Enterprise Values of 22 Public Mobile Entertainment Companies Aug 2010

Update June '10: Enterprise Values of 21 Public Mobile Entertainment Cos Including Motricity

The Good The Bad & The Ugly In The Mobile Content Ecosystem May 2010

This segment, which covers my current perception of the state of select companies and business sectors in mobile entertainment, will be a recurring feature on Cabana Mobile. You'll notice dynamism in terms of the companies covered and where they fall within these categories, over time, as my inputs change. Let me know if you agree or disagree with my opinion... and tell me what other companies/categories you'd like to see on this list.

THE GOOD

• DeNA - Japanese powerhouse, fueled by the uber-successful Mobage-town social mobile games portal, has over $500mil in annual revenue, $125mil in profits and over $350mil in cash. These guys could roll-up several major western games publishers in a heartbeat if they were so inclined.
• Gameloft - the French publisher, always a high quality player, has been on its iPhone game from the start and now derives a full 21% of their revenues come from the AppStore... which is (for better or worse) the only game in town in terms of paid mobile content. Gameloft is proof that you can turn a super-tanker in rough seas.
• GAMEVIL - South Korean game publisher has 2 things going for it... great capabilities with micropayment model games in its home market and a focus on high-quality builds that are conducive to smartphones. These guys regularly deliver solid profits and have a market cap that must make many of their bigger competitors very envious.
• Millennial Media - It's no secret that I've always had a healthy level of skepticism about the value of the mobile ad networks. That said, there ain't no denying that the biggest, and one of the best managed, of the independents is in a super-sweet spot in light of Google's $750mil acquisition of AdMob and Apple's $275mil acquisition of much smaller Quattro. Rumors have been swirling for months that Microsoft is in the hunt.
• Firemint - smart, lean Australian games developer, turned iPhone publisher, is one of my favorite content success stories of the smartphone revolution. Flight Control and Real Racing have been true phenomena on both the iPhone & iPad. The big question is, of course... what's next?

THE BAD

• Glu Mobile - this quality mobile games publisher, that I once called the "barometer of the health of the mobile entertainment space", has been struggling to evolve from a carrier-focused, licensed IP based company, into a smartphone savvy developer of original game franchises. They're currently going through a painful right-sizing process and experiencing declining quarter over quarter revenues. Cash is a severe pain point and their market cap (under $40mil) is currently 11% of rival Gameloft's.
• Carrier Decks - remember way back when (2years ago) when Get It Now! and MEdia Mall (and their ilk) used to be like WalMart and Target for mobile content? Well unfortunately the smartphone revolution and Apple's retail smarts have shifted that paradigm... big time. Publishers now routinely report alarming declines in their carrier-based revenue. I doubt the tide will turn back, unless operators focus their efforts on curating and facilitating billing for paid Android apps... 'cause that's a growing mess they're in a position to fix.
• Motricity - back in January this veteran, Bellvue, WA based, carrier content platform management company made its intentions known to the SEC that it wanted to go public. Lots of folks in the industry were shocked by the timing, considering the the general state of the IPO market, current conditions in the carrier deck business, the very substantial losses Motricity has racked up over the last few years and the fact that 74% of its revenues come from 2 companies.

THE UGLY

• GetFugu - when your stock price is under a penny, you have to take a bridge loan for $170k & after 6 months your one app has only 333 mostly poor ratings in the AppStore, that's kinda ugly. Even the micro-cap day trader crowd is way over it. It's hard to believe that this company will survive the summer.
• NeuMedia (f/k/a Mandalay Media) - the owner of Twistbox & AMV has always had an identity crisis; is it an adult entertainment or a games company? Recent exec & board defections and a cash-balance triggered notice of default indicate to me that they may not have to struggle with this issue too much longer.
• Off-Deck Mobile Portals - before the smartphone revolution this was a red hot space, with power-players like Thumbplay, Flycell & Jamba/Jamster vending recurring ringtone & graphics subscriptions, to under-supervised kids. After paying $120 bucks over a year for those 3 Young Jeezy tones and a blingy pot leaf screensaver, most suckers (or their parents) got a clue.

