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Tencent Q4 profit disappoints, but cloud and payments gain ground
China’s Tencent reported disappointing profits in the fourth quarter on the back of surging costs but saw emerging businesses pick up steam as it plots to diversify amid slackening gaming revenues.
Net profit for the quarter slid 32 percent to 14.2 billion yuan ($2.1 billion), behind analysts’ forecast of 18.3 billion yuan. The decrease was due to one-off expenses related to its portfolio companies and investments in non-gaming segments like video content and financial technology.
Excluding non-cash items and M&A deals, Tencent’s net profit from the period rose 13 percent to 19.7 billion yuan ($2.88 billion). The company has to date invested in more than 700 companies, 100 of which are valued over $1 billion each and 60 of which have gone public.
Quarterly revenue edged up 28 percent to 84.9 billion yuan ($12.4 billion) beating expectations.
The Hong Kong-listed company is best known for its billion-user WeChat messenger but had for years relied heavily on a high-margin gaming business. That was until a months-long freeze on games approvals last year that delayed monetization for new titles, spurring a major reorg in the firm to put more focus on enterprise services, including cloud computing and financial technology.
Tencent has received approvals for eight games since China resumed the licensing process, although its blockbusters PlayerUnknown Battlegrounds and Fortnite have yet to get the green light. The firm also warned of a “sizeable backlog” for license applications in the industry, which means its “scheduled game releases will initially be slower than in some prior years.”
Video games for the quarter contributed 28.5 percent of Tencent’s total revenues, compared to 36.7 percent in the year-earlier period. Despite the domestic fiasco, Tencent remains as the world’s largest games publisher by revenue, according to data compiled by NewZoo. The firm has also gotten more aggressive in taking its titles global.
Social network revenues rose 25 percent on account of growth in live streaming and video subscriptions. The segment made up 22.9 percent of total revenues. Tencent has in recent years spent heavily on making original content and licensing programs as it competes with Baidu’s iQiyi video streaming site. Tencent claimed 89 million subscribers in the latest quarter, compared with iQiyi’s 87.4 million.
Tencent has been relatively slow to monetize WeChat in contrast to its western counterpart Facebook, though it’s under more pressure to step up its game. Tencent’s advertising revenue from the quarter grew 38 percent thanks to expanding advertising inventory on WeChat. Ads accounted for 20 percent of the firm’s quarterly revenues.
All told, WeChat and its local version Weixin reached nearly 1.1 billion monthly active users; 750 million of them checked their friends’ WeChat feeds, and Tencent recently introduced a Snap Story-like feature to lock users in as it vies for eyeball time with challenger TikTok.
The “others” category, composed of financial technology and cloud computing, grew 71.8 percent to generate 28.5 percent of total revenues. WeChat’s e-wallet, which is going neck-and-neck with Alibaba affiliate Alipay, saw daily transaction volume exceed 1 billion last year. During the fourth quarter, merchants who used WeChat Pay monthly grew more than 80 percent year-over-year.
Meanwhile, cloud revenues doubled to 9.1 billion yuan in 2018, thanks to Tencent’s dominance in the gaming sector as its cloud infrastructure now powers over half of the China-based games companies and is following these clients overseas. Tencent meets Alibaba head-on again in the cloud sector. For comparison, Alibaba’s most recent quarterly cloud revenue was 6.6 billion yuan. Just yesterday, the e-commerce leader claimed that its cloud business is larger than the second to eight players in China combined.
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Tiger Global and Ant Financial lead $500M investment in China’s shared housing startup Danke
A Chinese startup that’s taking a dorm-like approach to urban housing just raised $500 million as its valuation jumped over $2 billion. Danke Apartment, whose name means “eggshell” in Chinese, closed the Series C round led by returning investor Tiger Global Management and newcomer Ant Financial, Alibaba’s e-payment and financial affiliate controlled by Jack Ma.
Four years ago, Beijing-based Danke set out with a mission to provide more affordable housing for young Chinese working in large urban centers. It applies the co-working concept to housing by renting apartments that come renovated and fully furnished, a model not unlike that of WeWork’s WeLive. The idea is by slicing up a flat designed for a family of three to four — the more common type of urban housing in China — into smaller units, young professionals can afford to live in nicer neighborhoods as Danke takes care of hassles like housekeeping and maintenance. To date, the startup has set foot in 10 major Chinese cities.
With the new funds, Danke plans to upgrade its data processing system that deals with rental transactions. Housing prices are set by AI-driven algorithms that take into account market forces such as locations rather than rely on the hunches of a real estate agent. The more data it gleans, the smarter the system becomes. That layout is the engine of the startup, which believes an internet platform play is a win-win for both homeowners and tenants because it provides greater transparency and efficiency while allowing the company to scale faster.
“We are focused on business intelligence from day one,” Danke’s angel investor and chairman Derek Shen told TechCrunch in an interview. Shen was the former president of LinkedIn China and was instrumental in helping the professional networking site enter the country. “By doing so we are eliminating the need to set up offline retail outlets and are able to speed up the decision-making process. What landlords normally care is who will be the first to rent out their property. The model is also copyable because it requires less manpower.”
“We’ve proven that the rental housing business can be decentralized and done online,” added Shen.
Photo: Danke Apartment via Weibo
Danke doesn’t just want to digitize the market it’s after. Half of the company’s core members have hailed from Nuomi, the local services startup that Shen founded and was sold to Baidu for $3.2 billion back in 2015. Having worked for a business whose mission was to let users explore and hire offline services from their connected devices, these executives developed a propensity to digitize all business aspects, including Danke’s day-to-day operations, a scheme that will also take up some of the new funds. This will allow Danke to “boost operational efficiency and cut costs” as it “actively works with the government to stabilize rental prices in the housing market,” the company says.
