audience on Spotify, but typically that'll be for a song rather than for a record. And it is only an elite few who are in a position to actually control the market – and if you look at what Taylor Swift has done recently, for example, breaking the internet with her content, concert sales – but like for the vast majority, we're in the age of the one-hit wonder now, and they are completely commoditized.
And I think that is kind of the world you are describing. So I agree, if you want to make a great record, single, in your bedroom, you are much more likely to have a hit now than you ever used to be. And in the same way, you can make a wonderful show on YouTube and potentially grab an audience, even if it is something that has an incredible niche appeal.
[00:17:07] Nick Grande: I think it is good. I think it is bad. I think it is both. I agree with you, but then, it frustrates me that you have got one entity controlling everything or two entities.
[00:17:15] Karim Daoud: This is a classic case of we have a certain situation, then you have the major technology platform disrupting, or they’re shaking up, the status quo that was not at the unsustainable or very beneficial.
And then perhaps out of this, and we can talk of it in the third leg of this conversation, something new will emerge, right? Because it will have been forced to change. And then this equilibrium of not just a tech control oligopoly, but hopefully local platform players who are very much from the region and almost perhaps reflect the identity of the region as opposed to those global tech giants that have a global commercial agenda.
So perhaps something good can emerge of this transition period.
[00:17:56] Nick Grande: Yeah, I think the identity thing, you could argue quite strongly that global platforms can actually help in that area because if they are investing well then it means that content producers, whether it is Netflix or YouTube or whatever, can get an audience more easily in region as well.
[00:18:12] Karim Daoud: Yes.
[00:18:12] Nick Grande: And get more investment and there’s more transparency. So I do not think they are necessarily a bad thing in that respect. I think my concern is more about it being so few. So back to my point about Microsoft. I think it is good that there are more companies like Apple, like Microsoft, you know, whoever else, Samsung, getting into the game to create a situation where perhaps there is a greater need for regulation and some kind of corporation way.
And at the moment, it is almost accepted, people do not question the measures they get from these companies. That is just the currency. That is what it is.
[00:18:47] Karim Daoud: Yes.
[00:18:47] Nick Grande: But when you have got TikTok and you have got Snapchat and everybody else, all taking their share of the attention economy, all looking at content, maybe that will lead to innovation on the measurement and on the monetization. And I think there is definitely scope in region for more entrepreneurs to be controlling some of the pie here as well in this region as an example.
[00:19:11] Karim Sarkis: If we think of the global trends that we've been discussing, increase in consumption, meaning I need more content. Globalization of OTT, meaning it is getting more competitive, but I also need more local content because that is how the OTT guys are getting into markets, and that is how the local markets are reacting to them. If we are saying ad advertising funded models are still valid, but they are switching to digital, and this is where Nick's point comes in and says they are switching to digital, where actually they are being concentrated in fewer players.
[00:19:40] Karim Sarkis: Yes. That is a challenge. Absolutely. But at the same time for our part of the world, given that most of consumers are not used to paying for content, the fact that we can still continue to offer them content supported by ads is a plus. The trends that are happening globally are also applicable to us regionally.
[00:19:59] Karim Sarkis: The impact of it differs. I think there is a negative impact on our top player of the ecosystem – our broadcasters, our media companies, the ones who need to survive, need to own audiences and need to monetize those audiences. That is where pressure is actually the highest.
I think it is a positive at the middle layer of the content creator side, whether it is the professional content creator who now has more clients that they can produce for, or whether it is the influencer or the digital creator who is monetizing a smaller niche audience through short-form content.
[00:20:32] Karim Sarkis: It is the same trend, but it is playing out differently at different layers of the ecosystem, what do you think?
[00:20:38] Nick Grande: Yeah, I agree and disagree. I mean, I think that the producers, in theory, the winds of change are good for them, and I think everybody has a feeling now. I think that, I mean, speaking of someone who's worked in the Arab world now for over 20 years, like I think there is never been a more positive feeling about the ability to export Arabic content internationally. I think within the regional market, there simply isn't enough money at the moment, but my concern would be that there aren't yet enough credible buyers in the market. And so to your point about the big players suffering, you know, those are the commissioners.
And so with the exception of a couple of extremely well-funded, government-backed entities, there aren't enough serious buyers. But I do think that is changing, and I think there is impatience amongst the producers. They look and say, where's the demand? But I think that is coming. There is more and more people, businesses stepping into the space, especially with the rise of AVOD, advertising supported tv.
[00:21:41] Nick Grande: I mean, we're going down to the regional level, but I think that we should think globally about advertising and what's going on there as well.
[00:21:48] Karim Sarkis: For producers, when global players enter the markets, it is a bit – even before OTT and so on – it is also a bit similar to when, you know, in previous phases we had Turkish content becoming very popular, or before that Mexican content or Latin American content.
Every bit of wave of new content coming to consumers and becoming a preferred genre, or a preferred or a new standard of what consumers expect, has then led to consequently the local content stepping up, raising the bar, to trying to match what consumers, you know, they lose consumers to the new shiny thing.
Now it happens to be global OTT series and so on. And then the local players react and then they up the bar and then they commission. And we've been seeing this, right? So, you know, before, I think a few years ago, four or five years ago, talking about $400,000 in episode of spend by a local player would've been inconceivable.
Whereas now that is very quickly becoming something that is expected and the norm, at least for the producers that see themselves at the top of their game. So yes, I agree that there is pressure on the commissioners, but at the same time, from a consumer and an industry perspective, it is actually raising the level of quality.
[00:22:59] Nick Grande: If you have hit the nail on the head, it is about consumer demand in the end.
You know, I see this again at the trade shows. I was talking to one of the big distributors from the UK yesterday at the trade show, and she was saying how nobody will touch a show that is older than 2018. Nobody's interested. It has to be fresh, and I think that is testament to the level of increase in investment per episode that we're seeing.
[00:23:27] Nick Grande: And you know, there was Netflix entering the market for production was a watershed moment for MENA. And the other thing is that this is happening all over the world. This is not unique to MENA. I mean, we are kind of zeroing on the MENA, but that moment when they started spending $3-400,000 a net was a huge sea change.
So this idea that you could produce a show in 30 episodes and start writing three months beforehand and you know, film it in a villa and spend $20,000 per episode. I mean, you just can not do that anymore. Nobody's gonna buy. So, yeah, it is completely changed things.
[00:24:05] Karim Daoud: So we just like to come back to something you said about the demand and the need for the region to create content, but also export it because the region is not good enough.
Here is a very recent statistic from a report measuring the digital spend here in MENA at $4.5 billion. One could say this is actually sizable, but then when you compare with other European countries, this would make the whole of MENA smaller than Italy, that is at $5 billion. Now we know that even before the digital era there, where the whole advertising shifted there, even in traditional TV, the whole ad spend per capita was depressingly low here. Now, do you see this changing with the advent of digital?
[00:24:48] Nick Grande: Yes, I do, I think there are so many things to consider within that. On the positive side, digital really presents very strong opportunity to measure that hasn't previously existed, which gives everybody confidence. And equally digital means there is no longer such a thing as MENA, which again, is essential. We have to get away from this idea of thinking that Algeria and Iraq are the same.
[00:25:16] Karim Sarkis: One interesting facet about our MENA industry is unlike other market, if you look at global trends and global headlines, they are talking about court cutting, about loss of revenue from pay TV, from cable and so on, which we never got to that phase.
We never got to that phase because we went, you know, in the Middle East, we have a tendency to leapfrog the other markets because of the pace of technology. So satellite, we were behind, very far behind, we were localized markets, we had government controlled media industries, very few number of channels and outlets.
Satellite came along – we had a big revolution. Which was good, in the sense of the whole media industry and the hundreds of channels that were created, and then that spurred on demand for lots of production companies and so on. The bad thing of it is, we never got to a robust model of monetizing media.
We never had consumers pay for content, and we had this Free to Air, and Nick mentioned the hundreds of thousands of channels, those channels, what percentage do you think of the thousand channels that existed when you launched or when you were launching with Viacom were actually profitable? We do not really have this, if I look around MENA today, I can't name five privately-owned large media companies that have a balance sheet that is robust enough to fight off global competition.
[00:26:32] Karim Sarkis: I can’t find them. If you broaden the definition and start saying: government backed, indirectly government funded, we start finding them. So we're coming to this point where, yes, we have more competition, but rather than seeing it as a negative because it is eroding the wonderful ecosystem that we had, the ecosystem we had was never financially viable for most 99% of players.
So now we are getting to a point, I think, where we are getting is: The pressures are still the same on the broadcasters and the media companies. And they may or may not make it, I don’t know. But the second layer has an opportunity, exactly like you said, it is not about MENA, it is not content.
Content is gonna travel, content is gonna be paid for on a higher level per episode than ever before, and this will only increase. Now, is this a great solution for everybody? No, but is it better than where we were before? I think so.
[00:27:29] Nick Grande: Yes. Going back to your point about the number of channels.
I think it peaked at about 1200 Free to Air channels. You just basically filled up these 7 West and 26 East positions, and some of those channels were literally just, many of those channels were just, slights or they were purely about religion or they are purely about a news agenda that is particular.
[00:27:52] Karim Sarkis: Or just an SMS-generating machine for a while.
[00:27:55] Nick Grande: But what is interesting actually, let's look at the context of that. There’s a lot of dumb money. You know, let's be honest. There is an awful lot of money that is just being spent. How many people back in 2007 just wanted to have a TV channel ? It was not about anything more.
Literally, I want a TV channel, I want a boat, I want a TV channel, I want a plane. You know, what is interesting now in the world of digital is that actually it is a lot cheaper to do this. So if you look at what is happening, you know, I am getting sort of hit by emails from people like Vimeo and so forth to launch my OTT platform tomorrow.
[00:28:35] Nick Grande: And this is me personally, like launch my gym lessons TV platform or whatever happens to you personally. Yeah, I think obviously look at me and they think, you know, he is a very healthy guy. It is much much easier from a technical point of view, you do not need $350,000 a year to buy a satellite slot.
