Is Netflix Signaling the Demise of Subscriptions?
Netflix stunned the investment world when it announced its first-quarter 2022 earnings on 4/19/22 and reported that it lost about 200,000 subscribers. This sent Netflix’s stock plunging 35% on the following day, according to a Forbes article.The Netflix news came about six weeks after an article in “The Atlantic” predicted that subscriptions had peaked.Have we reached peak subscriptions? Is the Netflix news signaling the demise of the subscription economy?We believe the answer is no.Companies Doing a Good Job Retaining SubscribersChurn is the rate at which customers stop doing business with a company. It is calculated by comparing the number of lost customers to the total number of customers at the start of the period.During 2021, the churn rate for the Subscription Economy Index declined to 5.4% from 6.3% during 2020. The churn rate is actually lower than the 6.1% and 6.5% rates registered in the pre-pandemic years of 2018 and 2019. This implies that, on the whole, companies that offer subscription services are retaining their customers, not losing them.Post-Pandemic NormalizationWhile the pandemic was raging and lockdowns were widespread, subscriptions, particularly for services such as video streaming, digital news and media, and e-learning, surged. So, it should not be a surprise that as infections have waned in number and intensity, and the economy has opened up, there would be some slowdown in growth in these areas.Netflix Had Company-Specific IssuesNetflix’s earnings should not be used to interpolate overall subscription trends as it was affected by some company-specific issues.The company lost 700,000 members from its exit from RussiaLack of content – Netflix lacks big hits, and its franchise-building power is weak compared to how much content it producesCompetition – Netflix never viewed other entertainment companies as their competition. Rather, they considered other activities, like sleep, gaming, and TikTok, as competitors.However, Netflix has faced serious competition from peer streaming companies such as Disney, Discover, Amazon, Apple, etc., which are also well-stocked with original contentBinge model – Netflix basically created the binge model. However, this creates a shorter shelf life for its content.Netflix may be too slow to adjust to new viewer habits. Netflix Argues for Portfolio ApproachThe decline in Netflix stock highlights the potential wisdom in holding a portfolio of stocks that are part of the subscription economy. Company-specific issues may affect stocks from time to time, but overall, we believe that subscription economy stocks represent an attractive investment opportunity.The Fount Subscription Economy ETF (SUBS)The Fount Subscription Economy ETF (SUBS) seeks to provide investment results that, before fees and expenses, generally correspond to the total return performance of the Fount Subscription Economy Index. The Index was designed to measure the performance of companies engaged in the business of providing subscription services, i.e., companies that sell products or services for recurring subscription revenue.SUBS may invest in companies that offer subscription-based pricing models, including those in the technology hardware industry.For a list of fund holdings, please click here. Team, Trefis, Is Netflix Stock’s Post Earnings Sell Off An Opportunity to Buy?, Forbes, 4/22/22 Mull Amanda, This is Peak Subscription, The Atlantic, 3/3/22 The Subscription Economy Index, Zuora, February 2022; The Subscription Economy Index is designed to measure the growth in the volume of business for subscription-based products and services. Forbes, 4/22/22 Adalian, Josef, Netflix’s Bad Habits Have Caught Up With It, Vulture, 4/21/22
Companies Investing Big on the Metaverse
As excitement surrounding the possibilities offered by the metaverse grows, major technology companies are also expressing their enthusiasm by announcing major expansions in the space. What large companies are investing in the metaverse? Whatdoesthis mean?Facebook Becomes MetaIn October 2021, the company then known as Facebook changed its name to Meta to emphasize its metaverse vision. Mark Zuckerberg, Facebook founder, stated during the company’s annual developer’s conference, “From now on, we are going to be Metaverse first, not Facebook.” Predicting that one billion people will be on the metaverse in the next decade, he stressed that the company’s future would focus on building virtual reality products that connect users through the new metaverse medium.He described the metaverse as the next generation of the internet.Facebook already has more than 10,000 employees building consumer hardware like Augmented Reality (AR) glasses that Zuckerberg believes will become as ubiquitous as smartphones, as well as Oculus virtual reality (VR) headsets.Microsoft’s Purchase of Activision BlizzardMicrosoft (MSFT) threw its hat in the metaverse ring with its January 2022 announcement that it would pay nearly $69 billion dollars to purchase video game company Activision Blizzard, the creator of such popular gaming franchises as “Call of Duty” and “Candy Crush.” MSFT CEO Satya Nadella explained his rationale for the purchase when he said, “Gaming is the most dynamic and exciting category in entertainment across all platforms today and will play a key role in the development of metaverse platforms.”Qualcomm Launches Metaverse FundIn March 2022, technology hardware company Qualcomm announced the launch of the Snapdragon Metaverse Fund, established to invest up to $100 million in developer and companies building immersive extended reality (XR) experiences, as well as associated AR and artificial intelligence (AI) technologies.Qualcomm is looking to fund developers who want to push the