The rest of the proceeds will go toward improving the quality of Danke’s apartment amenities and tenant experiences, a segment that Shen believes will see great revenue potential down the road, akin to how WeWork touts software services to enterprises. The money will also enable Danke, which currently zeroes in on office workers and recent college graduates, to explore the emerging housing market for blue-collar workers.
Other investors from the round include new backer Primavera Capital and existing investors CMC Capital, Gaorong Capital and Joy Capital.
China’s rental housing market has boomed in recent years as Beijing pledges to promote affordable apartments in a country where few have the money to buy property. As President Xi Jinping often stresses, “houses are for living in, not for speculation.” As such, investors and entrepreneurs have been piling into the rental flat market, but that fervor has also created unexpected risks.
One much-criticized byproduct is the development of so-called “rental loans.” It goes like this: Housing operators would obtain loans in tenants’ names from banks or other lending institutions allegedly by obscuring relevant details from contracts. So when a tenant signs an agreement that they think binds them to rents, they have in fact agreed to take on loans and their “rent” payments become monthly loan repayments.
Housing operators are keen to embrace such practices because the loans provide working capital for renovation and their pipeline of properties. On the other hand, the capital allows companies like Danke to lower deposits for cash-strapped young tenants. “There’s nothing wrong with the financial instrument itself,” suggested Shen. “The real issue is when the housing operator struggles to repay, so the key is to make sure the business is well-functioning.”
Danke, alongside competitors Ziroom and 5I5J, has drawn fire for not fully informing tenants when signing contracts. Shen said his company is actively working to increase transparency. “We will make it clear to customers that what they are signing are loans. As long as we give them enough notice, there should be little risk involved.”
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NetEase is the latest Chinese tech giant to lay off a big chunk of its staff
NetEase, China’s second-biggest online games publisher with a growing ecommerce segment, is laying off a significant number of its employees, adding to a list of Chinese tech giants that have shed staff following the Lunar New Year.
A NetEase employee who was recently let go confirmed with TechCrunch that the company had fired a large number of people spanning multiple departments, including ecommerce, education, agriculture (yes, founder and executive officer Ding Lei has a thing for organic farming) and public relations, although downsizing at Yanxuan, its ecommerce brand that sells private-label goods online and offline, had started before the Lunar New Year holiday.
Multiple Chinese media outlets covered the layoff on Wednesday. According to a report from Caijing Magazine, Yanxuan fired 30-40 percent of its staff; the agricultural brand Weiyang got a 50 percent cut; the education unit downsized from 300 to 200 employees; and 40 percent of NetEase’s public relations staff was gone.
A spokesperson from NetEase evaded TechCrunch’s questions about the layoff but said the company is “indeed undergoing a structural optimization to narrow its focus.” The goal, according to the person, is to “boost innovation and organizational efficiency so NetEase can fully play to its own strengths and adapt to market competition in the longer term.”
NetEase CEO Ding Lei pictured picking Longjing tea leaves in Hangzhou. Photo: NetEase Yanxuan via Weibo
Oddly, ecommerce and education appear to be some of NetEase’s brighter spots. The company singled them out alongside music streaming during its latest earnings call as the three sectors that saw “strong profit growth potential” and “will be the focus of [the company’s] next phase of strategic growth.” The staff cuts, then, may represent an urgency to tighten the purse strings for even NetEase’s rosiest businesses.
The shakeup fits into market speculation about company staff cuts to save costs as China copes with a weakening domestic economy. JD.com, a rival to Alibaba, is firing 10 percent of its senior management to cut costs, Caixin reported last week. Ride-hailing giant Didi Chuxing plans to let go 15 percent of its staff this year as part of a reorganization to boost internal efficiency, though it’s adding new members to focus on more promising segments.
Alibaba took an unexpected turn, announcing last week that it will continue to hire new talent in 2019. “We are poised to provide more resources to our platforms to help businesses navigate current environment and create more job opportunities overall,” the firm said in a statement.
2018 was a tough year for China’s games companies of all sorts. The industry took a hit after regulators froze all licensing approvals to go through a reshuffle, dragging down stock prices of big players like Tencent and NetEase. These companies continue to feel the chill even after approvals resumed, as the newly minted regulatory body imposes stricter checks on games, slowing down the application process altogether and delaying companies’ plans to monetize lucrative new titles.
That bleak domestic outlook compelled NetEase to take what Ding dubs a “two-legged” approach to game publishing, with one foot set in China and the other extending abroad. Tencent, too, has been finding new channels for its games through regional partners like Sea’s Garena in Southeast Asia.
NetEase started in 1997 and earned its name by making PC games and providing email services in the early years of the Chinese internet. More recently the company has intended to diversify its business by incubating projects across the board. It has so far enjoyed growth in segments like music streaming and ecommerce (which is reportedly swallowing up Amazon China’s import-led service) while stepping back from others such as comics publishing, an asset it is selling to youth-focused video streaming site Bilibili.
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Amazon, Western Union debut PayCode to sell goods in emerging markets and let shoppers pay in cash
While Amazon has been methodical (read: a little slow) in launching local versions of its site for various global markets, it has now embarked on a secondary track to snag more business outside the 14 countries where it has built out full operations.
Amazon has partnered with Western Union to set up a service called PayCode, which lets people shop and pay for Amazon items using local currencies that would not have been accepted on the site before, starting with services in 10 countries: Chile, Columbia, Hong Kong, Indonesia, Kenya, Malaysia, Peru, Philippines, Taiwan and Thailand.