You don’t need to have a full playout kit and so forth. You can literally outsource all the platforms side to some business elsewhere and then concentrate on the shows and the shows themselves you can even outsource that.
So of course, what people forget is that actually, even when I was working at Showtime, about 20% of our revenue was spent on marketing and we were sort of shading profitability at the time.
[00:29:20] Nick Grande: So what that meant was we were probably spending about 30, 35 million dollars on our marketing, something like that. I do not think many of these AVOD or startup businesses have thought about that aspect, that it is harder now because there are so many more players doing this. So even if you move out of YouTube into your own platform, you have really got to gain mindshare in a big way.
[00:29:45] Karim Sarkis: That is a very good point, Nick, and we have passed the stage where just because I am streaming, I am ahead of the game. That streaming is table stakes now. One thing that I find a bit funny when I look at the talk around FAST for example, for some people it seems like it is a great new innovation.
“Oh, we have streaming channels that are as advertiser-funded, that can be thematic.” That is just taking what cable channels were, or our FTA channels in the Middle East were on satellite, and putting it on streaming. Just because I turn a failing FTA channel into a thematic fast channel doesn't automatically mean I have cracked the business model.
[00:30:23] Nick Grande: It is actually worse than that, because you might have a successful satellite TV channel, but you could easily lose your audience if you push it into a purely digital delivery situation. You probably still need that satellite position if you want to maintain your audience, because you know one of the things that you will often hear, because it is true is, most people of the 500 million people in this region watch satellite TV. Most people do not stream, even in a mature market like the UK, they have now started publishing, the reason it is interesting is Barbara now started publishing like for like numbers for streamers alongside linear, and guess what?
Squid Games was a really big show, but it was number 10 in the top 10, at its peak. That is fine, that’s great, because that is a subscription product. I mean, free TV is still in this market, a whale compared with everything else, it is so much bigger. And MBC channels like MBC 1, MBC 2 are genuinely eating huge proportion of the audience. And there are other networks that, you know, Abu Dhabi particularly with its sports programming, has done really well during Ramadan. They did not think that we’d see the numbers. These networks, they do pick up big audiences, but if you take a middle tier broadcaster who does have an audience, and you stick them on a FAST service, that means that somebody's gonna have to find on their Roku box.
[00:31:52] Nick Grande: So, if you take your existing, moderately successful, maybe you are not profitable, but you know you’ve got an audience even from your social media response, you know you’ve got an audience. If you take that and stick it into FAST as an effort to boost your ad revenue, you might find that the fact that you are somewhere downstream within that ecosystem of a Roku box means you are losing your audience entirely and your ad revenue with it.
[00:32:18] Nick Grande: I think the most aggressive players I have seen so far in fast companies like Euro News, and they really are sort of ahead of the curve in this, but I look at their numbers and across the platforms and I realize that it is still, it is not sufficient to fund a business that is fast, but it is interesting. But my question is this, as a consumer, what it is asking me to do is to ditch my satellite TV box and replace it with a streaming box. Will I then go back to linear? Having made that transition into the world of digital, whether it is through my smart TV or whatever, will I do that or will I go and start looking at Weyyak and looking at Shahid and looking at Vuclip and you know, YouTube and so forth, and never even get to those linear channels.
That is the thing that I keep thinking when I hear people. I feel like FAST is such a sort of a salvation for linear broadcaster, that it predicates itself on the fact that we believe that consumers really want linear. And Netflix experimented with this in France. I haven't seen, I don’t know if anyone knows the results of that, creating linear channels, this idea that you do not want to always have to figure out what to watch.
[00:33:30] Nick Grande: Intuitively, I do not know whether I believe it. I do not know.
[00:33:33] Karim Sarkis: Look, I think one thing that we have to always remind ourselves as people in the media is we tend to get carried away with our own headlines, I think, versus looking at the data of what consumers are actually doing. Even in developed markets, linear still takes up a considerable amount of viewing time.
[00:33:49] Nick Grande: Yep.
[00:33:50] Karim Sarkis: Even more so in the Middle East but what has shifted is the business model behind it, and in the Middle East it is even worse because the business model behind it was not great to begin with and where the advertisers and the options that the advertisers have in terms of where they allocate their money.
But I like a lot the point you were making earlier. Today, if I am MENA – one, there is not such a thing necessarily – I really have to look at the context of who is my audience. Because there are some markets, you know, if we look at broadband penetration rates, they can vary as much as, between 60 to 95%, depending on what markets you are looking at.
If we look at the speed of broadband, if we look at mobile broadband penetration – it is not the same. The purchasing power of consumers is not the same. You cannot come to MENA, suddenly ask people to pay for content, and expect all people to be able to afford it. So this hybrid approach to the markets and understanding who your audience is, really has to influence your approach.
[00:34:43] Nick Grande: Let me give you a concrete example of that: Abu Dhabi media looked at killing off their kids channel at the end of October, and they put out an announcement about it, and there was an absolute uproar from Instagram and social media feeds where they put it, and if you look to what was being said, a lot of it was: look, I do not have the broadband to watch a digital version of things. Why are you assuming that? You know, I want my channel, we love this channel, it is safe, we want it for our kids.
And we've seen this through the eLife data, we could see that Majid was a phenomenal channel. And so it was quite perplexing when that that shift of digital looked like it was gonna happen.
Thankfully, they changed the decision and you know, Majid Kids is there. But that reaction from the audience, the fact they were given the opportunity to respond was very valuable. And you know, it is easy from the Ivory Tower of Dubai or wherever, to forget that actually you have an audience, as a broadcasting industry, you have an audience of whatever it is, 30 million people in Algeria or like, Iraq's a big market, MBC are trying… and each of these markets needs different things. They are different evolutions in terms of broadband, in terms of consumer behaviors. Does benefit from piracy, of course. I mean, most set-top boxes are being sold with a dongle and they are getting everything for nothing or more or more or less, nothing. So that I think probably helps this kind of concept of connected TV at some level.
[00:36:23] Karim Daoud: This brings us to the end of this episode. Thank you so much for a brilliant chat, Nick and Karim, and thanks to you, our listeners, for joining us here today. This was the Strategy& inbold podcast. See you next time.
Who are the gatekeepers of the content that we consume? In this first episode of Season 2, Nick Grande joins Strategy& partners Karim Sarkis and Karim Daoud to uncover the media landscape. Listen in as we dive into global trends in the creator's economy, the oligopolies of the media market, the future of Arabic content, and how it all shapes the Middle East.
Nick Grande
Nick Grande
Managing Director, ChannelSculptor; Founder, mena.tv
Partner, Strategy& Middle East
Karim Sarkis
Partner, Strategy& Middle East
Partner, Strategy& Middle East
Karim Daoud
Partner, Strategy& Middle East
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Season 1: Playing the game
Episode 3: Press play to continue – is the eSports market a game changer?
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Season 1: Playing the game
Episode 3: Press play to continue – is the eSports market a game changer?
Jonathan Trippett [00:00:00] Hello and welcome to another episode of inbold, the podcast from the Strategy& Middle East team. If you joined us last time, you'll know that this is the podcast that talks to real experts with hands-on knowledge, sharing their insights on significant trends, future outlooks and the opportunities. In short, we go behind the headlines to see what's underlying the news, and it's great to have you back with us. My name is Jonathan and I'm your host for today. And if you joined us in the last couple of episodes, you know we've been exploring the world of gaming and looking at how to capitalize on these opportunities both globally and in the region.
And today we're going to talk about the eSports market, one of the world's fastest growing technical and entertainment industries. And it's been witnessing a lot of growth and momentum over the last year or two. COVID has inevitably had an impact, but there's also many other factors underlying the growth here. And I'm delighted that we have two real experts to help me understand more and help us understand this market better.
So, we have Jad El Mir from Strategy& in the Middle East and Badr Almarshoud, who's head of stc play. So, gentlemen, thank you very much for joining us here today. It's great to have you with us.
Jad, I'd like to ask you first, if I may. Could you just help us understand what is exactly eSports? Give us a brief definition of that.
Jad El Mir [00:01:36] Thank you, Jonathan. Lovely to meet you and great to be here together with Badr in discussing this exciting topic. In simple terms, eSports is basically making online gaming a spectator sports. So you can imagine it as the experience of watching a professional sports event, but instead, it will be video gamers competing against each other rather than actual sports players. So, in that case, professional gamers compete against each other’s in leagues, tournaments, and then you have streamers that produce content around their gaming behavior for fans to consume. All of this is actually a great opportunity for advertisers and sponsors to reach a wide audience, and for content providers to distribute entertainment content to a large audience as well. So similarly to any traditional sports industry, the eSports ecosystem has really a wide array of stakeholders, most of which have become forces to be reckoned with, especially publishers and athletes. So, this ranges from game publishers, event organizers, leagues, teams and athletes, brands, digital and linear media that distribute this content, the fans, obviously, but also some governing bodies that are popping up around the world to be able to, let's say, regulate or properly manage this whole ecosystem.
Jonathan Trippett [00:03:14] Fascinating. And are you joining us from the UAE today, is that right?
Jad [00:03:19] I am. I am joining you from Dubai actually, yes.
Jonathan [00:03:25] And what's the weather like today?
Jad [00:03:26] It's a lovely weather today. Can't wait to get out of the office and you know spend some time outside. But yeah, it's a great time to be in Dubai actually, from a weather perspective.
Jonathan [00:03:39] Super. And Badr, where are you joining us from today?
Badr [00:03:43] Hey, Jonathan. I'm actually joining from Riyadh, Saudi Arabia. And glad to be in such a nice podcast with a great topic to discuss.
Jonathan [00:03:54] Fantastic. Badr, whilst we’ve got you, tell us a bit about what's been fueling the growth in eSports recently. It's been growing massively. Is this just a COVID phenomenon or are there more factors underlying that?