THE QUESTION MARKS

• Zed - the Spanish personalization giant has been like The Borg for the last couple of years, sucking up companies left & right, and diversifying into myriad content plays... including TV production. Though privately held, they used to brag about being the biggest mobile content company in the world, claiming revenues over $800mil!... but I haven't heard a lot of bragging recently.
• Buongiorno - this Italian mobile personalization & services goliath still has revenues in the $300mil range, but their revenue has been on a downward trajectory as the company's content offerings get a little long on the tooth and it tries to figure out how to be relevant in a smartphone world.
• Index - this longtime Japanese content powerhouse, whose mobile group is perennially in my Top 5 by revenue, seems to be faltering a bit. Their one time bid to be a global player, by virtue of a North American & European buying spree, flamed out and now they're fighting to stay relevant in a home market where the iPhone and Android are gaining traction.
• Android Paid Apps - as I alluded to earlier, this is a mess. Considering how quickly Android handsets (and soon to be tablets) are proliferating across carriers, this should be a huge opportunity. However, Google's disinterest in managing their store & consumer resistance to setting up Google Checkout accounts, have really stifled Android's paid app potential. I think it'll be up to the carriers to fix this problem.
• Ovi - Considering Nokia's 2.7% marketshare in the US this won't be a factor here for a long time. In the rest of the world there's more hope, especially considering some recently promising download numbers, and the appointment of industry vet Bryan Biniak (a guy who I know understands content) to run Ovi Publish. Frankly I'm more bullish on Ovi now than anytime in the last year.
• Augmented Reality - Boy, I was really excited about this space for awhile, particularly apps like Layar... but I'm definitely not feelin' it right now. AR still seems more like a novelty than a necessity.

Updated Enterprise Values of 15 Public Mobile Entertainment Companies

What a difference a week makes. I'm already updating this spreadsheet with some new data. Here are some notable changes:

• Buongiorno posted Q1 2010 earnings
• Velti filed updated earnings with the SEC as part of their bid to go public on the NASDAQ (they're currently listed on LSE)... their numbers are pretty impressive (more on that soon)
• Mandalay Media, parent of Twistbox & AMV, changed its name to NeuMedia, Inc. & announced a notice of default related to a cash balance provision from a key creditor
• ROK Entertainment's stock is down over 50% today (guessing they'll be more news to follow). Btw - did y'all know the biggest shareholder in ROK is the DeJoria family, which controls the Paul Mitchell salon product empire? Always thought the guy in the ads was Paul Mitchell... but that's actually John Paul DeJoria (Mitchell was his founding partner). Anyhoo, probably hasn't been a great investment no matter how you cut & color it

Latest Enterprise Values of 15 Public Mobile Entertainment Companies

• Data for Velti & ROK Entertainment should be taken with a grain of salt, since they haven't released financials in recent quarters
• It looks like a couple of these companies should consider giving their cash back to the investors, and calling it a day. Some of them shouldn't be public at all (and are barely going concerns)
• I think the shining stars of this lot are the mobile games publishers Gameloft, GAMEVIL & Com2uS
• I look forward to adding Motricity into the mix, once (if?) they go public
• Let me know your thoughts on this and if there are any other public mobile entertainment companies I should be tracking

10 Most Read Cabana Mobile Posts of 2009

1. How Much Money Do Mobile Ad Networks Make?
2. KongZhong Got It Goin' On
3. Fish Broth: The Plot Thickens In GetFugu Investment Drama
4. If The Top 10 Generate $700mil Can Mobile Games Really Be A $5.4bil Business?
5. Palm Pre Demo From D7 Is Better Than Porn
6. Updated: Top 10 Mobile Games Publishers WW
7. MOBshop Speculation Is Red Hot
8. Update: GLUU Volume Stays High As Boards Buzz About Changyou & Other Theories
9. Will de Masi & Kranzler Finally Get Hands-On To Realize It's Potential?
10. Report: At AT&T Motricity is Jen & Amdocs is Angelina