Specifically, shoppers in these markets will now be able to go into Western Union outposts and pay for their Amazon purchases in cash, which also means that payment cards or other virtual payment methods will also not be required to buy from Amazon — one of the barriers to expanding the service up to now into more emerging economies, where card and bank account penetration is much lower than in developed markets like the U.S. and Europe.
“Amazon is committed to enabling customers anywhere in the world to shop on Amazon.com, and a big part of that is to allow customers to pay for their cross-border online purchases in a way that is most convenient for them,” said Ben Volk, director, Payment Acceptance and Experience at Amazon, in a statement. “Amazon PayCode leverages the reach of Western Union to make cross-border online shopping a reliable and convenient experience for customers who do not have access to international credit cards, or prefer to pay in cash.”
In terms of what they will be able to buy, people can shop across the breadth of the Amazon marketplace, but Amazon notes that they will only be able to use PayCode if it’s offered as an option at checkout (which will only happen in the markets where PayCode is supported); if the item that is chosen is “export eligible,” and if the item’s value “exceeds the maximum value allowed for use on this payment type” — although Amazon doesn’t appear to specify what that maximum value is. Once you complete the purchase online (or possibly more likely, on mobile), you get a “PayCode” QR code that you will have 48 hours to take to a Western Union to pay for the goods; otherwise your order gets cancelled.
The deal between Amazon and Western Union was initially announced last October, with very little detail and fanfare. The PayCode name then appeared to leak out a month later around what appeared to be a test in India (where it has not launched… yet). Today was the first time that the companies unveiled the first launch countries.
PayCode is a significant advance for Amazon as it seeks to step up to the next level of being a global e-commerce powerhouse to compete against the likes of Alibaba.
The latter company has made a lot of inroads to work in a wider array of markets beyond its home base of China, specifically tapping into a long tail of supply from its home market and demand for those goods abroad. Alibaba is also taking care of business when it comes to making more seamless transactions related to those trades. Just today, its financial services affiliate Ant Financial announced that it would acquire U.K.’s WorldFirst, which provides foreign money transfer for businesses and individuals, for a price that we heard from sources was in the region of $700 million.
Amazon currently operates 15 Amazon websites globally: in the U.S., U.K., Australia, Brazil, Canada, China, France, Germany, India, Italy, Japan, Mexico, Netherlands, Spain and Turkey. (It appears also to have a Prime-only site in Singapore.) Up to now, these would have been the only countries where Amazon would offer goods in local currencies.
Adding a new tranche of countries using PayCode will potentially massively expand how many people can shop on Amazon without Amazon going through the steps of setting up full-fledged operations in those countries to serve those consumers and sellers. (Or, this being Amazon, this would be a key way for the company to start testing the waters to figure out which market might do best with a full-fledged store.) Over time, you might imagine that Amazon might extend PayCode to markets where it has sites, too, to give shoppers more flexibility in how they pay for goods for themselves or that they are buying for others.
It’s a big market opportunity. Amazon cites estimates from Forrester Research that say cross-border shopping will represent 20 percent of e-commerce by 2022, accounting for $630 billion.
For Western Union, this is a potentially big partnership, too.
Today, PayCode allows people to use Western Union to act as a physical pay station for their Amazon goods, giving Western Union a small cut on those transactions. But you might imagine how this could evolve over time, where remittances sent from family members abroad via Western Union — a very common use of remittance networks — might immediately get redeemed to cover purchases on Amazon.
Similarly, Western Union is working closer with MPesa, the African mobile wallet service that lets people essentially use their phone top-up account as a payment account, and you could imagine how this too could get incorporated into the PayCode experience to facilitate buying and paying on devices, without having to go into Western Union shops and use actual cash.
“We’re helping to unlock access to Amazon.com for customers who need and want items that can only be found online in many parts of the world,” said Khalid Fellahi, SVP and General Manager of Western Union Digital, in a statement. “This is a great example of two global brands innovating and collaborating to bring customers more convenience and choice. In a world where cross-border buyers and sellers are often located on different continents and in completely different financial ecosystems, our platform is ideally suited to solving the complexity of collecting local currency and converting it into whatever currency merchants need on the other end.”
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Foxconn pulls back on its $10 billion factory commitment
Well that didn’t last long.
In 2017, Foxconn announced the largest investment of a foreign company in the United States when it selected Mount Pleasant, Wisconsin for a new manufacturing facility. Buttressed by huge economic development grants from Wisconsin, an endorsement from President Trump, and Foxconn CEO Terry Gou’s vision of a maker America, the plant was designed to turn a small town and its environs into the futuristic “Wisconn Valley.”
Now, those dreams are coming apart faster than you can say “Made in America.”
In an interview with Reuters, a special assistant to Gou says that those plans are being remarkably scaled back. Originally designed to be an advanced LCD factory, the new Foxconn facility will instead be a much more modest (but still needed!) research center for engineers.
It’s a huge loss for Wisconsin, but the greater shock may be just how obvious all of this was. I wrote about the boondoggle just a few weeks ago, as had Bruce Murphy at The Verge a few weeks before that. Sruthi Pinnamaneni produced an excellent podcast on Reply All about how much the economic development of Mount Pleasant tore the small town asunder.
The story in short: the economics of the factory never made sense, and economics was always going to win over the hopes and dreams of politicians like Wisconsin governor Scott Walker, who championed the deal. Despite bells and whistles, televisions are a commodity product (unlike, say, airfoils), and thus the cost structure is much more compatible with efficient Asian supply chains than with American expensive labor.