Badr [00:04:07] Well said, Jonathan. I think big part of that was the COVID phenomenon, which actually put people in a position where they need to spend more time. And gaming eventually was one of these segments that had great attraction into that. And the concept behind it was putting people together with the social distance that's there - the online gaming has played a big role. Not to forget that gaming by itself is considered as one of the biggest – if it's not the biggest – media segment, I would say, and that's even before COVID. So, yeah, COVID has played a great role, definitely, yet in general, it is one of the biggest considered media segments.
Jonathan [00:05:05] And the growth continues, right? Now we're coming out of the pandemic time…
Badr [00:05:10] Definitely, definitely, the potential growth that we're seeing in gaming actually comes across different elements. The phenomena of eSports that actually puts a bigger lifetime for the game after it gets published. You've got fans watching those games being played, you've got professional players being trained to play a specific game. You've got eSports teams forming up and becoming a well-structured organization that has a growth career into it. All of that, if you put them together, they definitely contribute to the growth potential within gaming.
Jad [00:05:57] Let me add to that. I agree with everything that Badr mentioned and yes, indeed. So if we look at numbers – so globally, I mean, it is expected that the eSports market will almost double in the next five years. It's going from a bit more than 1.3-1.4 billion today to roughly 2 and a half billion in the next 5 years. [that’s right] And I would say, in addition to everything that Badr mentioned, that is also the phenomenon of this shift in consumer needs that is fueling this, this popularity of eSports and the advancement of technology. So we have today, you know, significant improvement in connectivity through Fiber, through 5G, that is improving the whole distribution and the reach for both the viewers, but also for the gamers that participate in such events. You have, you know, a shift in the type of games that are played. So more and more people are consuming what we call mobile eSports, so some light applications in emerging markets that are boosting the participation, especially in Asia. Badr mentioned, you know, the emergence of leagues and teams, and this is gaining more and more popularity and helping grow that business. And I would add to that: the increased investments from non-endemic brands. So we're seeing a lot of brands getting excited about this industry and coming in and sponsoring, or even advertising, or even creating events around the eSports leagues and tournaments.
Jonathan [00:07:51] So you mentioned that in your introduction, Jad, so I guess it's a really amazing opportunity for these brands to reach target audience, and a very engaged target audience in a new way. Is that right?
Badr [00:08:04] I think just adding to what Jad was mentioning. It is a great opportunity for brands, and maybe I'll give a quick example in one of the games, if I'm not mistaken, it was League of Legends, you can find Louis Vuitton kind of merchandise within the game. So there is a great association for brands, and eSports is becoming a way for brands to be connected with the gamers’ community. If you can't catch, you know, developing a game for you as a brand, now you have another medium where you can go and get connected through eSports.
Jonathan [00:09:00] That's a very good point. And I guess also, you can get to use the most successful and most popular games. You have always the risk if you develop your own game, that's it may not win.
Badr, while we have you, could you tell me a little bit about how the Middle East region compares to the rest of the world? We talked about the global trends driving this huge growth. What's going on in the Middle East region?
Badr [00:09:09] Well, in the Middle East, we have the best ingredients down here. The number of players is actually quite massive and the appetite of playing games is there, since the beginning. But if we look at, for example, the amount of consumption on gaming video content, Saudi and the Middle East are considered one of the top. That's by the stats of YouTube. If you look at the other side of the story, we're also considered as one of the highest countries who produces this type of content. Now this might not go to the intention of playing game, but that gives you an understanding of how big the content or the video gaming content, whether it's over YouTube or over Twitch or the different streaming platforms, is being produced and consumed.
Jonathan [00:10:08] And you have this amazing youthful demographic in the region as well, which I suppose also helps to create this potential and endless usage.
Badr [00:10:20] Absolutely, absolutely. We do have the youth generation, which definitely helps in that. Although gaming could come across different age brackets and that goes from the casual, hyper casual gamers on using their phones to play these different games, all the way to the professionals that we have. And if I’ll give a quick example on how professionals have been successful coming from this region: The world champion of the FIFA game is actually a Saudi professional player who has managed to maintain that for the last 3 years. And we're seeing others that are actually following the same route. That's on the professional play side. But on the other side, the content creators are actually taking the route into becoming stars when it comes to content creation. And here is the real opportunity by connecting brands, connecting fans and not only playing the game, but also go beyond that.
Jonathan [00:11:31] Got it, got it.
Jad: Yes and Jonathan, I would add also. Behind all of this, all of these great engagements, from players and from the audience here in the region, I think there are a lot of strong enablers that help achieve this. So you've mentioned the demographics before. I would add also the very strong state-of-the-art infrastructure, especially in Saudi Arabia and the UAE. So, for example, Saudi Arabia is ranked first globally in terms of 5G internet speed, and has an average speed that is double the global average. This helps a lot, in enabling that. But also very importantly, we're seeing governments in the region being quite bullish about the sector and investing significantly, mainly with the objective of positioning themselves as the epicenters, or the hub – the global eSports hub – around the world. So we're seeing very large investments, again especially in Saudi Arabia and the UAE, both by governments, mostly, but also by the private sector.
Jonathan [00:12:57] Fascinating, so exciting to think of it becoming the global eSports hub. What needs to happen for that vision to become a reality? What are the steps that need to take place?
Jad [00:13:11] I think for that vision to become the reality, I mean, you need to prepare all the enabling factors that would support that. So be it from an infrastructure perspective, from a governance perspective, but also from an education – so training those athletes, developing or creating academies that would coach and that would bring those players from the grassroots to becoming professionals, and being able to kind of create a certain mechanism where everyone would be interested to come to the region and participate in large events, or large tournaments in the region, that are at the global scale. Maybe I spoke a bit about investments, so one of the most recent investment is what the Sabi Gaming Group, which is an entity created by the Public Investment Fund of Saudi Arabia, the large-scale acquisition that they recently did acquiring ESL, one of the biggest names in eSports events – and FACEIT – both for a value of 1.5 billion dollars. So this is really showing you how much the leadership in the countries here in the region are really keen on positioning their countries, at the forefront of eSports globally.
Jonathan [00:14:52] Badr you're at the heart of this, making this happen on the ground at stc play. What are you seeing? Could you tell me a little bit about the challenges, but also the opportunities. What are the opportunities for all the different players?
Badr [00:15:08] Perfect. So the way we looked at it, especially coming from stc, which is one of the biggest digital enablement mobile operator, I would say, the way we look at it is: how do we enable such an industry to put it on the road for growth. How can we bring the different parties within the industry to be connected, capitalizing on the infrastructure that we have. And I remember we've done that in different non-telco industries. So in media, we've done that in the video distribution. In fintech, we've done that by introducing stc Pay, which is about to become the first digital bank in Saudi – and that was all built on top of the infrastructure. So I second Jad on the enablement part, which is truly required for ensuring the growth.
That's one part of this story. The other part of the story is the way stc play wanted to venture into that, is basically by introducing an engagement platform. So we believe that starting it from the ground up, looking at the community itself, what does the community want, putting the trust in the community that there are brands that are bringing things together, there's a career path into that. If you changed your studies, or you changed your focus toward this, rest assured that there are companies that will take you and give you the career path you want. And all of that comes from the vision itself, the Kingdom vision itself, the investments that were mentioned by Jad, those are only, I believe, the starting point of ensuring the trust and the other movement that comes from a digital enabler like stc is to ensure that there is an enablement, and it's for the community now and for the other parties to capitalize on the momentum and increase or foster the potential growth that might come.
Jonathan [00:17:40] You've spoken about the opportunities, obviously great opportunities for players, for content creators, and for brands. What other parties could benefit from this momentum, from this vision to become an eSports hub?
Badr [00:17:56] Well, I think that if I look across different industries, and I'll give you something that is far away from that, you could talk about restaurants that could benefit out of that. You could talk about cafes that could benefit out of that. We believe that gaming will be in the heart of every different industry. I remember a research that we've looked at that some hotels are actually looking at creating that gaming theme. So it's becoming a segment. It's becoming a theme that everyone should adopt, for them to get closer to the potential new consumers that we're having today. And I mean, it’s endless how would you put that together. And I remember one of the articles that I've read, it says that: A big number of the communication briefs that brands would be coming out with are gaming related, and that's all towards connecting your brands to gamers. It just reminds me 10 years ago, 15 years ago, when social media was the talk of everyone, and everyone wanted to be available in social media. I think that this is happening again with gaming.
Jad [00:19:17] Yeah, and I would add to that. So just imagine the scale that this would give to anyone, to any brand, but also to any performer. You have millions of people, a very large audience that is attending such events. So just take the example of one of the singers or artists that can come and have a concert around that game or tournament that is there. So this band or this singer will have access to the audience of millions of people, which physically this cannot happen. Right? So this is just an example for the entertainment industry. But also think about it also from another angle. If I am to do a small analogy with the professional sports. Go back maybe 100 years from now, so people used to just play football, for example, and there was no industry around it. Now if you look at the football or basketball or any sports industry, it's a huge industry with a lot of new players, a lot of new companies, agencies, etc. Just imagine gamers today that are barely getting paid, or that are doing this out of their own time, just imagine them in a few years being traded for millions of dollars, similar to how Messi and Ronaldo, for example, are traded today. So this is where I think eSports is going in the next few years and it's going fast towards that ambition.
Badr [00:21:08] If I may, Jonathan, the multiplier effect of such industry could actually be used in a different manner. Let's take a simple example: if you have a small city in the country and you want to, you want to create a season in that city. And when I say a season, you want to make restaurants make money, you want hotels to be full, you want to use the convention centers over there. So you want to create a life in a matter of, for example, two weeks, just throw an eSports event on there, bringing gamers together. People will be driving towards that event. So that's the type of multiplier effect when you are focusing into that industry and bringing it together. It can be used in a different industry or in a different purpose, where it could help in shaping up the market.
