The Cover Story DAZN

- All right, let's get started. I wanna welcome our first guest, Kevin Mayer, Chairman of DAZN. Kevin, thank you so much for joining us. All right, let's get started. Please join me in welcoming our first guest of the day, Kevin Meyer, Chairman of the DAZN. Kevin, thank you so much for joining us. It's great to have you back.

- It's great to be back, and I'm very impressed with your pronunciation of DAZN. Well done, Emily.

- I worked on it.

- Very well done, indeed.

- So let's talk about that. Most people probably know you as the guy who made Disney Plus a monster success, the former CEO of TikTok, but here you are working at this sports streaming giant, DAZN. Talk to us about what it is, what's on it and how big it actually is.

- Yeah, well DAZN is a global sports streaming service. It is the center of gravity. It's biggest markets are in Europe and Asia. We have the big soccer rights that matter in Italy. They're called Serie A. We're just taking over the Premier rights in Italy in the next season that starts in August. We tripled our inventory of Bundesliga rights, which are the big rights in Germany. We have great boxing rights around the world. We had the big Canelo fight that was in Dallas just last weekend that performed really well. And we have the baseball rights. Baseball's the biggest sport in Japan, actually. We have the baseball rights that matter in Japan. So we have a big global service. In the US, it's not quite as well known as maybe ESPN is, but we're growing. We're growing rapidly. It's a lot of fun. You know, I also launched ESPN Plus in the US, and so I have a bit of a history with this online sports streaming business. There's a lot of transition happening. We're at a tipping point. And I think that you'll see going forward, more live sports will be consumed over-the-top, outside of pay TV services, than within paid TV services in the not-too-distant future.

- Now, because you've worked with so many different kinds of content, talk to us about how sports content is different from all the rest.

- Well, I think that there's just a large appetite in the population and audiences around the world for high quality entertainment product, and sports is one of the genres that's a high quality entertaining video product. So it is not that different than the others. Now, a few technical differences, sports are consumed live. And so what you have is one of the most difficult use cases on video delivered over the internet, where you have to encode this event live. If you're looking at on-demand content, let's say on Netflix or Disney Plus or elsewhere, there's a lot of time to compress that signal over and over and over. You can compress those files, so that you can use a lower bit rates to deliver a certain quality of programming. But sports and news is delivered live. So you have one encryption, happens in real time. It's much harder to deliver. Also there's bottlenecks that evolve on the internet, because everyone's watching the same thing at the same time, and that exposes all the most difficult sort of pain points on the internet. So you have to really manage load balancing and some other stuff when you deliver live streaming on the internet. So the live streaming is the most difficult use case, and it is therefore different than entertainment. But I think just from a sort of a commercial perspective, if you deliver in demand programming that people love, whether it be traditional entertainment, scripted or unscripted or sports, there's a big business to be had. And I think there's a long history of the people that connect audiences with high quality entertainment, sports and otherwise, being very profitable.

- Now, given the huge shakeup that's happening right now in distribution, in platforms, it's also impacting the competition for sports rights. Disney just announced a new deal with the MLB for fewer games, but the ability to simulcast on ESPN and ESPN Plus. How do you expect the competition for sports rights to evolve?

- Well, sports rights are scarce and they are unique. And so there's always a competition for sports rights. And that's fine. That's great. I mean, ESPN flourished over the years because they have a flywheel effect. They had a great cable distribution model, and when they bought more expensive rights that were more valuable they could ask the cable operators to pay them a little bit more in affiliate fees, and that affiliate fee increase allowed them to go buy the next set of great rights. And you can see the resonance between those two things, charging more, buying more, charging more, buying more. And they had this great flywheel, that was the effect of that. And I think that's true in over-the-top delivery too. We at DAZN intend to buy great rights. We then intend to market very heavily, get an extremely robust subscriber base, and then be in a position to pay the most for those rights reasonably and profitably next time around. So yes, there's a competition, but there is a reasonableness test that you have to believe in that people... It's hard to break into that positive feedback loop that I just described. And so getting into that flywheel and then maintaining it is key.

- So it seems like the one, you know, the most important thing about sports, that you can watch it live. That's never gonna change. So what do you see as the next level of innovation and engagement when it comes to sports streaming?