Yet, that wasn’t the only part of the project that never made any sense. Foxconn was building in what was essentially the middle of nowhere, without the sort of dense ecosystem of suppliers and sub-suppliers required for making a major factory hum. (Plus, as a native of Minnesota, I can also attest that Wisconsin is a pile of garbage).
Those suppliers are everything for manufacturers. Just this past weekend, Jack Nicas at the New York Times observed that Apple’s advanced manufacturing facility in Austin, Texas struggled to find the right parts it needed to assemble its top-of-the-line computer, the Mac Pro:
But when Apple began making the $3,000 computer in Austin, Tex., it struggled to find enough screws, according to three people who worked on the project and spoke on the condition of anonymity because of confidentiality agreements.
In China, Apple relied on factories that can produce vast quantities of custom screws on short notice. In Texas, where they say everything is bigger, it turned out the screw suppliers were not.
There are of course huge manufacturing ecosystems in the United States — everything from cars in Detroit, to planes in Washington, to advanced medical devices in several major bio-hubs. But consumer electronics is one that has for the most part been lost to Singapore, Taiwan, Korea, and of course, China.
Geopolitically, Foxconn’s factory made a modicum of sense. With the increasing protectionism emanating from Western capitals, Foxconn could have used some geographical diversity in the event of a tariff fight. The company is Taiwanese, but manufacturers many of its products on the mainland.
And of course, a research center is still an enormous gain for a region of Wisconsin that could absolutely use high-income, professional jobs. Maybe the process of rolling out a next-generation manufacturing ecosystem will take more time than originally anticipated, but nothing is stopping further expansion in the future.
Yet, one can’t help but gaze at the remarkable naïveté of Wisconsin politicians who offered billions only to find that even massive subsidies aren’t enough. It’s a competitive world out there, and the United States has little experience in these fights.
India may put friction on foreign firms to protect domestic startups
Indian Prime Minister Narendra Modi. (MONEY SHARMA/AFP/Getty Images)
One of the major battles for tech supremacy is over the future of the Indian IT market, which is rapidly bringing more than a billion people onto the internet and giving them robust software services. I’ve talked a bit about data sovereignty, which mandates that Indian data be stored in Indian data centers by Indian companies, pushing out foreign companies like Amazon, Google, and Alibaba.
Now, it looks like India is taking a page from the Asian tiger-school of development, and is going to increasingly favor domestic firms over foreign ones in key industries. Newley Purnell and Rajesh Roy report in the WSJ:
The secretary of India’s Telecommunications Department, Aruna Sundararajan, last week told a gathering of Indian startups in a closed-door meeting in the tech hub of Bangalore that the government will introduce a “national champion” policy “very soon” to encourage the rise of Indian companies, according to a person familiar with the matter. She said Indian policy makers had noted the success of China’s internet giants, Alibaba Group Holding Ltd. and Tencent Holdings Ltd. , the person said. She didn’t immediately respond to a request for more details on the program or its timing.
The idea of national champions is simple. Unlike the innovation world of Silicon Valley, there are obvious sectors in an economy that need to be fulfilled. Food and clothes have to be sold, deliveries made, all kinds of industrial goods need to be built. Rather than creating a competitive market that requires high levels of duplicate capital investment, the government can designate a few companies to take the lead in each market to ensure that they can invest for growth rather than in, say, marketing costs.
If done well, such policies can rapidly industrialize a country’s economic base. When done poorly, the lack of competition can create lethargy among entrepreneurs, who have already won their markets without even trying.
The linchpin is whether the government pushes companies to excel and sets aggressive growth targets. In Korea and China, the central governments actively monitored corporate growth during their catch-up years, and transferred businesses to new entrepreneurs if business leaders failed to perform. Can India push its companies as hard without market forces?
As the technology industry matures in the West, entrepreneurs will look for overseas as their future growth hubs. The challenge is whether they will be let in at all.
Video game geopolitics
Nexon’s MapleStory2 game is one of its most profitable (Screenshot from Nexon) .
Korea and Japan are two of the epicenters of the video game industry, and now one of its top companies is on the auction block, raising tough questions about media ownership.
Nexon founder Kim Jung Ju announced a few weeks ago that he was intending to sell all of his controlling $9 billion stake in the leading video game company. The company has since executed something of a multi-stage auction process to determine who should buy those shares. One leading candidate we’ve learned is Kakao, the leading internet portal and chatting app in Korea.
The other leading candidate is China-based Tencent, which owns exclusive distribution rights in China of some of Nexon’s most important titles.
Tencent has been increasingly under the sway of China’s government, which froze video game licensing last year as it worked to increase content regulation over the industry. Now the question is whether it will be politically palatable to sell a leading star of Korea’s video game industry to its economic rival.
Mr Wi added that Nexon would be an attractive target for Tencent, which pays about Won1tn in annual royalties to the South Korean game developer. But selling the company to Tencent would be “politically burdensome” for Mr Kim, given unfavourable public opinion in South Korea towards such a sale, he cautioned.
“Political risks are high for the deal. Being criticised for selling the company to a foreign rival, especially a Chinese one, would be the last thing that Mr Kim wants,” said Mr Wi.
Such concerns around Chinese media ownership have become acute throughout the world, but we haven’t seen these concerns as much in the video game industry. Clearly, times have changed.
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This newsletter is written with the assistance of Arman Tabatabai from New York
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The Cloud Native Computing Foundation adds etcd to its open-source stable
The Cloud Native Computing Foundation (CNCF), the open-source home of projects like Kubernetes and Vitess, today announced that its technical committee has voted to bring a new project on board. That project is etcd, the distributed key-value store that was first developed by CoreOS (now owned by Red Hat, which in turn will soon be owned by IBM). Red Hat has now contributed this project to the CNCF.