Jad 00:22:11] Yeah, I think what Badr is mentioning is that, the impact is not only for online players. There is a lot of impact offline. [Absolutely] So he just mentioned a lot of examples on restaurants, hotels, convention centers, etc. but also building those gaming centers where you host players to come and play against each other, or create content from that and distribute it – will pick up a lot, and we're going to see a lot of the emergence of a lot of gaming centers all across the space that's there.
Jonathan [00:22:53] It sounds fascinating and very exciting, but what are the challenges? What could get in the way of this? What needs to be overcome? What should all the stakeholders – and you mentioned a lot of government sponsorship and government vision here – what do they need to be thinking about in order to make this happen?
Jad [00:23:13] I would say the challenges would be around how to properly govern this industry, and, make sure that it remains within certain boundaries where it's well regulated, well controlled if you want. So from a governance perspective, I know we always refer and we compare to professional sports. But here it's a bit different. In professional sports, you have some entities that are governing each sport – example FIFA in football, right? In this case here it will be quite different, because the publishers have the upper hand, because they own the game, and accordingly, it will be hard to create a certain entity that comes here and try to govern, or regulate or put some rules and regulations around that sport. Now some entities are emerging there, none has reached a state where they can claim that they’re a reference for eSports. And I think it will be challenging for one of them to become there, unless they create a certain “raison d’etre” I would say, for what would they do versus what would they leave with the publishers. And I think the number of stakeholders that is involved in this ecosystem is also phenomenal and needs a way to improve collaboration across all of them.
Badr [00:25:07] I mean Jad of you've brought a very important element which is regulating the ecosystem, and regulating how things go within the eSports, and that is actually what is becoming a nightmare for a big part of the ecosystem.
And you're right, the point behind the owner of a specific game is the owner of the regulation on how that game is being played, is it going to an eSport, does it have an event or not – yet putting the right framework from the enablement or the enabler parties, for example, on the country level, on the operator and telecom infrastructure level, will definitely help in driving more momentum for the game publishers to do more towards a specific game.
That's from the eSports side of things. Prior to eSports, you have to create the momentum of games to be developed. There should be new games coming down the road, and you should have developers developing those games and publishers publishing those games. And with that, you would be able to have new content creators that promote these different types of games. And the challenge that is being faced here is basically the educational challenge. So how do you foster the understanding of coding for gaming, or being a content creator for gaming, being considered as a career path. This could come across parents, across universities, across programs that need to be established. And even though if you got to study this, or you put yourself through an educational perspective into this, what about the skills? So where do you get the right skills and how do you put them together? And after all of that, where do you go and work? So do you have a gaming company there? And I think that's where Savvy or PIF has spotted that by creating a gaming company. So, Mr. Developer, if you have the ambitious plan to become part of it, to have a career path in gaming, well, there is a gaming company that’s established, and one day, you can come and join it. So it's a collective work that needs to happen from different sides. And we're so glad in Saudi Arabia and with the vision that we have that gaming is becoming a segment, it's becoming a segment across the different ministries, across the different government bodies in large.
Specifically on the operator side, I would like to share some of the activities that we're doing. Previously, we have never had a gaming experience be monitored across our network. So if you want to invest in gaming and we want to bring gamers together, we have to make sure that our network is suitable or our connection is suitable for gamers. Today we have a special team which consists of gamers. They have their own gaming lab within the network. And all what they do, they focus on: how was the traffic going to FIFA, how was the traffic going to Fortnite, for example? What is the next release? When is the next release coming? So we make sure that our players playing using an stc network are actually having the best experience. All of that will definitely help in releasing some of the challenges, and accordingly supporting the growth of the industry.
Jad [00:29:00] I think this is spot on, maybe if you allow me to just add one small thing, I think Badr hinted to it. But even on the soft side, and when we want to talk about challenges, on the soft side, so I think all over the world, the cultural acceptance, for someone to say that I want to build a career as a gamer, or as a streamer, is still not there yet. I mean, take me, for example, if you ask me or if my daughter comes in 10 years and tells me I want to become a professional gamer, I would still be puzzled, right? So maybe in 10 years that would be different, but…
Jonathan [00:29:50] it’s not the same as a doctor or a lawyer, is it?
Jad [00:29:55] Exactly. I mean, this cultural acceptance needs to evolve. I'm sure it's getting there. We can see a lot of examples, but obviously this will follow as a challenge all over the years.
Jonathan [00:30:09] Interesting, interesting. We've been talking mostly quite generally. We've had a couple of very interesting examples from Badr about what's going on right at the heart of the stc play activities in Saudi Arabia. Could you share a little bit more what's going on in the Kingdom Badr? What do you see and what you are looking forward to over the next couple of years?
Badr [00:30:36] Well, looking at the different plans that has been put in there and the understanding of the ecosystem. Saudi is actually becoming the hub and the capital for gaming, and this will definitely result on different elements. We've heard about the introduction of Triple A studio to be established in Saudi. This will definitely promise and give the promise to the game developers to have the best experience when it comes to game development. The other thing is, the casual gamers and the event organizers are also getting a part of that. So in Saudi, especially in June-July, we usually have what we call Gaming Season that brings different type of IPs, different type of game eSport teams down here to Saudi, where they get connected and exposed to the community. On the other side, the academies are taking a good shape when it comes to the discussion. We've started seeing that happening, and definitely the establishment of gaming centers, because as much as you put on the online, you need to have people on the offline gathering together. So we've started seeing some support when it comes to infrastructural support or financial support for different gaming centers to be rolled out. And all of that will add to the main idea and the concept of making Saudi the capital of gaming.
Jad [00:32:33] And this is all driven by a clear national strategy that the Kingdom has, that is putting a clear vision and a clear ambition for everyone on what they want to achieve, but that also is helping in driving investments and funding wherever needed, you know, through development funds or through direct funds/ from direct funding from the government.
Badr [00:33:10] And I think, if I may, Jonathan, at a certain point of time, and that's very soon. If you're a gamer and if you want to get attached to the gaming industry, I think Saudi would be the best place for you to live in. You will be facilitated to develop your next game. You will be facilitated to become a star when it comes to content creation because everyone, as I've said, across the government bodies and even the private sector is actually marching towards creating that vision.
Jonathan [00:33:43] Fantastic. If someone's listening to this and thinking, wow, tremendous potential here, I want to get involved. Whether they are a brand or a gamer – what would be your advice to them? How can they learn more? How can they get closer to this topic? How can they start their journey to capture some of the opportunities?
Jad [00:34:11] I think in my opinion, they need to move fast, first of all, because everything is going extremely fast and they need to be always up-to-date on what's happening, be it in the region, in the Kingdom or even globally. That's the first recipe. And this necessitates them – if anyone has a certain idea – to execute fast, because really there is no time for a lot of planning and, you know, taking time, because definitely someone else will grab that opportunity ahead of you and your idea might be obsolete in a few weeks. That's, I think, the most important element, to be agile and fast, and be always up to date versus anything that's happening around you. Then the second element, I would say is, know what you want to be in and where you want to play within this whole ecosystem. This is a very wide ecosystem. You cannot do everything, and you cannot be an expert and win in everything. Just decide where based on your capabilities, where is the best area for you to, to play in and to win, and develop your business around that proposition.
Badr [00:35:36] I think Jad, spot on. There's no time to wait on that, for sure. And my recommendation would be: get closer to the right community, be in a place where funding gets there, where infrastructure is there, and where the gamers actually are there. All of that will definitely help in turning ideas and dreams into reality. And not only that, you will get into the flywheel of growth. You will be part of what we consider a growth accelerator, especially down here in Saudi.
Jonathan [00:36:23] Superb. Superb. So, gentlemen, we've been talking a lot, but I'd love to ask you, what are the hot trends, what are the games that you're watching both from an eSports point of view, and also to play yourselves. What are your favorite games right now?
Badr [00:36:44] Well, I do car racing games. And I'm a bit hyper casual, so I've got a couple of games on my phone, whenever I've got the time. But in terms of watching and keeping an eye on games, since I'm in the industry, I usually look at the big games that are being consumed, especially down here. So typically, PUBG Mobile, the Fortnite, FIFA, definitely, we have a great segment for FIFA down here. So yeah, those are the games that I'm keeping an eye on.
Jonathan [00:37:19] Excellent. How about you Jad?
Jad [00:37:24] Myself personally, I'm more of a team games, I would say, or team sports games, so the likes of FIFA. This is where I spend most of my gaming time, whenever I have time. But yeah, so this is mostly where I'm most interested in, in terms of games, but I follow all the other prominent games that Badr mentioned, that are really becoming big, big titles around the world.
Jonathan [00:37:57] Superb. Any final thoughts? So Badr what would you want to leave our listeners with today, if they’re come into this. What are your conclusions?
Badr [00:38:07] The only thing I would say: gaming is becoming the biggest segment in media, and it will be connected to every single consumer, online consumer, even brands. I think the amount of focus that has been put into that industry is worth keeping it on head. Just stay tuned for what's coming up on gaming. And I'm definitely glad to be part of that, Jonathan, with you and Jad.
Jonathan [00:38:37] Absolute pleasure.
Jad [00:38:41] From my side, I would say, what's happening in the industry, in gaming and in eSports more specifically, is phenomenal, and I think everyone, all industries, will need to keep an eye on this because I think everyone has a part to play in this – be it a Real Estate provider, or just an advertiser, or a telecom operator, or whatever industry you're talking about, you can have a certain say or a certain play within that industry. Add to that all the individuals and consumers, the gamers or streamers, that can potentially become the next Ronaldo's and Messi’s of games.
Jonathan [00:39:38] Jad, Badr, thank you so much for your time today. I'm afraid that's all we have time for in today's episode, but it's been a fascinating chat. I've certainly learnt lot, and I can tell you eSports is flying in the Middle East. And very importantly, thank you, dear listener, for tuning in today. I hope today's episode provided some insights and ideas on the tremendous opportunities and growth potential in eSports. You've been listening to the inbold podcast from the Strategy& Middle East team. Thanks to my guests Jad El Mir from the Strategy& Middle East team, and Badr Almarshoud, head of stc play in the Kingdom of Saudi Arabia. Don't forget to subscribe to the channel and whilst you’re there, give us a like and leave a review, and we'll see you on the next episode of inbold.