- Well, there's a lot of great revenue streams that can accrue. There's the basic subscriptions or pay-per- view events, where people pay for the live sporting events themselves. But we've seen sports betting become a very, very substantial business. It's happening in the US, as, you know, more and more states legalize it. In Europe, it's been legal for quite some time. And in Asia, it's also a legal, generally speaking. So I think if you can combine the sports viewing experience with betting... And betting doesn't just have to be who wins and loses the game. There's all sorts of betting moments that happen throughout the course of a game, who's gonna score the next goal? You know, all sorts of different parameters that you can think of that people can bet on live. So having sports betting attached to the live streaming rights on platforms, which are inherently interactive. DAZN has delivered over-the-top on interactive platforms. So you can place bets. You can talk to your friends You can have an ongoing dialogue. "Hey, I'm doing better than you are. And, you know, you can kind of escalate this whole betting process or fantasy sports process around the live streaming. So I think that's an area that not only DAZN, but others are getting into, that will enhance the economics of sports, generally speaking. You can sell merchandise. There really is no shortage of ancillary revenue streams that can go along with the actual, just sports streaming sale, that I think will grow the marketplace pretty dramatically in the coming years.

- Now at the same time, you know, obviously live sports are the key, but there's so many different ways to watch content in general. And I suppose sports is a little bit unique in that respect, but do you expect there to be consolidation in the streaming market? I mean, can we go on with this many options? It's wonderful to have choice, but it can also be confusing for consumers.

- Well, I think there's a lot of options that would be viable. If you're talking about who's gonna dominate, you know, have a dominant position in a global deployment of their service, like a Netflix or now a Disney Plus, you know, maybe an HBO Max, certainly Amazon Prime and Apple TV Plus, I think there's only a handful of truly global, you know, greater than 100 million subscriber base type of services that can exist, but that doesn't have to define success. Success, you know, both financial and for consumers can happen in a much more niche basis. If you can create a service that has 30, 40, 50 million global subscribers, that can be highly profitable and a great business. And I think there's a multiplicity of those that will exist over time. Some will serve certain audience segments, some will serve certain types of genres of programming, sports or unscripted, or, you know, dramas that are focused on, you know, female audiences, those that are focused on male audiences. I think you'll see a lot of niches survive and thrive, actually. They just won't be 300 million subscribers like Netflix is.

- So all the services you just mentioned, you know, do all of those count in what you see as the future of big global services? Or will some of those services not hit that milestone?

- Hard to say. Frankly, I think that's going to be... I think the economics will probably call for three to four services that could be of that greater than 100 scale. That means one or two of them might not quite make it. I don't know which ones. Clearly, you know, three of 'em have already done. So there's Amazon Prime, there's Netflix and there's Disney Plus. You know, whether or not HBO, AppleTV+, Paramount Plus, which of those can hit that, you know, that high threshold, we'll have to see. I think not all of them, probably.

- Disney just had a big subscriber miss on Disney Plus, though the goal is to get up to 260 million by 2024. I mean, do you see these as sort of small blips in the road? Or are you still long-term bullish?

- Well, I'm long-term bullish. I mean, they had a miss, but they're at 104 million subscribers after, you know, 18 months or so after launch. It's pretty good. Look, that's a big number, the 230 to 260 million. I think that there are very, very smart and responsible executives there, and my old team at Disney. If they say they're on track to hit it, I believe them.

- So clearly you believe there are smaller services that can survive and make a lot of money, be big business, but do you see services out there that aren't gonna survive at all? I mean, clearly there are, you know, dozens of options that are, you know, trying to certainly hit these big milestones or even medium milestones, but it just seems like too much.

- Look, there are, I don't know, hundreds of different services at this point, and not all of them will end up surviving. I think there'll be tiers of them. The top global tiers, again, I think three to four of those will end up being in that big, big global bucket. I think there'll be tens of services, you know, the tens that will be in the, I don't know, 10 to 50 million subscriber base over the next several years. And then you might have a little more than that that's really small and very niche, but you're not gonna have the hundreds and hundreds that we have today. There's always a shakeout in these markets. There's always a gold rush mentality. And it's great to try to serve consumers. I think diversity in voices and diversity in programming choices is a good thing, but they're not all gonna survive. There's no chance that that happens.