Etcd, which is written in Go, is already a major component of many Kubernetes deployments, where it functions as a source of truth for coordinating clusters and managing the state of the system. Other open-source projects that use etcd include Cloud Foundry, and companies that use it in production include Alibaba, ING, Pinterest, Uber, The New York Times and Nordstrom.
“Kubernetes and many other projects like Cloud Foundry depend on etcd for reliable data storage. We’re excited to have etcd join CNCF as an incubation project and look forward to cultivating its community by improving its technical documentation, governance and more,” said Chris Aniszczyk, COO of CNCF, in today’s announcement. “Etcd is a fantastic addition to our community of projects.”
Today, etcd has well over 450 contributors and nine maintainers from eight different companies. The fact that it ended up at the CNCF is only logical, given that the foundation is also the host of Kubernetes. With this, the CNCF now plays host to 17 projects that fall under its “incubated technologies” umbrella. In addition to etcd, these include OpenTracing, Fluentd, Linkerd, gRPC, CoreDNS, containerd, rkt, CNI, Jaeger, Notary, TUF, Vitess, NATS Helm, Rook and Harbor. Kubernetes, Prometheus and Envoy have already graduated from this incubation stage.
That’s a lot of projects for one foundation to manage, but the CNCF community is also extraordinarily large. This week alone about 8,000 developers are converging on Seattle for KubeCon/CloudNativeCon, the organization’s biggest event yet, to talk all things containers. It surely helps that the CNCF has managed to bring competitors like AWS, Microsoft, Google, IBM and Oracle under a single roof to collaboratively work on building these new technologies. There is a risk of losing focus here, though, something that happened to the OpenStack project when it went through a similar growth and hype phase. It’ll be interesting to see how the CNCF will manage this as it brings on more projects (with Istio, the increasingly popular service mesh, being a likely candidate for coming over to the CNCF as well).
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Still a year away from launch, Meg Whitman and Jeffrey Katzenberg’s Quibi keeps adding talent
Video won’t start rolling on Meg Whitman and Jeffrey Katzenberg’s new bite-sized streaming service with the billion-dollar backing until the end of 2019, but talent keeps signing up to come along for their ride into the future of serialization.
The latest marquee director to sign on the dotted line with Quibi is Catherine Hardwicke, who will be helming a story around the creation of an artificial intelligence with the working title “How They Made Her,” according to an announcement from Katzenberg onstage at the Variety Innovate summit.
Hardwicke, who directed “Thirteen,” “Lords of Dogtown” and, most famously, “Twilight,” is joining Antoine Fuqua, Guillermo del Toro, Sam Raimi and Lena Waithe in an attempt to answer the question of whether Whitman and Katzenberg’s gamble on premium (up to $6 million per episode) short-form storytelling is a quixotic quest or a quintessential viewing experience for a new generation of media consumers.
Katzenberg also revealed in a LinkedIn post that Quibi would be working on a basketball-related series with Steph Curry’s production company. He wrote:
I announced a new docu-series by Whistle called “Benedict Men” coming exclusively to Quibi. “Benedict Men” will be executive produced by Stephen Curry’s Unanimous Media and will give viewers an inside look at one of the most unique high school basketball teams in America at St. Benedict’s Prep in Newark, New Jersey.
St. Benedict’s Prep is an all-boys secondary school founded on the core belief ‘What Hurts My Brother Hurts Me,’ and aims to foster a legacy of strong character, community, leadership, and faith. As one of the top athletic high schools with a storied basketball program and the highest graduation rate in New Jersey, the series will follow the brotherhood of young men who seek to balance life in complicated surroundings.
In some ways, the big adventure backed by Katzenberg, the former chairman of Walt Disney Studios and founder of WndrCo, and every major Hollywood studio — including Disney, 21st Century Fox, Entertainment One, NBCUniversal, Sony Pictures Entertainment and Alibaba Goldman Sachs — is the latest in an everything old is new again refrain.
If blogs reinvented printed media, and podcasts and music streaming reinvented radio, why can’t Quibi reinvent serialized storytelling.
Again and again, Whitman and Katzenberg returned to an analogy from the early days of the cable revolution. “We’re not short form, we’re Quibi,” said Whitman, echoing the tagline that HBO made famous in its early advertising blitzes. That Whitman and Katzenberg’s project to take what HBO did for premium television and apply that to mobile media is ambitious. Now industry-watchers will have to wait until 2019 at the earliest to see if it’s also successful.
In the interview onstage at a Variety event on artificial intelligence in media, Katzenberg cited Dan Brown’s “The Da Vinci Code” as something of an inspiration — noting that the book had more than 100 chapters for its 500 pages of text. But Katzenberg could have gone back even further to the days of Dickens and his serialized entertainments.
And right now for the entertainment business it really is the best of times and the worst of times. Traditional Hollywood studios are seeing new players like Netflix, Amazon, Apple and others all trying to drink their milkshake. And, for the most part, these studios and their new telecom owners are woefully ill-equipped to fight these big technology platforms at their own game.
Taking the long view of entertainment history, Katzenberg is hoping to win networks with not just a new skin for the old ceremony of watching entertainment but with a throwback to old style deal-making. The term serialization here takes on greater meaning.
Quibi is offering its production partners a sweetheart deal. After seven years the production company behind the Quibi shows will own their intellectual property, and after two years those producers will be able to repackage the Quibi content back into long-form series and pitch them for distribution to other platforms. Not only that, but Quibi is fronting the money for over 100 percent of the production.