From connecting brands to connecting fans, the eSports market is expected to double in the next five years. In this episode, we're speaking to experts from Strategy& and stc play as we examine the opportunities that it offers, globally and in the Middle East, and explore whether Saudi Arabia is poised to be the next global eSports hub.
Head of stc play
Badr Almarshoud
Head of stc play
Partner, Strategy& Middle East
Jad El Mir
Partner, Strategy& Middle East
Jonathan Trippett
Jonathan Trippett
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Episode 2: Players, get ready – NFTs, Web 3.0 and the Metaverse, are they the game changers of the future?
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Season 1: Playing the game
Episode 2: Players, get ready – NFTs, Web 3.0 and the Metaverse, are they the game changers of the future?
Jonathan Trippett: Hello and welcome to inbold, the podcast brought to you by Strategy&’s Middle East team. This is the second half of our conversation with our gaming experts, Alexandre and Johnny, where we've been lifting the lid on what's going on in the gaming industry. If you tuned in for the last episode, you'll remember that we opened up the topic, talked about the scale of the opportunity and how that's impacting global businesses, global players, and specifically the Middle East region - how that's different. Today, we're going a bit deeper and we're going to find out more about the trends and what's coming in the future.
So guys, thanks for joining me again. I wondered if we could talk a bit more about some of the trends emerging within the gaming space. And last time we briefly mentioned NFTs, it's something I hear a lot about. I'm not sure how significant that is to the gaming industry, but maybe you can tell me more. Let's just start with a basic definition of NFTs. Johnny, could you help us out with that?
Johnny Yaacoub [00:00:53] An NFT or non-fungible token is basically a digital asset. It's a unique, one-of-a-kind digital asset that belongs to its owner, its sole ownership, and its mere existence on the blockchain – which is a form of a digital ledger, let's say. The existence of it on this blockchain proves irrefutably that you are the owner of this digital asset or NFT. And it could be anything – such as art or music or audio, whatever, in-app game, in-app swords, armors, weapons, you name it. So that's like a simple explanation as to what an NFT is.
When you talk NFTs in general, you want the benefits that NFTs bring you versus how it's been done before. So you want the proof of ownership, you want the security that it allows you online, the transparency that, transactions that are happening, they're actually happening and they cannot be hacked. It opens up a whole new ball game, so you can use your NFT to earn while you're playing. Beyond just earning while playing, you can stake your NFT, which you paid for, and have someone else generate revenue off of it and do a revenue share of whatever earning your NFT actually provided.
It's just opened up the possibility that you can actually live and work off of your digital assets, in the Metaverse. So its revolutionary I think in the way it has changed how we look at gaming and digital ownership in general.
Jonathan [00:02:43] Perfect. And Alexandre, maybe asking you: how significant are NFTs for gaming? Is it the next big thing?
Alexandre Salem [00:02:52] So in terms of revenue opportunity for now, it's still anecdotal, but it's an innovation. What I believe, though, is that it acts as a tip of the iceberg. And what I see as much more fundamental, as a potential revolution in gaming, is the blockchain gaming behind it. So meaning the fact that you can recognise the ownership by the players of virtual assets in games that those players can then trade or keep for long term. And it also means that developers can create new incentives for players to spend time in-game to level up to bring their friends in the game community. And that, to me, is much more significant and much more promising for the gaming ecosystems and the NFT itself.
Jonathan [00:03:45] And am I right in thinking that, you know, previously you would, you know, earn a token or earn a prize, but it would stay largely within that sort of gaming ecosystem, whereas I think one of the possibilities with NFTs is that you can earn within one gaming ecosystem and then take that prize out and exchange it for, you know, other NFTs or even, you know, cryptocurrency or money – it opens the possibilities.
Alexandre [00:04:10] I love your question, Jonathan, because I think that what's at the core of the gaming industry right now and what explains why there is so much excitement is actually the fact that we don't know what's next in the industry. Every year it keeps surprising us in terms of the modus operandi of playing - like what will be the next platform, what will be the new geography, what will be the new monetisation channel? What will be the new ownership model? It's an industry which keeps surprising us every single year, and that's why I love it.
So to answer to your point, Jonathan, NFT is definitely a cool trend. But for me, it's almost anecdotal. I would say that it's the tip of the iceberg of what I perceive as a much more fundamental shift in the industry, which is the Web3 gaming or whatever you want to call it. Some people call it crypto-gaming. The perfect example of this trend right now is Axie Infinity. It is this game which was launched quite recently and which is grabbing a lot of attention in the media. You have dozens of thousands, who stopped working as Uber drivers, and they started spending all their time playing because the game relies on play-to-earn models. So basically, you can monetise your in-game time. And I think that basically Web3 is completely creating new incentives to realign the interest between developers and players. So in the past, basically you had a monopoly of the in-game assets, you had a monopoly by the developer.
What Web3 gaming is doing is to give legal ownership to players over their in-game assets, and this means that you can realign interests and incentives completely between developer and player. I can imagine a world where basically as a developer, I can incentivise my players if they bring new players, if they spend more time, if they pass a level by giving them like a virtual currency, which can then be traded in real currency. So this completely reinvents the will of gaming, and that makes me super, super excited. Axie Infinity I think it's just the beginning of this trend.
And so the second trend, which is exciting for me, is basically the geographic expansion. So we talked about the $178 billion revenue. What's interesting beyond the growth of revenue is how it's split by region. We see that North America and Europe are still growing, but at a slowing pace. What's exciting is that Asia, Middle East, Africa are growing at a huge pace − and that's something which is going to continue, as Johnny was mentioning earlier, it opens a lot of doors for developers, for example, with the opportunity of localising or even culturizing games. For example, you might be tempted to take an existing franchise or IP from the US and to make it more relevant for the Middle Eastern future, and that's something which is being done more and more often.
A trend after Web3 and globalization − the third trend, I would say − is basically the new platforms. So in the last few years, mobile has become de facto the dominating platform under much more revenues than PC and console. I think this is going to be the case for the next few years. But I am very excited about cloud gaming. I think cloud gaming has the potential to add on top of the three billion existing players, one more billion. So cloud gaming, for those who don't know, it's basically a way to stream games - whatever your hardware is, you can play Fortnite on your TV, on your tablet or on your PC, on your phone, and the whole game is streamed from the cloud. So you have all the Big Tech companies which are already investing heavily in this direction. So from Google with Stadia, to Amazon with Luna, to the Chinese Big Tech companies as well. And this could really make accessibility of gaming much bigger in territories such as Africa or the Middle East once 5G is available, of course, in those regions.
Last but not least, so my last trend revolves around the increasing merger and morphing of gaming with other entertainment activities. So we've discussed, for example, the sandbox games such as Roblox or Fortnite, which attract more and more musicians and sports activities. But there is another example which really attracted my attention in the last few weeks – it was a launch on Netflix of Arcane, which is a League of Legends basically story, and Netflix decided to produce and to launch exclusively on its platform this gaming show. And I was really impressed by the quality of the show, but also by the very cool synergies between having like a platform of video content and having a gaming franchise, which is loved by dozens of millions of players. And I think this is once again just the beginning of these trends.
Jonathan [00:09:31] Alexandre, thanks so much for that − super cool. I've taken copious notes on those four trends. I think that's super exciting. It's all, huge potential, but it could go in any direction going forward. So how do the industry giants handle these dynamics? You know, how do the major players, the major participants, navigate this constant evolution?
Johnny [00:09:54] So it's a tricky situation, I have to say, Jonathan. If you follow the news you probably saw late last year, there was this big lawsuit between Apple and Epic Games. And it was basically over the “monopoly” that Apple has on any type of purchase happening on an iOS device, and the revenue share agreements with the developers. So there was no clear winner, I would say. But this is a clear example of how big players are interacting and how they are in conflict, I believe. And this, I think this will open up − adding a trend to what Alexandre said − this is something to watch in the future around, you know, how will developers and distributors compete for a share of wallet from customers. So will Apple maintain their dominance on payment channels and in-app purchases specifically, or will the developers actually try to bypass these first-party store payments? And so this is something to look forward to.
Another thing is the role of regulators. So it's the Wild West kind of these days, especially with Web 3.0, the decentralisation of gaming, and your ownership of your digital assets, etc. So how can regulation enable this whole ecosystem to grow as opposed to hindering it? And there have been a lot of efforts, especially on the e-sports front I believe, in order to create these international committees that govern e-sports or that govern gaming at large, but it's really the power for now is in the hands of the developers. They own the games, they steer the game. But again, regulators are regulators. They have power, they can restrict, they can block or bypass, so that trend is going to be also out there, in terms of how regulators will interact with, on one hand, the developers and the distributors, and on the other hand, as well the consumers. So we've seen in China how the Chinese government basically put a curfew or a limit as to how many hours a day kids/people can play. And this has massive repercussions on the valuations of these big, big gaming developers and distributors. So just with one announcement, a regulator or a government can slash out billions and destroy a lot of economic value out there in the gaming world or anywhere. This is also something to look out for when you discuss dynamics between industry giants and regulators.
Jonathan [00:12:53] Fascinating.
Alexandre [00:12:55] I couldn't agree more with Johnny on the App Store and the app distribution in general on mobile. I think this is a space which is huge in terms of revenue and profitability for the giants, Google and Apple. But because of sets of drivers, this is a space which is ripe for disruption. The data company Newzoo estimates that the search party distribution of games − so everything which is not Google and Apple − is going to increase from 17% to 24% of global revenue by 2025. So I think this is going to become a much more competitive space. And this is related to the increasing push from the regulators towards more competition.
