inbold, the Strategy& Middle East podcast

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.

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.

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.