Member Mailing: Three More Acquisitions from Blackstone's Candle Media (Kevin Mayer & Tom Staggs)
Key Takeaways
The new media venture from Blackstone and ex-Disney executives Tom Staggs and Kevin Mayer is now Candle Media
Their business logic, in broad brushstrokes, bets primarily on near-guaranteed growing production revenues from streaming
The challenge for Candle Media in both the creator economy and in OTT streaming is cutting through the competition.
That risk seems greater in the creator economy than in OTT streaming.
If The Curse of Mogul seems poised to "strike back" in 2022, as I wrote for Members on Monday, that would imply nothing but financial upside for production companies. Hundreds of billions of dollars in spend will push up both demand for content and budgets for film and TV series.
That makes Blackstone's bet on a media company with Disney vets Tom Staggs and Kevin Mayer – revealed to be named Candle Media by The Hollywood Reporter last night – seem a bit more prescient: more production companies receiving more budget to produce more content will find growth from an increasingly inelastic demand for new content.
So, it is notable that yesterday The Information's Jessica Toonkel reported Candle Media is acquiring a minority stake in Will Smith and Jada Pinkett Smith’s entertainment company, Westbrook. According to the Wall Street Journal's Ben Mullin, they are paying "about $60 million for more than 10% of company".
Candle Media have made two other notable acquisitions since I first wrote about their investment in Hello Sunshine last August:
Moonbug Entertainment for $3B (November 2021)
Faraway Productions for <$50MM (December 2021)
The investment in Hello Sunshine is both a bet on content and a bet on Reese Witherspoon's online community and e-commerce model (Draper James clothing). Similarly, the investment in Moonbug is also a bet on content, online community, and e-commerce: it owns at least two properties that built extraordinary success on YouTube (CocoMelon and Blippi) that now also have merchandising businesses.
I wrote about the business logic of Candle Media's "Hollywood-meets-creator-economy" bets back in August:
Their bet is the opposite of the Curse of the Mogul: production companies can be integral to building out bigger, Disney-like ecosystems from which both shareholders and talent can reap value and growth from multiple revenue streams.
Meaning, talent and shareholders have multiple paths to a share of growth in the Hello Sunshine model.
That second sentence can be updated now to include Moonbug Entertainment, Faraway Productions, and Westbrook.
Candle Media's business logic, in broad brushstrokes, reflects an interplay of betting on guaranteed growing production company revenues while assuming growth can be found in riskier creator economy business models.
This suggests there are four outcomes across Candle Media's portfolio to anticipate in 2022 and beyond:
Production revenues stay within projections, and creator economy revenues stay flat
Production revenues stay within projections, and creator economy revenues increase
Production revenues increase, and creator economy revenues stay flat
Production revenues increase, and creator economy revenues increase
From the numbers originally shared with The Information about Hello Sunshine's deal price, and its $1B price tag or 3x projected 2022 revenues of $310MM, Mayer and Staggs seem to be conservatively promising outcome #1.
An interesting question is whether their recent acquisitions suggest a bet on production revenues growing and no remaining flat. I think that is a reasonable assumption given trends in the streaming marketplace, as I discussed in Monday's mailing.
The bigger question is whether they can grow creator economy revenues given the evolving competitive dynamics in that marketplace.
Background on Hollywood-Meets-Creator-Economy
I wrote two previous Member Mailings that dove deeper into Hollywood-meets-creator-economy models.
1. Hollywood-meets-Creator-Economy, YouTube, Spotify and OnlyFans (September 2021)
The first was Hollywood-meets-Creator-Economy, YouTube, Spotify and OnlyFans:
Mayer’s and Staggs’ bet is that Reese Witherspoon can become a global “storefront” for her four cornerstones and other brands, as Mayer told Variety’s Cynthia Littleton:
“You should look to see us have multiple revenue streams beyond licensing and owning content. The great first step is to generate brands and franchises,” Mayer said. “We’re going to leverage that connection for other means” in line with the company’s stated focus on e-commerce transactions and building social communities around artists and brands.
Mayer and Staggs imply they value the production model most because the demand for “Category-defining content that commands a marketplace premium” is strong at streaming services:
“We want companies that are producing meaningful, category-defining content brands that resonate with their chosen audiences. We want to do that across multiple audience (sectors),” Mayer said. “There are a lot of those companies out there that would benefit from additional size and scale and to be linked up with like-minded media companies that have must-have content. We think there’s a big revenue lift that will come from tying some great companies together.”
Of the four acquisitions made to date, Moonbug Entertainment and Faraway Productions (which produces the Netflix hit Fauda) best meet the criteria of "meaningful, category-defining content brands that resonate with their chosen audiences".
Reese Witherspoon's Draper James clothing brand and her book club also meet that criteria, but at a smaller scale (Reese Witherspoon does not list her YouTube subscribers, and may not have any, but CocoMelon has 126MM and Blippi has 14.6MM).
2. A Big PR Push from YouTube & Hollywood-Meets-Creator-Economy (October 2021)
The second was A Big PR Push from YouTube & Hollywood-Meets-Creator-Economy. In that essay I dove into the "interesting question" of why, in 2021, both:
YouTube is starting to push its creator economy story more aggressively, and
Hollywood celebrities are starting to pursue more creator economy models on YouTube and other platforms more aggressively.
I compared different creator models from YouTube creator MrBeast and Will Smith and concluded:
* Hollywood talent is moving away from big budget production models to low budget models driven by authenticity, and* larger YouTube creator channels are evolving away from low budget production to reality TV-type production budgets.
The two models create a difficult question for Hollywood talent: where are the financial returns?