Katzenberg said that it “will create the most powerful syndicated marketplace” Hollywood has seen in decades. It’s a sort of anti-Netflix model where Katzenberg and Whitman view Quibi as a platform where creators and talent will want to come. “We are betting on the success of the platform — and by the way, it worked brilliantly in the ’60s and ’70s and ’80s.” Katzenberg said. “Hundreds of TV shows were tremendous successes and [like the networks then] we don’t want to compete with our suppliers.”
In addition to the business model innovations (or throwbacks, depending on how one looks at it), Quibi is being built from the ground up with a technology stack that will leverage new technologies like 5G broadband, and big data and analytics, according to Whitman.
Indeed, launching the first platform built without an existing stable of content means that Quibi is preparing 5,000 unique pieces of content to go up when it pulls the curtains back on its service in late 2019 or early 2020, Whitman said.
And the company is looking to big telecommunications companies like Verizon (my corporate overlord’s corporate overlord) and AT&T as partners to help it get to market. Since those networks need something to do with all the 5G capacity they’re building out, high-quality streaming content that’s replete with meta-tags to monitor and manage how an audience is spending their time is a compelling proposition.
“We want to work to have video that looks good on mobile [and] ramp up content in terms of quantity and quality,” Whitman said. That quality extends to things like the user interface, search features and analytics.
“We have to have a different search and find metaphor,” Whitman said. “It takes eight minutes to find what you’re looking for on Netflix… We will be able to instrument this with data on what people are watching and using that in our recommendation engine.”
Questions remain about the service’s viability. Like what role will the telcos actually play in distribution and development? Can Quibi avoid the Hulu problem where the various investors are able to overcome their own entrenched interests to work for the viability of the platform? And do consumers even want a premium experience on mobile given the new kinds of stars that are made through the immediacy and accessibility that technology platforms like YouTube, Instagram and Snap offer?
“Where the fish are today is a phenomenal environment,” Katzenberg said of the current short-form content market. “But it is an ocean. We need to find a place where there are these premium services.”
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China is funding the future of American biotech
Silicon Valley is in the midst of a health craze, and it is being driven by “Eastern” medicine.
It’s been a record year for US medical investing, but investors in Beijing and Shanghai are now increasingly leading the largest deals for US life science and biotech companies. In fact, Chinese venture firms have invested more this year into life science and biotech in the US than they have back home, providing financing for over 300 US-based companies, per Pitchbook. That’s the story at Viela Bio, a Maryland-based company exploring treatments for inflammation and autoimmune diseases, which raised a $250 million Series A led by three Chinese firms.
Chinese capital’s newfound appetite also flows into the mainland. Business is booming for Chinese medical startups, who are also seeing the strongest year of venture investment ever, with over one hundred companies receiving $4 billion in investment.
As Chinese investors continue to shift their strategies towards life science and biotech, China is emphatically positioning itself to be a leader in medical investing with a growing influence on the world’s future major health institutions.
Chinese VCs seek healthy returns
We like to talk about things we can interact with or be entertained by. And so as nine-figure checks flow in and out of China with stunning regularity, we fixate on the internet giants, the gaming leaders or the latest media platform backed by Tencent or Alibaba.
However, if we follow the money, it’s clear that the top venture firms in China have actually been turning their focus towards the country’s deficient health system.
A clear leader in China’s strategy shift has been Sequoia Capital China, one of the country’s most heralded venture firms tied to multiple billion-dollar IPOs just this year.
Historically, Sequoia didn’t have much interest in the medical sector. Health was one of the firm’s smallest investment categories, and it participated in only three health-related deals from 2015-16, making up just 4% of its total investing activity.
Recently, however, life sciences have piqued Sequoia’s fascination, confirms a spokesperson with the firm. Sequoia dove into six health-related deals in 2017 and has already participated in 14 in 2018 so far. The firm now sits among the most active health investors in China and the medical sector has become its second biggest investment area, with life science and biotech companies accounting for nearly 30% of its investing activity in recent years.
Health-related investment data for 2015-18 compiled from Pitchbook, Crunchbase, and SEC Edgar
There’s no shortage of areas in need of transformation within Chinese medical care, and a wide range of strategies are being employed by China’s VCs. While some investors hope to address influenza, others are focused on innovative treatments for hypertension, diabetes and other chronic diseases.
For instance, according to the Chinese Journal of Cancer, in 2015, 36% of world’s lung cancer diagnoses came from China, yet the country’s cancer survival rate was 17% below the global average. Sequoia has set its sights on tackling China’s high rate of cancer and its low survival rate, with roughly 70% of its deals in the past two years focusing on cancer detection and treatment.
That is driven in part by investments like the firm’s $90 million Series A investment into Shanghai-based JW Therapeutics, a company developing innovative immunotherapy cancer treatments. The company is a quintessential example of how Chinese VCs are building the country’s next set of health startups using their international footprints and learnings from across the globe.
Founded as a joint-venture offshoot between US-based Juno Therapeutics and China’s WuXi AppTec, JW benefits from Juno’s experience as a top developer of cancer immunotherapy drugs, as well as WuXi’s expertise as one of the world’s leading contract research organizations, focusing on all aspects of the drug R&D and development cycle.
Specifically, JW is focused on the next-generation of cell-based immunotherapy cancer treatments using chimeric antigen receptor T-cell (CAR-T) technologies. (Yeah…I know…) For the WebMD warriors and the rest of us with a medical background that stopped at tenth-grade chemistry, CAR-T essentially looks to attack cancer cells by utilizing the body’s own immune system.
Past waves of biotech startups often focused on other immunologic treatments that used genetically-modified antibodies created in animals. The antibodies would effectively act as “police,” identifying and attaching to “bad guy” targets in order to turn off or quiet down malignant cells. CAR-T looks instead to modify the body’s native immune cells to attack and kill the bad guys directly.