boundaries of what’s possible in a new age of technology.Sony and the Lego Family Invest in Epic GamesIn April 2022, Sony and KIRKBI, the family-owned investment firm behind Lego, announced that they are investing $2 billion in Epic Games, the company behind Fortnite. This announcement follows a partnership announced by Epic and Lego only one week earlier aimed at co-developing a family-friendly metaverse for kids. Lego already has a line of video games based on franchises such as Star Wars and Batman. Sony’s chairman noted that the investment in Epic would help to “deepen our relationship in the metaverse field.”Putting Their Money Where Their Mouth IsThese major deals indicate that large technology companies are willing to invest heavily in what they believe will be the next phase of the internet.How may individuals participate in what may be the next technology boom?While several companies are building out their metaverse strategies, picking the winners is a difficult task.As such, it may be prudent for individuals to invest in a portfolio of metaverse companies.The Fount Metaverse ETF (MTVR)The Fount Metaverse ETF seeks to provide investment results that, before fees and expenses, generally correspond to the performance of the Fount Metaverse Index. The index was designed to measure the performance of companies that develop, manufacture, distribute, or sell products related to metaverse technology.MTVR may be an attractive vehicle for investors looking to invest in the metaverse.For a full list of MTVR holdings, please click here. Bidar, Musadiq, Facebook to Change Corporate Name to Meta, CBS News, 10/28/21 Heath, Alex, Facebook Is Planning to Rebrand the Company with a New Name, The Verge, 10/19/21 Bary, Emily, Microsoft Bets on the Metaverse With $69 Billion Deal for Activision Blizzard, MarketWatch, 1/18/22 Qualcomm Launches $100M Snapdragon Metaverse Fund, Qualcomm Press Release, 3/21/22 Browne, Ryan, Sony and the Lego Family Bet Big on the Metaverse with $2 Billion Investment in Epic Games, CNBC, 4/11/22 Sony and KIRKBI Invest in Epic Games to Build the Future of Digital Entertainment, Epic Games Press Release, 4/11/22
Will You Subscribe to Your Next iPhone?
People are accustomed to subscribing to software services for their desktops, laptops, or tablets rather than purchasing them. However, if Apple Inc. has its way, it may be possible to subscribe to the newest iPhone or Mac. Is subscribing to hardware, or Hardware-as-a-Service (HaaS), the next evolution in the shift from ownership to usership? Why might one want to consider subscribing to hardware?Rent Your Next iPhone?Apple Inc. is working on a subscription service for the iPhone and other hardware products, according to Bloomberg. This could make device usership similar to paying a monthly fee, much as the way that some people pay for software. Bloomberg went on to note that the subscription model may help Apple generate more revenue by making it easier for consumers to spend on new devices.Instead of a large upfront payment, monthly fees may be more financially palatable. Pricing would differ from a monthly installment fee in that the monthly charge would not reflect the price of the device split over a specific number of months. Rather, it would be determined by which device and services the consumer chooses.Start of a TrendIf successful, other companies could adopt a similar plan. HaaS could become the standard for device usership. And the concept could easily move beyond technology. Imagine subscribing to, instead of owning, household appliances like a refrigerator or washing machine.Potential BenefitsThe benefits of HaaS are similar to those offered by other subscription services such as software services. For the consumer, the potential benefits may include lower up-front costs and the ability to try and upgrade to new devices.For companies offering the service, potential benefits include a more predictable and recurring revenue stream, increased engagement with customers, increased return on the cost of acquiring new customers as subscriptions often mean repeat business, and lower retention spending.HaaS ModelsSubscription consultant company Zuora notes three potential hardware subscription models:Hardware-as-a-Service – moves the cost of hardware to a recurring monthly feeHardware enabled services – hardware is priced upfront, but associated software is offered on a subscription basis, e.g., Peloton, which sells the bike but offers subscription-based fitness servicesHardware related consumables-as-a-service – hardware is offered at a low price to drive long-term revenue from the commodities needed to use the hardware, e.g., HP using low-priced printers to sell ink refillsHow may individuals gain exposure to companies that may be well-positioned to benefit from the shift to usership in the technology hardware industry?The Fount Subscription Economy ETF (SUBS)The Fount Subscription Economy ETF (SUBS) seeks to provide investment results that, before feesand expenses, generally correspond to the total return performance of the Fount SubscriptionEconomy Index. The Index was designed to measure the performance of companies engaged in the business of providing subscription services, i.e., companies that sell products or services for recurring subscription revenue.SUBS may invest in companies that offer subscription-based pricing models, including those in the technology hardware industry.For a list of fund holdings, pleaseclick here. Gurman, Mark, Apple Is Working on a Hardware Subscription Service for iPhones, Bloomberg, 3/24/22 See our blogpost How Businesses Might Benefit from a Subscription Model The Hardware-as-a-Service Playbook for Business Model Change, Zuora, Retrieved 4/2022
Will Subscriptions Become the Model for the Gaming Industry?