Big budget production models in OTT streaming deliver high upfront payments but no residuals. Those are only going to increase in scale and scope as streaming services seek more original content productions.
However, trying to compete on YouTube involves increasingly competing against talent that is "hacking" the Hollywood production model at lower budgets and with better viewership (MrBeast is nearing 200MM views of his $456,000 Squid Game In Real Life! at a budget of $3.5MM). There are 2MM of those creators in YouTube's Partner Program, globally.
Both models deliver lower returns for Hollywood stars and production companies accustomed to long-term residuals. Only in the production model can they expect get higher returns from increases in the scale and scope of OTT streaming production budgets.
The challenge will be to manage the bottom line to improve profitability, and that appears to be what Candle Media will focus on.
Four Potential Outcomes in 2022
As I wrote above, there are four outcomes to anticipate in 2022:
Production revenues stay flat, and creator economy revenues stay flat
Production revenues stay flat, and creator economy revenues increase
Production revenues increase, and creator economy revenues stay flat
Production revenues increase, and creator economy revenues increase
I think it is clear that production revenues are likely to increase across all four companies in Candle Media's portfolio. They all have talent and content that have proven to drive eyeballs on OTT platforms.
For example, it was recently announced that Moonbug Entertainment will bring Blippi: Adventures and Blippi: School Supply Scavenger Hunt to Netflix in all English-speaking regions on January 14th, 2022. It has also been commissioned by Amazon Kids+ to produce a bespoke, long-form original, Blippi’s Treehouse.
The implication is that Moonbug's pre-existing relationships with Netflix and Amazon kids divisions, Hello Sunshine's pre-existing relationships with Apple and HBO Max (Big Little Lies), and Faraway Productions' pre-existing relationship with Netflix's foreign TV division are all "ins" that heighten the probabilities of bigger budgets and new productions.
This means, the X factor in all four outcomes will be the creator economy, which according to Fast Company's KC Ifeanyi, grew in 2021:
More than 50 million people globally consider themselves content creators, and the market size has grown to well over $104 billion. Investors poured a record $1.3 billion into the space. And there’s even been a stronger middle class, with a 41% of creators earning a living wage ($69,000 annually or more) year-over-year.
Ifeanyi also noted that we are in the early days of celebrities figuring out how to make the leap into where Hollywood stardom meets creator economy business models.
Where's The Growth?
Candle Media's portfolio is a mixed bag of bets on the creator economy.
Moonbug Entertainment has moved intelligently into e-commerce transactions (it has its own store with Blippi and CocoMelon merchandise ), and has built social communities on YouTube around its artists (Blippi) and brands (CocoMelon).
Westbrook has had success in the creator economy because both Will Smith and Jada Pinkett-Smith have embraced creative choices on social media platforms like Facebook (Red Table Talk) with a strategy of “humility” and authenticity.
I have previously written that those creative choices may be antithetical to Hello Sunshine's and Reese Witherspoon's brands.
I also wrote that Hello Sunshine faces "execution risks beyond their production models" in the creator economy, like "a trade-off between morality and scale" on platforms like YouTube and OnlyFans.
But, the bigger challenge in the creator economy is "creators lack the ability to sell effectively on platforms" like YouTube, as I wrote in The Creator Economy Sales Funnel Is Evolving.
That has resulted in three challenges for Candle Media's bets on the creator economy:
Creators have increasingly more options to monetize content formats across social media platforms, and
There will be increasingly more content creators competing for the same eyes and ears of audiences across these platforms, but
Those platforms make it increasingly harder to "sell" one's value proposition.
There are no obvious wins.
The outlook remains mixed, at best, for Candle Media's bet on creator economy revenues because the increasing opportunities for growth come with increased competition being funded by the platforms themselves.
Moreover, other than Moonbug Entertainment and perhaps Westbrook (in which Candle Media will not have a controlling interest), none of Candle Media's investments have strong, pre-existing business relationships with creator economy platforms.
Even if there are opportunities to obtain funding from the likes of YouTube, Spotify, and Pinterest, they are likely to be content experiments for Hello Sunshine and not actual growth opportunities.
Conclusion
The point of this essay is not to be bullish or bearish about the future Candle Media. Rather, it is to try to see past the salesmanship of their Hollywood-meets-Creator-Economy model to better understand how they envision the interplay between OTT streaming and creator economy business models.
That is, to the extent that the intersection produces viable business models in the coming years.
As I wrote in A Big PR Push from YouTube & Hollywood-Meets-Creator-Economy:
The bet is generally on the creator economy business logic compensating, if not over-compensating, for whatever income Hollywood talent is losing as streaming shifts the Hollywood model away from revenue-sharing.
But, how will Candle Media's bets scale on these platforms?
Let's assume they do find scale: the challenge for Candle Media in both the creator economy – as in OTT streaming – will be cutting through the competition of an exponentially growing number of competing content creators who are being funded by the platforms, too.
I wrote in this past Monday AM Briefing about this problem of "cutting through" in OTT streaming:
content spend is escalating, while the risk of "nothing [cutting] through" to mass audiences is escalating. $115B in content spend in 2022 with fewer guarantees of success, if not increasingly opaque definitions of success emerging.
In other words, even with revenue growth from production across its portfolio of investments, Candle Media may struggle to tell a story with its data of competitive success.
Given these dynamics, it would be not unreasonable to assume that the future of Candle Media is betting on the upside from increased production revenues, and whatever Staggs and Mayer can leverage from their Disney background to evolve and grow CocoMelon towards Disney's model.
Otherwise, growth from creator economy models seems speculative given the growing challenge of "cutting through" the competition on platforms. It is not impossible to solve for, but it is a complicated problem into which neither management nor investors may want to invest the time or resources.