- And how much of it is really about, in terms of who survives, is it really about the distribution and the platform model? And how much of it is truly about the content? I mean, I had a guest on recently who said, "Content is the new oil."

- That's good. Look, people subscribe. As much as I love the interface to Disney Plus, as an example, like, I worked long and hard on making the interface and the app really beautiful, you know, emphasizing the brands that Disney have, which is one of the unique selling points of the Disney Plus service, and trying to elevate the interface and the technology and the ease of use and the pricing, frankly, and, you know, to be very important. But at the end of the day, people subscribe to the services for the content that's within it. So the best thing you can do as an interface is to get people to the content they want, and then get out of the way. And, so, therefore, it really is all about content, ultimately. Look, if you serve content up through a very poor interface, or you can't find the content you want, there's barriers in place, some of these services aren't great in terms of the interface, then it's a problem. So I think you have to be as transparent as possible. You have to get people to the content that they really love, and then melt away, and let them watch the content. So when streaming services and streaming music, it's really all about the content, for sure.

- There are some investors who think, because of the massive success of Disney Plus, that Disney doesn't need to own ESPN or ABC anymore. What do you think?

- Look, ESPN Plus has gotten to, I think it was 13 and a half million subscribers, so it's growing, I do think. As I said earlier in this program, I do believe that over-the-top delivery of sports is the future, and it's the now almost really. So I think there's a good future for ESPN, either delivered through the declining pay TV universe, or moving from that into over-the-top. So it's a choice that the management there will have to make as to whether or not that is a very expensive endeavor. You could see Disney deciding to focus, hey, we're entertainment brands, we have those, Marvel, Pixar, Star Wars, Disney. We have those brands that really matter in entertainment. ESPN is, of course, the biggest brand in sports. Whether or not you need to have that, or it's a nice-to-have, it's a decision that they'll have to wrestle with, I think. I'm not sure where they'll come out on that.

- So paint the picture for me, let's say five years from now. I mean, obviously things are changing fast. How does how we watch stuff, whether it's sports or other forms of entertainment, how is it different in five years?

- Well, I think that we're already seeing the multiplicity of different types of content that people love. I mean, I was at TikTok for a while, and that user-generated, you know, AI-driven stream of these very short videos is really enticing. People are spending a lot of time on that. I know I am. I think the average, when I left anyway, was something like over over 60 minutes a day for each user, and there are over 50 million daily users in the US, daily active users of TikTok. That takes up some time. Now, it's on a phone, and it might be video time that might've otherwise have gone to some other purpose. So maybe it's incremental. I think it probably mostly is, but that takes up time. Video games have become an enormously growing engagement modality. And I think that that takes time away from, you know, traditional entertainment and sports video viewing. And then there's, of course, this growing amount of that content through the traditional video content. So I think, first of all, you're gonna have a lot of contention for people's time and attention. And attention is the most valuable thing you can have in this economy and this ecosystem going forward. So I think that that contention is going to be there and it's going to be real. I think it's going to raise the bar for what the creative execution has to be. And one thing I said earlier about content being king and the interface not mattering that much, when you get to the short form video like TikTok offers, the interface and the technology matters even more than the content, I think, because that content, user generated, you know, small little videos, aside from it being put together in a way that is incredibly coincident with what I love and what you love when you watch it, if it wasn't put together in that really great way, you wouldn't find much value in those videos. So there I think it's almost a balance between the video content itself and the way it's delivered, and more in balance. So I think there's a really substantial technology component there that's not quite as important in these other services. So I think there's gonna be a real mix of how people spend their time. The device diversity will be huge. Again, I think short form snackables will be really a mobile phenomenon. Longer form will continue to be viewed on the best available screen, which is typically the television side. But I do think time and attention, that's going to be the coin of the realm in the future.

- Interesting. Now, you've also been busy SPACing. You did a SPAC with Beachbody, and your work at Forest Road. I'm curious though, 'cause I know you're looking for another one, is the SPAC honeymoon over?