Another reason is that some developers, such as Roblox, are just too big to fail. So basically, they have too much success in terms of engagement and revenue, and basically the negotiation power between app stores on the one hand, and the developer on the other hand, is starting to shift. You feel it, and that's why you can, I mean, Roblox now is still on the App Store, even though they are de facto violating the conditions of the App Store policy. Supposedly, you are not allowed to have games within an app, like what Apple Store calls “an App Store in an App Store”. But Roblox, they still had the option to do it.
A similar story with Netflix. Normally you are not supposed to be able to advertise and to distribute games within an app offered on the App Store. And as you've probably seen in the news recently, Netflix is now including embedding links to download its own games from within the Netflix app. And once again, this is because just Netflix is too big to be excluded from the App Store or from Google Play. It can be compared a bit to Coca-Cola in retail. If you are Carrefour or Waitrose, you are going to probably want to avoid the risk of Coca-Cola refusing to come to your supermarket because you will lose a lot of customers if you don't have Coca-Cola. Roblox is becoming this equivalent on the App Store.
And when it comes to your larger question, Jonathan, which is basically about the Big Tech motivation in general. So it's quite clear that everyone is going in the same direction. So all the big tech companies without exception, are investing in gaming. And so either through first-party investments − like by building business lines from inside the company − or through M&A. But to me, in addition to the regulatory risks that Johnny has already mentioned, there is a more clear risk in my mind, which is: how different the capabilities are in gaming versus the traditional business of these Big Tech companies is. I'm going to take the example of Google − and so Google a few years ago, they invested massively in Stadia. So Stadia was supposed to become the Netflix of gaming for Google. They attracted a lot of very senior people from the industry. It was billions of investments. Sundar Pichai, the CEO of Alphabet, attended the launch of the product on stage – a huge PR activity − and it was revealed, last year, that Google was going to cancel the first party studios investments. And this is a perfect illustration of how difficult it is for a Big Tech company, which is huge in manpower and revenue to stick to what it takes to succeed in gaming. Gaming is a long-term investment. It's a lottery game, basically. It's really a hit driven business. You can reap the benefits from your efforts only years after you started your work. It’s a different level of talent, different level of technology, different tech stack, and you need to make sure that your executives, that your shareholders are patient enough to reap the benefits from your efforts. And it's only very few companies which will see the end of these efforts. We know that Disney also has cancelled its gaming efforts in-house. They announced that their strategy would be now to license their IPs instead of building their own games. So we will see who will be the winner. But it is a very tough transition for these Big Tech companies, and very few of them will succeed I expect.
Jonathan [00:17:36] Huge opportunity, but very difficult to make it work, very difficult for an outside player to come in and be successful in the gaming space.
Johnny [00:17:45] Following up on this, actually, you mentioned a very good let's say dilemma that these big tech players are facing, Alexandre. They all want to be in gaming, clearly, we can see this in their massive acquisitions and announcements, be it in-house or inorganic JVs, etc. They are trying to monetise at the end of the day, and it often fails. We've seen it with Google Stadia, as you mentioned, and another hiccup that I foresee in 2022 is the efforts by these Big Tech players to turn gaming into a subscription model similar to the Netflixes of the world basically. So Microsoft already have their Xbox Game Pass, Nintendo are trying to do it with their Switch online, others are trying to follow suit, PlayStation, etc. It's been there for a while now, but it hasn't really taken off because the economics are quite challenging. I mean, Big Tech players, as you mentioned, it's not clear if they have the stamina and the patience to launch game after game, and refine the hits and phase out the misses. And subscription gaming is a way to bundle all of these games in one service that you spend, you pay per month, and that's it. But you know, games are costly to make and you sell games like these Triple-A hits for 50 60, 70 bucks a copy. So which subscription model is going to merge all of these hits in one subscription? The economics are quite tricky.
To your point on cloud gaming: It's not only tricky from the developer's point of view, but also on the technology and the infrastructure. So the problem it's trying to solve is to become less dependent on advanced hardware. However, you're dependent on quite advanced infrastructure from your telecom operators, be it the ultra-high speeds or low latencies, in order to be able to play a game hiccup-free with no lags. And this is also quite challenging, especially with these super-fast paced online multiplayer games − a nanosecond of delay and you're dead. Cloud gaming kind of like shifted the bottleneck to the infrastructure, as opposed to having it on the device, and that's also been proving challenging to navigate. So there's another dynamic between your infrastructure providers and governments in funding these massive projects as well, as we see in Saudi, for example, on one hand and your developers actually making the games cloud-gaming friendly as opposed to native on your devices.
Jonathan: [00:20:31] Excellent. Thanks. So final question to each of you. What's your advice, given everything you know and everything we've talked about today? What's your advice for someone who wants to get into the gaming market?
Alexandre [00:20:44] I would say that it is very different from 10 years ago, because the barrier to entry has become much higher. It's become a very competitive space. You need to have a very unique positioning in the market to be perceived, to be recognised, to be downloaded, to be played, and to monetise. So you need to make sure that you have something which makes you unique and which brings attention from the player community so it can be a great product. I was referring to Royal Match − so Royal Match is a Match 3, everyone thought that basically everything which could be done has been already done, and they proved that you can still optimise on this genre and they are having a huge success in the last few months.
You can also reinvent completely how the relationship between developers and users is, so that’s the case of Axie Infinity and the Web3 trend. You can adopt the aggregator model, so that's what companies such as Embracer and Stillfront (so I'm doing a bit of advertising) are doing so it’s basically buying studios and trying to put in place synergies to make sure that you can generate revenues in a more competitive way versus the other competitors. And last but not least, you can also try to create synergies with Adtech solutions, so that’s the strategy which is being adopted by companies such as Iron Source or AppLovin. So, by creating synergies between having game studios and also having like AdTech technology.
Jonathan [00:22:24] Super. Johnny, any thoughts from you, any other words of advice?
Johnny [00:22:29] I’ll give a more Middle Eastern perspective, I think there's a significant lack of local content and interested parties who want to venture into gaming in this region, the opportunity is vast – find a few good ideas, develop legitimate MVP's, roll them out, test them with your early subscriber base, refine them, and focus a lot on marketing. I definitely agree with Alexandre, even though it's as decentralised as ever, however, you’re crowded out, there's a lot of supply globally, so there is a lot of noise in terms of people actually finding your game − be it global or regional. Find a couple of niches that are untapped in the region − Arabic content, Middle Eastern settings, you know, the chapters, the actual maps, etc. There's a lot of demand for this, and I think you would be tapping into something unserved yet.
Jonathan [00:23:31] Alexandre, Johnny, I can't thank you enough for everything you've shared over the last two episodes. I've certainly learnt a lot. And I mean, as always, there's so much more I want to ask you guys. But that's all we have time for today. I'll be following this topic going forward, and I'll be fascinated to see how it develops and the impact it has on the Middle East region. And to our listeners, thank you for joining us on these conversations. It's really great to have you with us. If you've enjoyed the discussion, please do subscribe to the channel. And while you're there, leave us a review. Next episode we will be looking in detail at the eSports market: what it is, how we see it developing, and how it could empower tcan we he Middle East region going forward. So see you on the next episode of inbold.
NFTs, Web 3.0 and the Metaverse; what are they and why do they matter? In this episode, we take our discussion with Strategy& and Stillfront gaming experts one step further − as we uncover key emerging trends and the evolving dynamics among the different industry players.
Episode 1: Loading, fast – The business behind gaming
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Season 1: Playing the game
Episode 1: Loading, fast - The business behind gaming
Jonathan Trippett [00:00:04] Hello and welcome to inbold, the podcast brought to you by Strategy&’s Middle East team. This podcast series lifts the lid on some of the most important topics impacting the Middle East region, and globally. We talk to experts to understand what's behind key trends and exciting opportunities, making the most of their knowledge and expertise to get the key insights that make a difference. And thank you, dear listener, for joining us on this journey. We're excited to learn more, together. The first topic we're going to explore is the gaming industry, and I'm really excited that this is the first of two conversations with some real experts on the topic. So I'm going to introduce Alexandre and Johnny. I'm going to get them to introduce themselves, and I'd love to know a little bit more about you guys. Who are you, and how are you? You know, it's been a difficult couple of years for everyone, an interesting couple of years with the pandemic. It's changed things a lot. So I'd love to know how you're doing, where you're based, what you're working on and who you are. Alexandre, could I ask you first?
Alexandre Salem [00:01:06] Thanks for having me. First of all, so I am Alexandre Salem. I am based in London and I am French, Egyptian, British. In the last two years, I have enjoyed a lot, the flexibility offered by the COVID time. I have travelled quite a lot and it allows me basically to work from many sunny places that I didn't know previously. And it also allowed me to hone new skills. I learnt to play the oud, which is a Middle Eastern instrument, but I also started cooking more and more. In terms of like gaming expertise, I spent the last seven years of my career in different executive roles at King, the developer of Candy Crush, where I was a Business Performance Director. Then I shifted to Google, where I was managing the gaming partnerships team across Europe, Middle East and Africa. Then I became a Director globally for Huawei’s Gaming Partnerships Team, and I’ve just joined Stillfront as a Senior Vice President for Operations.
Jonathan Trippett [00:02:04] Thanks for that, Alexander. It’s quite a thing. How do you balance cooking, playing the oud, and playing games? How do you find that?
Alexandre Salem [00:02:11] The reality is that it's a bit chaotic, so I don't really have such great organisation skills. So I end up just going with the flow and I am quite happy with the way it is. So I just try to prioritise whatever comes from the emails and when I have like a few hours in the middle of the day or at the end of the day, I try to play music to change my mind, or to cook for my friends.
Jonathan Trippett [00:02:38] Sounds great. Well, welcome, Alexandre. Thanks for joining us. Johnny, turning to you. You are our resident expert on gaming with Strategy& Middle East. I've read some of the white papers that you've written on the topic about the gaming opportunity and “skin in the game”. Tell us a bit more, who you are and how you are.