Chinese VCs are investing in a wide range of innovative life science and biotech startups. (Photo by Eugeneonline via Getty Images)
The international and interdisciplinary pedigree of China’s new medical leaders not only applies to the organizations themselves but also to those running the show.
At the helm of JW sits James Li. In a past life, the co-founder and CEO held stints as an executive heading up operations in China for the world’s biggest biopharmaceutical companies including Amgen and Merck. Li was also once a partner at the Silicon Valley brand-name investor, Kleiner Perkins.
JW embodies the benefits that can come from importing insights and expertise, a practice that will come to define the companies leading the medical future as the country’s smartest capital increasingly finds its way overseas.
GV and Founders Fund look to keep the Valley competitive
Despite heavy investment by China’s leading VCs, Silicon Valley is doubling down in the US health sector. (AFP PHOTO / POOL / JASON LEE)
Innovation in medicine transcends borders. Sickness and death are unfortunately universal, and groundbreaking discoveries in one country can save lives in the rest.
The boom in China’s life science industry has left valuations lofty and cross-border investment and import regulations in China have improved.
As such, Chinese venture firms are now increasingly searching for innovation abroad, looking to capitalize on expanding opportunities in the more mature US medical industry that can offer innovative technologies and advanced processes that can be brought back to the East.
In April, Qiming Venture Partners, another Chinese venture titan, closed a $120 million fund focused on early-stage US healthcare. Qiming has been ramping up its participation in the medical space, investing in 24 companies over the 2017-18 period.
New firms diving into the space hasn’t frightened the Bay Area’s notable investors, who have doubled down in the US medical space alongside their Chinese counterparts.
Partner directories for America’s most influential firms are increasingly populated with former doctors and medically-versed VCs who can find the best medical startups and have a growing influence on the flow of venture dollars in the US.
At the top of the list is Krishna Yeshwant, the GV (formerly Google Ventures) general partner leading the firm’s aggressive push into the medical industry.
Krishna Yeshwant (GV) at TechCrunch Disrupt NY 2017
A doctor by trade, Yeshwant’s interest runs the gamut of the medical spectrum, leading investments focusing on anything from real-time patient care insights to antibody and therapeutic technologies for cancer and neurodegenerative disorders.
Per data from Pitchbook and Crunchbase, Krishna has been GV’s most active partner over the past two years, participating in deals that total over a billion dollars in aggregate funding.
Backed by the efforts of Yeshwant and select others, the medical industry has become one of the most prominent investment areas for Google’s venture capital arm, driving roughly 30% of its investments in 2017 compared to just under 15% in 2015.
GV’s affinity for medical-investing has found renewed life, but life science is also part of the firm’s DNA. Like many brand-name Valley investors, GV founder Bill Maris has long held a passion for the health startups. After leaving GV in 2016, Maris launched his own fund, Section 32, focused specifically on biotech, healthcare and life sciences.
In the same vein, life science and health investing has been part of the lifeblood for some major US funds including Founders Fund, which has consistently dedicated over 25% of its deployed capital to the space since at least 2015.
The tides may be changing, however, as the recent expansion of oversight for the Committee on Foreign Investment in the United States (CFIUS) may severely impact the flow of Chinese capital into areas of the US health sector.
Under its extended purview, CFIUS will review – and possibly block – any investment or transaction involving a foreign entity related to the production, design or testing of technology that falls under a list of 27 critical industries, including biotech research and development.
The true implications of the expanded rules will depend on how aggressively and how often CFIUS exercises its power. But a lengthy review process and the threat of regulatory blocks may significantly increase the burden on Chinese investors, effectively shutting off the Chinese money spigot.
Regardless of CFIUS, while China’s active presence in the US health markets hasn’t deterred Valley mainstays, with a severely broken health system and an improved investment environment backed by government support, China’s commitment to medical innovation is only getting stronger.
VCs target a disastrous health system
Deficiencies in China’s health sector has historically led to troublesome outcomes. Now the government is jump-starting investment through supportive policy. (Photo by Alexander Tessmer / EyeEm via Getty Images)
They say successful startups identify real problems that need solving. Marred with inefficiencies, poor results, and compounding consumer frustration, China’s health industry has many.
Outside of a wealthy few, citizens are forced to make often lengthy treks to overcrowded and understaffed hospitals in urban centers. Reception areas exist only in concept, as any open space is quickly filled by hordes of the concerned, sick, and fearful settling in for wait times that can last multiple days.
If and when patients are finally seen, they are frequently met by overworked or inexperienced medical staff, rushing to get people in and out in hopes of servicing the endless line behind them.
Historically, when patients were diagnosed, treatment options were limited and ineffective, as import laws and affordability issues made many globally approved drugs unavailable.
As one would assume, poor detection and treatment have led to problematic outcomes. Heart disease, stroke, diabetes and chronic lung disease accounts for 80% of deaths in China, according to a recent report from the World Bank.
Recurring issues of misconduct, deception and dishonesty have amplified the population’s mounting frustration.
After past cases of widespread sickness caused by improperly handled vaccinations, China’s vaccine crisis reached a breaking point earlier this year. It was revealed that 250,000 children had been given defective and fallacious rabies vaccinations, a fact that inspectors had discovered months prior and swept under the rug.
Fracturing public trust around medical treatment has serious, potentially destabilizing effects. And with deficiencies permeating nearly all aspects of China’s health and medical infrastructure, there is a gaping set of opportunities for disruptive change.
In response to these issues, China’s government placed more emphasis on the search for medical innovation by rolling out policies that improve the chances of success for health startups, while reducing costs and risk for investors.