Updated: GetFugu Revenues & Net Q3 08 to Q3 09

Enhanced mobile search company GetFugu (GFGU) concedes in their latest 10-Q, filed with the SEC on 11/23/2009, that their accumulating losses and dearth of cash (less than $50k, with a burn rate of $500-$600k per month) make securing additional capital from external sources mission critical in the short-term. Failing that, these issues "raise substantial doubt about the Company’s ability to continue as a going concern." I would suggest that their prospects for obtaining those additional funds, considering their financial track record, recent investment drama, an alarming new exposé on Realtid.se and the fact that their lone product seems to have disappeared from the iTunes App Store, are about as paper-thin as expertly prepared blowfish.

UPDATE 12/1/2009: It looks like an updated version of the GetFugu Mobile Search App (v0.3.1) is now back up on iTunes, just in time to coincide with the company's oddly tardy announcement about a theatrical marketing tie-in with Summit's blockbuster film "The Twilight Saga: New Moon"... which released in the US on November 20th.

GetMondo or GizFugu?: Carl Freer Appointed President of GetFugu

Enhanced mobile search marketing company, GetFugu (GFGU), filed an 8-K with the SEC on Friday to handle a bunch of housekeeping, the most notable item being the appointment of the company's largest shareholder (21%) and Co-Founder, Carl Freer, as President and board member. As part of the board appointment, Freer was granted 2mil options at a strike price of $0.37 (today's stock price) vesting over 3 years. Freer is (in)famous for his association with Gizmondo, the connected handheld gaming device he launched back in 2002, while Chairman of Tiger Telematics. The rise and dramatically scandalicious fall of that platform, the company, and some of the colorful characters associated with it, are the stuff of console and mobile games industry legend... giving rise to an extensive Wired article back in 2006 that, as I reported back in May, is currently being developed into a film.

The 8-K also addressed the settlement of pending litigation against the company from spurned investor SpongeTech (SPNG). It looks like GetFugu was able to make SpongeTech happy by issuing 5.25mil shares of common stock to an associated holding company, R.M. Enterprises International, in exchange for retaining the $1.75mil advance deposit it received during the investment negotiation process. GetFugu also has issued 20mil shares to two former company advisors, Amber Capital Corporation and Summit Trading Limited, to settle outstanding compensation claims. These two items lead one to believe that the company, in the wake of the commercial rollout of its app, is trying to clean up its act a bit to make it more attractive to additional investors or, potentially, an acquirer. But, if that's the case then the Freer move is a bizarre one... as you will see from several comments to my previous GetFugu posts, he's a polarizing character, to say the least.

Enterprise Values of 15 Public Mobile Entertainment Companies

Fish Broth: The Plot Thickens In GetFugu Investment Drama

Here are the two latest developments in this ongoing saga...

1) On October 1st GetFugu, Inc. filed a form 8-K with the SEC in response the lawsuit filed against it by SpongeTech (SPNG) earlier that same day. In the document the company acknowledged the legal action, dismissed it as being without merit and announced that it had terminated its relationships with both SpongeTech Delivery Systems, Inc. and Vanity Events Holdings, Ltd. (VAEV). The company also maintained that it had a "fiduciary obligation to retain the funds" it had received while it investigated "potentially illegal activities" perpetrated by these investors that are "jeopardizing GetFugu and its continued viability." GetFugu's allegations from the filing are listed below:

• We have reason to believe that you have been engaging in short selling of Company stock in anticipation of your proposed investment in the Company in violation of federal securities laws.
• SpongeTech has been publicly accused of forgery and identity theft in connection with attorney opinion letters allegedly forged by SpongeTech.
• In addition, in researching these events, it came to our attention that the payor in each of the electronic wires described above was RM Enterprises International, Ltd., not SpongeTech or Vanity. We are unsure about the connection of RM Enterprises with SpongeTech or Vanity. RM Enterprises was never considered by GetFugu to be a party to the proposed investment, and we were previously unaware of the existence of RM Enterprises. We find troubling the fact that monies have come from this entity, rather than SpongeTech or Vanity as originally intended and as publicly announced by all parties.