Johnny Yaacoub [00:02:58] Thanks, Jonathan. And thank you for having me. So my name is Johnny Yaacoub. I'm a Principal in the Telecom, Media and Technology Practice at Strategy&. I have been with the firm for almost 11 years now, mostly working with telecom and tech players throughout the Middle East. So I'm based out of Dubai. But I, you know, travel all over the region pretty much, at least pre-pandemic. And you asked, how has it changed with the pandemic? So there's less travel for business purposes. Working remotely has been quite good in the sense that, yeah you can pick up some hobbies. You can have a more, let's say, stable lifestyle. So I see Alexandre flaunting his music skills, I might as well do so. I've re-remembered, let's say, my guitar skills, so you could see me shredding some Guns N’ Roses solos here and there in between my calls. And yeah, I've been dabbling in like the world of gaming, decentralised gaming, NFTs crypto, etc., which is, you know, a lot of what we would be talking about now. A key turning points in which had me kind of develop my interest in gaming was - I was doing my MBA at Columbia in New York and the guys behind Oculus were on campus showing off their latest content. So after Facebook bought them out, several of the founders actually left to focus on developing content for VR headsets. And so they gave us like a sneak peek of what's in store - that was back in 2015, actually. So yeah, that kind of piqued my interest and here I am, dabbling in this since then.
Jonathan Trippett [00:04:38] It's fascinating, isn't it? It's fascinating how it's growing, how it's a topic that you read so much about recently, you know, with recent acquisitions and developments. I mean, I was blown away to learn that it's worth, you know, more than 170 billion US dollars a year. And it's growing. Some estimates put it at like, I mean, you guys are the experts, you’ll tell me. But, it's going to be well over $200 billion in the next few years. Help me understand a bit better. Help us understand, you know, put this in real terms. How can you illustrate how big gaming has become, how is it grown? Is it a pandemic thing? Is it just the rise of adoption of digital platforms? You know, why has gaming become so big?
Alexandre Salem [00:05:25] Personally, I would say that first of all, gaming has always been pervasive, and it's fundamentally one of the preferred human activities for thousands of years. So I don't believe that gaming introduced a new paradigm in terms of engagement. What I do believe, though, is that the COVID-19 and the lockdowns, which were associated to COVID-19, have catalysed some underlying trends, which are the fact that gaming is shifting increasingly towards digital, and it's also more and more acceptable in mainstream media and even private circles like, say, friends and family to say, “Oh, I like gaming.” You know, when I grew up as a teenager, the cliché, the prejudice against gaming was quite strong. It was supposed to be an activity, a type of entertainment which was for, you know, young male nerds, basically. And, you know, over the last two decades, I would say that this has shifted completely, not in terms only of data, we know is that nowadays everyone plays across gender, across generation, across social status. But also like, I think there is an increasing acceptability in the wider society. If you look at mainstream media such as, you know, the Guardian, the Financial Times, Le Monde, you have more and more regular features about the gaming trends. Politicians got more and more involved in the gaming communities. I am thinking, for example, of AOC Alexandria, the politician in New York, the politician who used, for example, the Twitch community to raise awareness about her platform. So bottom line, I think what COVID-19 did is increase this space of greater acceptability and greater engagement, greater revenue in gaming. But this was already like a massive industry previously.
Jonathan Trippett [00:07:24] Super interesting and I guess one thing I thought when you were talking there, Alexandre, is, I guess, historically or going back to that sort of prejudice cliché of the nerd, it was a solitary activity. You know, you were on your own in your bedroom, and now it's increasingly a very social activity. I mean, you can connect with people all over the world and develop that. Johnny, is that the right way to think about it? And also, can you pick up my numbers from the beginning? Correct me if I was wrong with those kind of 170 billion to 200 billion+ kind of estimates?
Johnny Yaacoub [00:07:54] Estimates are spot on plus or minus. I mean, we're talking 180 or so billion for this year, 2022. Just to give it some perspective, this is bigger than like the Box Office music and North American sports industries all combined. So it is a massive, massive industry and as Alexandre was rightfully saying, it's been as large for quite a few years now, or decades, actually. But it's come more into, let's say, the headlines more recently with like a lot of acquisitions, a lot of trends, people staying at home because of the pandemic. So it's become more of a social phenomenon where people are sharing their time while playing games. You know, pandemic-driven family gameplay, people or families playing their games together, appeal to a diverse audience, as Alexandre was saying. So it used to be a more of a geeky thing in your basement playing Dota until 4a.m. But you know, with mobile gaming and everyone is connected these days with a mobile device, I mean, the connections, the demographics, or a broader base of the demographic population, have access to games these days. Talk about females, older people, everyone has a phone and is hooked to a game these days. So this is what the pandemic, I think, accelerated or kind of shifted us 3 or 4 years into the future. And this was accompanied by a lot of key offerings from these industry players. So for example, you see these massive concerts inside games. Travis Scott made this huge concert in Fortnite, I believe - 18 or so million viewers at the same time. Which concert have you seen with 18 million attendees? They were all in there virtually, in that party spot, let's say. Big retailers are jumping in - Louis Vuitton have their avatars, they're launching their own games, actually. So everyone is joining in on the action, and it's so decentralised that anyone with a camera and a device can become like a hot-shot in the gaming world. Streamers can do so from their couches at home - live streaming to thousands and millions of people. So this is what really kind of like catalysed and propelled the industry forward. It's this perfect storm of supply and demand factors combining with the pandemic, people stuck at home, and it's exploded in the last couple of years.
Alexandre Salem [00:10:40] So to build on the point of Johnny. So a few years ago, the CEO of Netflix, Reed Hastings, he was asked by an equity research analyst what he was perceiving as the main competition to Netflix. And Reed Hastings, he surprised the audience by saying: the biggest competition to Netflix is actually in Fortnite. It’s not Disney, it's not HBO Max, it's Fortnite. I mean, in general, gaming. And back in the day, I remember the reaction of the investment community was quite surprised. And nowadays, I mean, nobody would dare to put into question this statement because it is quite clear that there is a convergence across the different media verticals. There is a global competition for eyeballs and for entertainment time. And it is quite clear that whether you are into music, into cinema, into gaming, everyone is basically fighting for the audience’s time, and this has become like a huge fight for our attention. And I think, Netflix was a precursor to that. So to put that in line with what Johnny was saying. Yeah, definitely I believe that gaming is now eating the world, and that's why we can basically say that we are getting into the third big era of gaming. So 20, 30 years ago, gaming was basically a box that you were buying in a store - so think of, Doom, do you remember when we were teenagers? So you were buying a box and you would have this game at home. Then from product, gaming became a service - so you could go on the App Store, download the game for free through the freemium innovation. But then this game was permanently updated through new updates from the developer. And now we are in this third era where gaming has become this, like all capturing holistic experience and gaming has become a lifestyle basically similar to a social network. When you go in sandbox games such as, you know, Roblox or Fortnite, you can, as Johnny was saying, you can attend a business meeting, you can attend a concert, you can attend an eSports competition, you can play, you can chat, you can date, you can find a job. And I find this evolution absolutely fascinating. And that's also why you have more and more brands, indeed, which also go there to catch the attention of the audience.
Jonathan Trippett [00:13:12] So up until now, we've been speaking about the global gaming picture, the global phenomenon. Let’s just bring it back to the Middle East region for a moment. And Johnny, let me ask you first because of these white papers that you've written. So what's the opportunity within the Middle East region and are there any specific dynamics in the region that, perhaps, are a little different from the global picture?
Johnny Yaacoub [00:13:39] So I think the opportunity by and large is the localisation of content. So gaming, you can see 2 clear cliques in the gaming world. You have the Western world of gaming, and you have the Asian world of gaming, and the Middle Eastern world is kind of stuck in between, getting hooked onto games of either of the first two worlds, let’s say. And we've seen this among our clients that there's this thirst for local games - either actually translated into Arabic or full storylines, gameplay, and settings that that actually happen in the Middle East. So this has been an untapped area of potential in the Middle East. And so everyone is trying to tap into this. It's easier said than done. But the ultimate objective is what Alexandre hinted at as well, it’s capturing more of the disposable time of people. So you cannot think of it alone, as gaming on its own. We see this among our clients. They’re tech players, they’re big telecom operators, they have a relationship with customers, and they want to make it stronger, they want to retain their customers, and they want to capture new ones and monetise more of their base. Gaming, just like media, for example, streaming etc., is another avenue for these big players to further solidify their hold of their customers, give them good services, and monetise more and more and retain them for the long run. It's a great way to kind of capture the younger, the younger base of the population through gaming. So it's also a bet on the future - if you win over your clients when they're young and they're 15 and 20 years old, that gives you the brand equity to keep them hooked on to your ecosystem for a longer period of time.
Jonathan Trippett [00:15:45] Am I right in thinking that there's a particular opportunity in the Middle East, given the youthful demographic there?
Johnny Yaacoub [00:15:52] Definitely, definitely. I mean, it's a predominately youthful population, and gaming is huge in the Middle East. You see champions like, like Msdossary winning the FIFA competition worldwide. The potential is there, but historically it's been, I'm not going to say frowned upon, but it was always looked at, in the sense that gaming is not a job, gaming is just for lazy people. And in the last couple of years, we've been seeing significant focus on gaming. The social stigma is kind of fading away, and you see these huge national mandates to push on gaming - be it incubating gaming development firms in-house in Saudi Arabia, for example, establishing eSports venues, bringing in top talent, top athletes, top teams to compete - kind of like positioning themselves as the Mecca of gaming in the region and worldwide as well. So definitely all the winds are pushing in the direction of having this Middle Eastern gaming ecosystem explode in growth. And I think this is a definitely a space to watch in the near future.