- The SPAC honeymoon. It depends on how you define honeymoon. I mean, this gold... Again, I'll use the word gold rush. The gold rush of people piling into SPACs was ridiculous. There has been people that have probably, or teams that don't have as much reason to be the SPAC market, as maybe our team at Forest Road does, have been, you know, maybe spoiling the market a little bit. So there's overwrought. A shakeout is a very healthy thing. I think there's too many SPACs chasing too few companies that deserve to be public high quality companies. So a shakeout will be quite healthy, and there is a shakeout happening now, and happened maybe a little sooner than most people thought. But the onslaught happened a lot faster and sooner than most people thought too. So I think that you'll see fewer higher quality SPACs actually in the marketplace going forward. I consider Forest Road company, our FRX SPACs to be very high quality. We have a great management team, operators in charge, which I think is really the way to go, versus just finance background people. So I think we have a good team. I think the first deal that we did with Beachbody is great. I think we're being swept up a little bit and the overall asset class being punished somewhat for this oversupply. And I think when this shakes out, real companies like Beachbody, you know, with over a billion dollars of revenue, profitable, growing, and strong double- digit growth for the foreseeable future, I think those companies will end up, you know, being treated like a normal public company will, and will have a stock price that reflects the actual prospects of the company, versus being tied into the SPAC marketplace, which is, of course, now being punished somewhat. So it'll shake out. I think the future of SPAC is another financial instrument. It's going to be a long and healthy one, healthier than it has been in the last year, I think.

- So talk to us about your process. How many companies have you been looking at? How do you vet them? Clearly, you haven't found the next one yet. And do you think you can?

- Oh, yeah, we can. We have a lot of inbound interest for us to take companies public. We've vetted, you know, tens of companies, 30 or 40 companies already by now for the second SPAC. The first SPAC we de-SPACed. We found a merger candidate faster than normal. I think one of the fastest de-SPACs on record. We went public last year, November 30th, with the first SPAC. We announced the February 10th of this year. Very, very fast. This one isn't as fast, which is fine. I have no problem with that at all. You have two years to find a merger partner, so we're nowhere close to that. It's just a couple of months in. And we have some great candidates. We're being ultra choosy right now, which we can afford to be, I guess. I don't wanna sound arrogant, but we have a pick of a lot of great companies. And so we're taking our time and we're choosing right. So I would say that it's not a lack of candidates, it's we wanna get the right fit. And, you know, the team at Forest Road brings a certain set of expertise and a certain set of capabilities, which benefits certain companies more than others. Beachbody was a great example of one that we really connected with in the right way. We wanna find the right candidate now. So we're in good shape. We're not worried. It's gonna be great.

- Well, that leads me to my next question, because I was curious, is the biggest challenge finding the right company, or beating the competition, because there's private equities, there's all different kinds of strategic investors also out there looking for their one, right?

- Yes, it's a good point. And it depends on what you bring to the party. I would say that with Beachbody, we were brought in by the team, who was already in a process of trying to get the right SPAC sponsor. And they reached out to us when we went public, that they'd be the greatest team for us. And they were great teams for other... You know, we're probably not the best team to do certain, you know, biotech type of de-SPACs. That wouldn't be our background. But if you're trying to get a consumer connection, if you're branded, if you have a media component, if you're in the middle of a disruption that happens at the intersection of content, commerce and tech, that type of thing, we're a great team for you. So it really depends on what they're looking for. And by the way, if a company is looking for private equity, that's probably a different company than is looking for a SPAC, 'cause a SPAC is a way to IPO. So we talked to companies that deserve to be and want be public companies. Whereas the private equity guys are continuing to invest, and the venture capitalists are continuing to invest in companies that wanna stay private for now. So there's a definitely a bifurcation there, that we're talking to different assets than the private equity guys. But among the different ways to go public, one of the competitions we have is that a company can go public the regular way, IPO, they can do a SPAC and they can do a direct listing. So that's also competition for us. So you gotta find the right candidate that really values what we bring, and we think that we would also bring value, is the right price, is the right dynamic, and it all works.

- Now, when comes to at-home fitness, and clearly Beachbody is an incredibly successful company, but we're going through another massive transformation right now, where the economy is starting to go back to normal, people are starting to go back to work. How do you see that impacting the home fitness trend that has benefited, you know, many companies, you know, not just Beachbody, but also Peloton and more.