More gaming companies are offering their products using the subscription model.What companies are leading this trend?What benefits does the subscription model offer in the gaming world? How may investors gain access to companies that may benefit from offering a subscription model?Big Companies Leading the TrendXbox Game Passand PC Game Pass are video game subscription services from Microsoft. Both services offer users a rotating catalog of games from a range of publishers for a single monthly subscription price. Plans vary by offering, and the company is reportedly getting ready to introduce a family plan.Sony recently announced the release of its own version of Microsoft’s Xbox Game Pass, called the PlayStation Plus Collection. The service will come in three tiers called PlayStation Plus Essential, Extra, and Premium. Subscribers will have access to over 400 PlayStation 4 and PlayStation 5 games.Rockstar Games announced a new subscription-based service, GTA Plus, for Grand Theft Auto players. Subscribers will get benefits like exclusive properties in the game, membership discounts, and more.Strong Results from Subscription-Based GamingSome gaming companies are reporting impressive results from their subscription-based platforms. Xbox Game Pass has amassed over 25 million subscribers, according to online magazine TechRadar. The same article highlighted that Xbox subscribers spend 60% more on games, 45% more on add-ons, and tend to play 40% more games than non-subscribers. Games that launch on day one on the subscription model see a 3.5X lift in players, while games from independent developers see an increase of 15X.Potential Benefits of the Subscription ModelSome of the potential benefits of the subscription model in the gaming industry include:Subscribers may be more engaged and spend more time playing games.With gaming add-ons, such as accessories, skins, etc., subscribers may generate more revenue for the gaming company relative to non-subscribers.Predictable revenue – A subscription model may allow companies to build a predictable revenue stream.Users also experience potential benefits, including:Latest and Greatest – Subscribers have access to the latest updates and versions of the games.Often games in the subscription model do not contain ads or sales pitches, allowing for premium gameplay.Flexibility – Subscription models may allow flexibility in the price and number of games available.Elevated Status – Subscribers are often granted elevated status, giving them perks, such as exclusive access to content, discounts, etc.With potential benefits to both gaming companies and their users, it can be believed that the subscription model is likely to increase significantly from its 4% share of the North American and European game market.How may individuals gain potential exposure to gaming companies offering subscription models?The Fount Subscription Economy ETF (SUBS)The Fount Subscription Economy ETF (SUBS) seeks to provide investment results that, before feesand expenses, generally correspond to the total return performance of the Fount SubscriptionEconomy Index. The Index was designed to measure the performance of companies engaged in the business of providing subscription services, i.e., companies that sell products or services for recurring subscription revenue.SUBS may invest in companies that offer subscription-based pricing models, including those in the gaming industry.For a list of fund holdings, please click here. Khalid, Amrita, Xbox Game Pass Will Reportedly Get a Family Plan, Yahoo Finance, 3/31/22 Grubb, Jeff, Sony launched PlayStation Spartacus service for as much as $18 per month, GamesBeat, 3/29/22 Mehrotra, Shikhar, GTA+ Subscription Service Launched for PS+ and Xbox Series S/X Players, Republic World, 3/28/22 Vjestica, Adam, Xbox Game Pass Has Proved Its Doubters Wrong Once Again,TechRadar, 3/27/22 Grguric, Mihovil, Subscription Monetization: A Big Mobile Gaming Trend, Udonis, 1/18/22 Ivan, Tom, Subscription Services Reportedly Account for 4% of North American and European Game Markets, Video Game Chronicle, 3/30/22
Fashion Week Moves to the Metaverse
Move over Paris, Milan, and New York. Between March 24-27, 2022, Decentraland hosted its first-ever Metaverse Fashion Week, dubbed MVFW. How did the event work? What were some of the highlights?Virtual Fashion Shows and MoreDecentraland hosted a four-day event consisting of fashion shows, after-parties, panel discussions, and shopping experiences. The digital event occurred within the platform’s Fashion District and its neighborhoods, such as the Luxury Fashion District, Rarible Street, and others.Over 60 fashion brands, artists, and designers participated in the event.Anyone could view the event, but they needed an Ethereum wallet to purchase items during the shows.Luxury fashion brands used the virtual event to host fashion shows and open stores in Decentraland, selling both physical items deliverable in the real world and digital goods accompanied by non-fungible tokens (NFTs).Virtual avatarswalkedthe runways of several fashion brands. Some of the items were wearable, meaning that attendees, via their avatars, could purchase and wear the items. Some of the items had physical twins in the real world. A person could buy a digital item via an NFT and wear it instantly on their avatar. For some