Billions of public investment flooded into the life science sector, and easier approval processes for patents, research grants, and generic drugs, suddenly made the prospect of building a life science or biotech company in China less daunting.
For Chinese venture capitalists, on top of financial incentives and a higher-growth local medical sector, loosening of drug import laws opened up opportunities to improve China’s medical system through innovation abroad.
Liquidity has also improved due to swelling global interest in healthcare. Plus, the Hong Kong Stock Exchange recently announced changes to allow the listing of pre-revenue biotech companies.
The changes implemented across China’s major institutions have effectively provided Chinese health investors with a much broader opportunity set, faster growth companies, faster liquidity, and increased certainty, all at lower cost.
However, while the structural and regulatory changes in China’s healthcare system has led to more medical startups with more growth, it hasn’t necessarily driven quality.
US and Western investors haven’t taken the same cross-border approach as their peers in Beijing. From talking with those in the industry, the laxity of the Chinese system, and others, have made many US investors weary of investing in life science companies overseas.
And with the Valley similarly stepping up its focus on startups that sprout from the strong American university system, bubbling valuations have started to raise concern.
But with China dedicating more and more billions across the globe, the country is determined to patch the massive holes in its medical system and establish itself as the next leader in international health innovation.
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Jeffrey Katzenberg and Meg Whitman announce the name of their stealthy mobile video startup
Onstage at Vanity Fair’s New Establishment Summit in Los Angeles, Jeffrey Katzenberg and Meg Whitman unveiled the name of their highly anticipated mobile video company known until now as NewTV.
The name is Quibi, short for “quick bites,” per a note on its new website: “Something cool is coming from Hollywood and Silicon Valley — quick bites of captivating entertainment, created for mobile by the best talent, designed to fit perfectly into any moment of your day.”
The short-form video service, launching next year, will operate on a two-tiered subscription model similar to Hulu, per Deadline. Quibi is cooking up original content with Oscar-winning filmmaker Guillermo del Toro, Southpaw director Antoine Fuqua and Spider-Man director Sam Raimi, as well as Get Out producer Jason Blum and Van Toffler, the CEO of digital media production company Gunpowder & Sky, a spokesperson for the company confirmed to TechCrunch.
The Hollywood Reporter says the del Toro project “is a modern zombie story,” the Fuqua project is “a modern version of Dog Day Afternoon” and the Blum project, titled Wolves and Villagers, could be compared to Fatal Attraction.
Katzenberg, the former chairman of Walt Disney Studios and founder of WndrCo, a consumer tech investment and holding company, has raised $1 billion for Quibi from Disney, 21st Century Fox, Entertainment One, NBCUniversal, Sony Pictures Entertainment, Alibaba Goldman Sachs, JPMorgan Chase, Madrone Capital and several others. He hired Meg Whitman as Quibi’s CEO in January.
Quibi, given Katzenberg and Whitman’s entertainment and business acumen, is expected to compete with the biggest players in the space, including Instagram, Netflix and Snap, which today announced Snap Originals. The new effort will have the ephemeral messaging service rolling out 12 new scripted shows on its app, from Keeping Up with the Kardashians creator Bunim/Murray, Friday Night Lights writer Carter Harris and more.
Quibi is hiring aggressively, recently bringing on former Instagram product manager Blake Barnes and former Hulu chief technology officer Rob Post.
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Google takes a step back from running the Kubernetes development infrastructure
Google today announced that it is providing the Cloud Native Computing Foundation (CNCF) with $9 million in Google Cloud credits to help further its work on the Kubernetes container orchestrator and that it is handing over operational control of the project to the community. These credits will be split over three years and are meant to cover the infrastructure costs of building, testing and distributing the Kubernetes software.
Why does this matter? Until now, Google hosted virtually all the cloud resources that supported the project, like its CI/CD testing infrastructure, container downloads and DNS services on its cloud. But Google is now taking a step back. With the Kubernetes community reaching a state of maturity, Google is transferring all of this to the community.
Between the testing infrastructure and hosting container downloads, the Kubernetes project regularly runs more than 150,000 containers on 5,000 virtual machines, so the cost of running these systems quickly adds up. The Kubernetes container registry has served almost 130 million downloads since the launch of the project.
It’s also worth noting that the CNCF now includes a wide range of members that typically compete with each other. We’re talking Alibaba Cloud, AWS, Microsoft Azure, Google Cloud, IBM Cloud, Oracle, SAP and VMware, for example. All of these profit from the work of the CNCF and the Kubernetes community. Google doesn’t say so outright, but it’s fair to assume that it wanted others to shoulder some of the burdens of running the Kubernetes infrastructure, too. Similarly, some of the members of the community surely didn’t want to be so closely tied to Google’s infrastructure, either.
“By sharing the operational responsibilities for Kubernetes with contributors to the project, we look forward to seeing the new ideas and efficiencies that all Kubernetes contributors bring to the project operations,” Google Kubernetes Engine product manager William Deniss writes in today’s announcement. He also notes that a number of Google’s will still be involved in running the Kubernetes infrastructure.
“Google’s significant financial donation to the Kubernetes community will help ensure that the project’s constant pace of innovation and broad adoption continue unabated,” said Dan Kohn, the executive director of the CNCF. “We’re thrilled to see Google Cloud transfer management of the Kubernetes testing and infrastructure projects into contributors’ hands — making the project not just open source, but openly managed, by an open community.”
It’s unclear whether the project plans to take some of the Google-hosted infrastructure and move it to another cloud, but it could definitely do so — and other cloud providers could step up and offer similar credits, too.
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