2) Then, on October 9th Vanity Events Holding, Inc. announced that it had determined not to proceed with its previously announced $1mil investment in GetFugu, Inc. (no great surprise).

• “After further consideration, the Company determined that, at this time, it was in its best interest to rescind the plans to invest in GetFugu and its technology,” commented CEO of Vanity, Steven Moskowitz. “We do believe their technology is exciting and could change the way consumers purchase products via their mobile phones and we wish them well on their launch.”
• Contrary to any press releases or other statements issued by GetFugu, the transaction was canceled prior to the execution of any definitive documentation between the parties and no funds were advanced or invested by Vanity.

I must say, as information continues to emerge on this story, and as I read on multiple investor discussion boards about the reputations of the overlapping directors of SpongeTech, Vanity Holding and RM Enterprises International (mentioned in the GetFugu 8-K filing) as stock promoters (which some think is good), the more I feel that this whole transaction could use a healthy scrubbing with one of SpongeTech's products. Fundamentally, in what world does it make sense for mini microcap companies in the soap-infused sponge and touring swimsuit model businesses (the latter doesn't even have a website) to invest in an enhanced mobile search marketing company? (Clue: It doesn't) I get the sense that all of these companies, including GetFugu, are primarily in the business of making management (and early stage investors) wealthy in the very short run, rather than creating quality products and/or services to form the basis of sustainable companies that can hire employees, benefit consumers and generate income for a large number of investors over the long term. Is building a real business an anachronism? I hope not. Unfortunately, there are still far too many companies in the mobile entertainment space, and in the broader entrepreneurial economy, wedded to poisonous, dotcom era (everyone's gonna be a millionaire) thinking that validated and glorified the creation of companies where the most important component of the business plan was the exit strategy, with its associated payday. It's way past time to move on. It's time to celebrate real business.

Info-Biscuits | Glu Mobile & GetFugu

MocoNews is reporting that Glu Mobile's (GLUU) SVP of Global Publishing Jill Braff is leaving the company, after 6 years, to join a privately held mystery company as CEO effective October 9th. This follows the announcement by Greg Ballard in July that he was stepping down as Glu's CEO, as soon as a replacement is found (which still hasn't happened), and the departure last month of European MD Frank Keeeling. Jon Jordan, over at PocketGamer.biz, is theorizing that this cluster of departures from Glu's executive suite could signal that a major re-organization or possible sale is in the works.

Just a quick update to my recent posts about GetFugu (GFGU). It turns out that SpongeTech, which rescinded it's $4mil investment in the company last Thursday, announced today that it is filing suit against GetFugu for “breach of contract, breach of fiduciary duty, common law fraud, conversion, willful misconduct and unlawful appropriation of funds.” GetFugu's stock was down 16% on the news.

Rotten Fish? GetFugu Not Getting $5mil Funding After All

Last week I wrote a post about a recent flurry of deal and funding activity at enhanced mobile search marketing company GetFugu (GFGU). Well today something clearly went pear-shaped with those investments from SpongeTech ($4mil) and Vanity Events Holding ($1mil). This morning GetFugu issued a press release announcing that it had rescinded the investments... which is odd, since they were the recipient. Basically they were saying they no longer wanted or needed the money (maybe 'rejected' would've been the right word). Then later in the day SpongeTech (who was also planning to be a customer) issued its own release declaring that their "investment arrangement with GetFugu, Inc. has been rescinded"... making it sound like it was their decision not to pursue the investment. To make matters messier, SpongeTech had advanced GetFugu $1.75mil in anticipation that the companies would reach a definitive agreement, and apparently GetFugu has already spent the money (oops!). So, now they need to find alternative financing to pay back those funds. Well inquiring minds definitely want to know much more about what really went down here, right? You gotta figure, either something went very badly between GetFugu and these investors, or that GetFugu found a bigger and/or better investor... or potentially, a buyer. One thing is quite clear, the market thinks this stinks. GetFugu's stock plummeted 37% on heavy volume.