items, they were able to redeem the NFT for the brand’s physical complement. While visiting a virtual store, a customer may scan a QR code to see a realistic-looking 3D rendering of the item pop up in their physical space at home via a smartphone camera.Some HighlightsDolce & Gabbana put on a literal catwalk where cat-faced avatar models showcased the collection. After the show, the full collection became viewable in an exclusive D&G pop-up in the Luxury Fashion District.Estee Lauder gave away 10,000 NFT-backed digital wearables that it says gives avatars a glowing aura.Retailer Forever 21 rented the equivalent of 450,000 square feet of space to open a virtual store with digital avatars acting as sales associates and they had 10 NFTs for sale. The NFTs offered outfits for avatars to wear or collect.Etro decided to preview a real-world collection for their first fashion show in the metaverse. The collection of women’s and men’s ready-to-wear looks was worn by 20 avatar models.Coach was one of the brands who converted an existing physical item into an NFT wearable.There was a fireside chat with designer Tommy Hilfiger.Grimes gave a virtual performance.The event highlights the exciting potential that the platform has for melting the divide between the physical and digital worlds and expanding the ways that both technology and fashion companies connect with their customers.How May Investors Gain Exposure to the Metaverse?The Fount Metaverse ETF (MTVR)The Fount Metaverse ETF seeks to provide investment results that, before fees and expenses, generally correspond to the performance of the Fount Metaverse Index. The index was designed to measure the performance of companies that develop, manufacture, distribute, or sell products related to metaverse technology.For a full list of MTVR holdings, please click here. Metaverse Fashion Week is Here, Decentraland website, 3/23/22 For more information, read our blog post on non-fungible tokens
Gaming and the Metaverse
Gaming and the metaverse seem like a perfect fit. What makes the metaverse an attractive platform for gaming? What opportunities exist for gaming and the metaverse?Why the Metaverse May Be a Good Platform for GamingGaming has always been a good candidate for virtual reality (VR). In fact, VR is a major component of online games. A recent survey quoted in XR Today noted that 59% of respondents believe that gaming will dominate VR, while 64% said that gaming has the highest potential to benefit from VR. One of the main components of the metaverse is VR. Therefore, it is only natural to pair gaming and the metaverse.The metaverse takes gaming one step further. VR is usually stand-alone and two-dimensional, however, the metaverse allows for a 3-D, 360-degree interactive platform where gamers can interact with one another. The next iteration may be a gaming platform where users can navigate between games with the same users, use the same avatar, and carry over wins.Why Gaming May Be Good for the MetaverseGaming holds potential advantages that may be beneficial for metaverse platforms. Gaming keeps audiences engaged for long periods of time, according to Venture Beat. This in-depth engagement is attractive because it may cause people to return, particularly to your realm or a virtual world within the metaverse. Venture Beat went on to note that people are spending more time playing games on their phones than before the pandemic. At the same time, gaming is generating more revenue with a smaller audience than social media.From Media Channel to Sales ChannelCommunications company WPP highlights that gaming is a great place for companies to look for fresh audiences, particularly younger consumers. Animal Crossing, a popular online game, saw brands such as Valentino, Tommy Hilfiger, and Marc Jacobs contribute looks for avatars in the game, with others, such as H&M, appearing on the platform. According to WPP, consumers are spending real money to express themselves digitally. Furthermore, Louis Vuitton launched an interactive game in the metaverse, Louis the Game, to celebrate 200 years since the birth of its founder while Wendy’s integrated avatars into Fortnite.The integration of tokens into gaming may provide a way for gamers to earn digital currencies on a gaming platform, trade them in token form, and transfer the value into real-world currencies through crypto exchanges.Strong Growth Expected for GamingThe gaming industry is predicted to reach annual revenues of $178 billion by 2025. Given the potential synergies, growth in global gaming has the potential to be positive for metaverse companies.How May Investors Gain Exposure to the Metaverse?The Fount Metaverse ETF (MTVR)The Fount Metaverse ETF seeks to provide investment results that, before fees and expenses, generally correspond to the performance of the Fount Metaverse Index. The index was designed to measure the performance of companies that develop, manufacture, distribute, or sell products related to metaverse technology.For a full list of holdings, please click here. Gaming in the Metaverse: The Next Frontier, XR Today, 12/29/21 Takashashi, Dean, Gaming Will Lead Us to the Metaverse, Venture Beat, 1/26/22 Herbach, Christina, Gaming and the Metaverse, WPP, 10/6/21 Caselin, Ben, More Playing and Less Earning Will Make Better Metaverse Games, Cointelegraph, 2/19/22