Alexandre Salem [00:17:07] So personally, I was lucky to organise the first ever gaming summit of Google in the Middle East, and the reason why we invested massively in such a dedicated event in the region is that we perceived that there was a huge mismatch between what we saw as like an appetite for gaming content, and on the other hand, the level of the supply. I remember this was a day where basically, I mean, this was around 2018, where basically a lot of people wanted to play a certain franchise game, but the content was just not available in Arabic. And so Johnny mentions that there is a young demographic differentiation in the Middle East. Lots of young people who are tech savvy, who love gaming. But I would also add that there is also something else which plays in favour of the development of gaming in my view, it's the strong motivation from the local governments and regulators to kind of push for an economic agenda which will take into account that oil and gas is going to diminish over time and that we need to develop other sources of revenue. And for me, there is a news which perfectly reflects that in the last few days, it's the announcement that the PIF, sovereign wealth fund of Saudi Arabia, has created from scratch the Savvy Gaming Group, which is an initiative to basically build a healthy ecosystem in the Middle East for the development of games, but also for eSports. And it was also revealed at the same time that there would be an acquisition by the Saudi Group of ESL, which is a leading eSports events organiser. So I think this is just the beginning of the development of gaming in the region. We have already some few success stories in the region with Jordan and the UAE, which have managed to build successful small ecosystems. But I think it's really the start of this trend. I am really excited by some developers in the region like Jawaker, like Babil Games, like Tamatem, but I think there is much more space for many more.
Jonathan Trippett [00:19:23] It's fascinating. Sorry, go on Johnny.
Johnny Yaacoub Yeah, just to just to follow up on this, Alexandre, fully agree - the focus that we've been seeing on pushing the national agendas or mandates for gaming in the region has been stronger than ever. You see this in the latest acquisitions, exactly, like the creation of Savvy Group and the couple of acquisitions to be made. This has started a few years ago, actually. If you think about it, like PIF Saudi Public Investment Fund, they revealed huge stakes in Activision Blizzard, which, as we all know, got recently acquired by Microsoft for a massive 69 billion dollar acquisition value. So the interest in gaming to diversify is longstanding. And now we're actually in the centre of discussions as to how to take it forward. We've been investing, we have a vision, we know where we want to go, but how do we get there? What are the building blocks to actually speed launch Saudi specifically and the Middle East in general into becoming the epicentre of gaming in the world? So they have global ambitions and this is something impressive and it's actually great to be part of the region at this point in time.
Jonathan Trippett [00:20:40] It's very exciting to hear. So we've talked about the massive global opportunity, we've talked about the opportunity in the region - and this is not just being led by developers now it's already getting the attention of leadership and political support - so the future looks very exciting. You've mentioned it a little bit already, but I'd like to draw out a bit more on the opportunity and the interest from parties beyond developers themselves. What's the opportunity there and how do non-developers achieve success in terms of their own objectives in the gaming space?
Alexandre Salem [00:21:14] So I would start by answering the question ‘why is there an interest for gaming from non-gaming developers’, and then I can go deeper basically into the typology of stakeholders who are getting in. So first of all, why is there such an interest for the gaming vertical coming from out of it? I think the gaming vertical is very unique. We've discussed already about the 178 billion dollar revenue, as Johnny was referring to, gaming is now much bigger than all of the cinema bookings plus music, together, so it's just an indication of how big it has become. In terms of engagement, gaming is also absolutely unique. People spend hours and hours across platforms playing games, so it's a very high engagement activity. But there are other very clear characteristics of gaming. There is a variety of gaming, and so it's - sorry for the gaming jargon - but it's called the Metcalfe's Law. So it's basically a measurement of the virality of gaming. The idea is that if someone likes a game, you can go and stream it on YouTube or on Twitch, and very quickly, without even investing in user acquisition, you can end up having a quite cool audience, a very highly engaged audience. So that distinguishes gaming from other types of entertainment verticals. Another characteristic of gaming, which puts it completely apart, is what I would call ‘the time leverage of gaming’. I will take a concrete example to explain this concept. Supercell has been for the last decade one of the most successful developers globally on mobile, with franchises such as Clash of Clans or Boom Beach or Heyday. And they have a handful of games which have surpassed a billion dollar revenue across platforms and up to a few years ago, they had less than 200 employees. Compare that with any cinema studio or a music label - those are also hit-driven businesses, but you need much more costs, Capex and Opex to get there in terms of revenue. So in other words, yeah, gaming has a much higher time leverage in terms of the comparison of the time engagements versus the time which has been spent creating the content. And that, I think, makes it a very appealing vertical. And the last part about what makes gaming absolutely unique is basically the fact that it has become similar to a social network, as I was saying previously. So in other words, people use it more and more, especially in the Gen Z gaming, as a way to socialise, to meet new people, to interact with brands, and it has become basically a lifestyle. And there is no comparison in other entertainment verticals.
So this can serve as a basis to answer your question, Jonathan, because we see, indeed, a very wide spectrum of stakeholders who want to get involved. So you have governments, first of all, and regulators, who want, for example, to deal with antitrust issues - so we are going to see what will be decided, for example, with the Microsoft- Activision Blizzard deal. We see also governments getting involved because they realise it can be used as a way to incentivise people to have a certain behaviour. We've seen, for example, games being used to raise awareness about COVID-19 health recommendations. So that's government and regulation. We have then the investment stakeholders - you see more and more gaming money into venture capitals, you see institutional investors getting there because the returns are quite attractive in gaming, but you also have the classic Big Tech companies, which realise that the engagement and the revenue opportunity is unique in gaming. And that's why you have basically all the Big Tech companies in the US, of course, but also in Asia, who are getting there. Tencent is, for example, one of the biggest investor globally in the gaming ecosystem, whether in terms of console, PC or mobile. But you have also Google, for example, because beyond Google Play, which is the famous example, Google has many more interests in gaming. They have Stadia, which is a cloud gaming platform. They have of course, Google ads for user acquisition. They have the Cloud, which is leveraged by a lot of gaming developers. They have AdMob for the gaming monetisation. They have YouTube for the streaming of games. So bottom line, yes Big Tech is also massively going there - and I would finish with the Brands. So Johnny was referring to some high fashion brands, which are, for example, Louis Vuitton had built some skins, which are used in League of Legends. Fortnite has attracted a lot of big brands which want to acquire or retain some users. McDonalds had interacted, for example, with Pokémon Go in Japan. So in order to get some Pokémon, you need to go into a McDonalds - and I thought this was a very smart way to optimise traffic into the stores. So, yeah, I would say that the spectrum of new stakeholders is sort of huge, but this needs to be understood through the lens of the specificity of gaming versus other types of entertainment.
Johnny Yaacoub [00:26:59] You have a bit less than 3 billion gamers in the world, so any entity, any organisation, any company whatsoever would want a piece of this. It's almost, you know, a third, if not more, of humanity. So it's really so large that you cannot ignore it. And if you want to innovate to your customers, you want to keep your brand out there, whatever space you operate in, you need to pretty much have a foothold in gaming - whether it's through partnerships, advertisements, sponsorships, events, you know, it's just a vast world and it mimics the real world at this point, without even mentioning eSports and how those dynamics typically pan out.
Jonathan Trippett [00:27:45] It's super interesting. Guys, I could talk to you all day, but I'm amazed at how quickly the time is going. I have a rapid fire question for each of you before I let you go about your days. First one, just to shake it up a little bit. So, Alexandre, when you're not working, you're clearly passionate about gaming, but when it's not for work, when it's not for investment or anything, when you're just gaming yourself, what do you turn to? Do you destroy zombies, do you play FIFA, do you reach for the Fortnite control? What's your game of choice?
Alexandre Salem [00:28:20] So since my childhood, I've been a very usual fan of FIFA. It allows me to display how Marseille is the best team in the world. We haven't won any title in real life for many years, so I can at least make them win in virtual worlds. So that's my way of being a good fan of Marseille. But otherwise on mobile, I've been really impressed lately by Royal Match, which is incredibly, well-polished. It's a ‘match 3 game’. You can think of it as a new version of Candy Crush, but with very well-balanced levels. There is a game I play a bit more for understanding Web3 gaming potentialities, it's actually Axie Infinity that I was referring to earlier. It can give a good idea of what crypto gaming can open in terms of doors for the future.
Jonathan Trippett [00:29:13] Super. Johnny, same question to you. What do you play for fun?
Johnny Yaacoub [00:29:16] So I'm quite an avid gamer. I think I've gone through every type of genre throughout my life. I used to be a massive ‘role-playing game’ and ‘real-time strategy’ fan. So Elder Scrolls Oblivion, for example, Diablo, etc., for the first - and more on the strategy front, StarCraft Warcraft, etc. Time doesn't permit these days, so I'm a FIFA guy. It's always nice to vent out on a game of FIFA with a friend or three. So with my team, actually, we've been playing Call of Duty Mobile a lot, especially in pandemic days when everyone, everything was locked down. I think I got everyone hooked on to it, from the most junior to the most senior folks, it’s nice you can even talk work while on, whilst using the audio of the game, if need be. So yeah, that’s it.
Jonathan Trippett [00:30:09] Thank you, gentlemen. Johnny, Alexandre, thanks so much for your time today. It was a fascinating conversation, I certainly learnt a lot, and thank you, dear listener, for staying with us throughout this inbold podcast from Strategy&. As I said earlier, this was the first of a two-part conversation with these guys. If you enjoyed today's episode, please tune in again to the next one, where we'll be going deep. We’ll be talking about key trends impacting the gaming industry. We’ll be looking towards the future, what could be coming, and we'll be talking about some exciting topics like NFTs and how that impacts gaming. So, please don't forget to subscribe to the channel, and whilst you're there, leave us a review - and we'll see you soon on the next episode of inbold.
The gaming market is making headlines and hitting all-time records. And all eyes are on the industry's next move. In this episode, you'll hear from experts at Strategy& and Stillfront as they examine this sheer growth and deconstruct the video gaming market to highlight fascinating opportunities.
Senior VP of Operations, Stillfront
Alexandre Salem
Senior VP of Operations, Stillfront
Principal, Strategy& Middle East
Johnny Yaacoub
Principal, Strategy& Middle East
Jonathan Trippett
Jonathan Trippett
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