Is GetFugu Properly Prepared For Human Consumption?

San Francisco based enhanced mobile search marketing company GetFugu (GFGU) has made a lot of noise in the last week. First they announced investments from Vanity Events Holding ($1mil) and cleaning products company SpongeTech ($4mil), Wednesday they presented at GigaOm's Mobilize '09, Thursday they announced a major licensing deal with Health Matrix ($5mil) and then last Friday they launched iPhone & Android Apps. To top it off, this morning they announced a partnership with Majesco. Not bad for a company that's been trying to find it's sea legs (fins?) for a few years, in guises including BlowfishWorks and MediaPower Group. Believe it or not, the company has been publicly traded for over 2 years and has a market cap of $127mil, despite never having reported a dime of revenue (wow!)... which makes it more akin to a biotech startup than a mobile company. Clearly investors have great expectations.

Anyhow, GetFugu's value proposition is a suite of technologies, within an application service, that expedite consumer interaction with brands on mobile devices by way of eliminating the cumbersome process of typing a URL or the back and forth associated with shortcodes. Their 4 key technologies are:

1. ARLs (Augmented Reality Links): where a user takes a picture of a logo, movie poster etc. using the application and then the application returns links to a mobile website, piece of media or another application of the brand owner's choosing
2. VRLs (Voice Recognition Links): where a user says "Coca-Cola" into the handset while the application is on and the application returns a links to a mobile website, piece of media or another application of Coca-Cola's choosing
3. GRLs (Geographical Recognition Links?): where a users with a GPS enabled handsets gets links based upon where they're physically located
4. Hotspotting: where a user can get information about, and potentially purchase, an item within piece of video by tapping on it on a touch screen handset

Assuming the technology works as advertised, this is all really cool stuff. I've been a fan of enhanced search tools like these ever since I used my first QR code in Japan and, even more so, after I met mobile visual search pioneer NevenVision (which was eventually acquired by Google) while at Universal, back in 2005. Way back then I wanted to use NevenVision's i-Scout technology (their version of the ARL) to allow users to shoot pictures of the movie key art from The Fast & the Furious: Tokyo Drift and get sent back links to purchase the mobile game based on the film. We went a long way down a road, but eventually abandoned the project because the process, in practice, turned out to be too klugy. This is the same reason I'm skeptical about 2D barcodes (see my post from March 16th) and why I'm reserving judgment on whether GetFugu will be successful. The issue is that these tools work great IF the consumer already has the application on the handset... QR codes work in Japan because almost every data oriented device, on every carrier, has the reader application preloaded. Otherwise the brand owner has to educate the consumer that they need to download an application first...which basically eliminates any benefits.

Getting this app ubiquitously preloaded by all the major OEMs is never going to happen. Getting brands to enter into partnership agreements, with no financial committment, will happen, but my guess is that most will use the technology in limited new media marketing "experiments"...not a good way to build scale. That said, I think GetFugu's real opportunities are to...

• Roll it out in enterprise settings, where IT departments can preload it on the devices. I believe this is what Health Matrix is doing with the technology for health care providers and pharmaceutical companies
• Eventize the application for consumers by focusing tons of energy on getting one monster national brand to make GetFugu the centerpiece of a sustained media campaign... like, get American Idol to run a weekly contest with viewers who use the application to access sponsors' sites (hell, it worked for SMS).
• Get bought by, or enter into a major strategic partnership with, either Google, Apple, Nokia or Microsoft so distribution becomes their problem

We'll see how it goes. I'm looking forward to monitoring their quarterly statements, now that they have a product launched.