- I think, and time will tell. We don't know for certain, but I feel relatively comfortable that if you look at the COVID effect, and people have said this, so this isn't the most insightful thing in the world, but it had accelerated trends that were already in place. And one of the trends that was in place was people like working out from home. And I think people like to do things more conveniently. Convenience is at a very substantial premium. Again, time and attention. Convenience is really important. And I think people learned in this pandemic that there are certain things you can do at home that you thought you had to go out of the home to do, but maybe you don't have to go out of the home to do it. Some people roll out or their beds, and there's a 30-second walk to whatever room they're doing Beachbody or Peloton, and they're doing it at home super conveniently, versus the 30-minute drive to a gym. I think that that sort of convenience factor stays with people. And if you can replicate what was an out-of-home experience in-home, I think those are the types of permanent resets you'll see coming out of the pandemic. Movies' a good example. You know, you can go to a movie theater and watch a movie, and that's gonna come back to some degree for sure. But I see a permanent reset happening there, because you see the same movie at home in a large screen television. Yeah, it's not quite as large of a screen, the sound system usually isn't quite as good, but it's the same movie. So I do think you're gonna see a reset there. Theme parks, you can wear VR headsets and you can do all that stuff. You can't recreate a theme park experience in your home. You never will be able to do that. So the theme parks are gonna rebound completely and fully. So I think there's a spectrum here. Those things that you can replicate are going to stay at least in a bi-modal sense, where you'll have people that go to the gym and people that also work out of home, or people that just work out at home solely because of the convenience factor. So I don't think that Beachbody is much at risk there at all.

- So with experiences of all kinds rebounding, whether it's theme parks, or going to a movie theater, or travel, going to a restaurant, does that impact how much we're gonna be watching all of these platforms that we talked about at the start? Does that impact the TikToks and the Instagrams of the world if we're gonna have less time to do that stuff at home?

- Short answer, I think it has to. There is going to be some impact. I mean, at home, there was much more time that you could devote to entertainment purposes and to screens and to all that stuff. I think that will decrease somewhat. I'm not sure it'll impact the business model substantially, frankly, because there's such growth inherent to some of the platforms you just mentioned. But, you know, there'll be some impact on that. Again, time and attention. Some of the attention will now be used commuting again. You'll be in the office, where maybe you can't watch your favorite shows at anytime like you could at home. But then again, if you're commuting and you're on a train, and you can watch TikTok on a phone, you know, maybe that's an enhancer to that. I mean, let's look at Quibi. Quibi would've benefited dramatically from a continued commute and a continued out of home lifestyle. So maybe some of the more mobile-centric services will actually benefit from the end of the pandemic. I think some of the ones that really are in-home experiences will suffer somewhat.

- Do you think Quibi just came out at a bad time? I mean, there was a thought that maybe it came out at the right time, because we were all trapped inside. But do you think a model like that could work in some way? Or was that just not the right way?

- Well, look, I think Quibi... You know, there's no one more energetic and more committed and more just unstoppable than Jeffrey Katzenberg. He's an incredible force of nature, and if he couldn't make it work, it can't work. I will say that 100%. But, look, its premise was that you could take these long form, very highly produced stories and put them into bite size, you know, reasonable, you know, like Dickens did. You know, a little chapter at a time, and then it creates a whole novel. And that could've maybe worked if people were out and about, and five minutes snippets of a longer form story, something that was appealing to them. So I think they were harmed by that. I think that they didn't benefit from the at- home moment at all, 'cause they weren't intended to be viewed on a television screen. And that's where people view Netflix and Disney Plus. That's where that's really viewed. So they didn't benefit from that. And I also think it's probably a bit of a mismatch. I don't know that people really want to consume this high production value content that is, at its very core, pretty long form, because it's a story arc that goes on and on and on. I don't know if a phone is the right way to do that. In India, it is. There are certain markets where that actually makes a lot of sense. In the developed Western markets in the US, probably a mismatch of the content type to device also.

- But either way you think there is a shakeup coming? There's no question that the world going back to normal means things are gonna change, whether it's a a lull for some of these platforms or not?

- Yeah, I think it's inevitable that there will be an impact in terms of time spent in front of screens. And this mix of screens, as I described, will likely shift. There's a massive time spent in front of television screens during the pandemic. Some of that will now bleed towards mobile, and that'll favor platforms like Instagram, TikTok and others, I think.

- All right, Kevin, that was very comprehensive. Thank you so much for taking the time to join us. Kevin Mayer, Chairman of the DAZN, and so many other things. Wonderful to have you, appreciate you taking the time.

- Always a pleasure. Thank you.