LT Weekly: May 31, 2024

It was a somber week for the sports betting industry, as officials in Illinois passed a fiscal 2025 budget bill (year starting July 1st) that includes a new, and first-of-its-kind, progressive sports betting tax rate for operators that will be as high as 40% vs the current 15% flat rate. The budget is awaiting sign-off from the Governor and then will go into effect. If signed into law, Illinois will become the first state to increase its sports betting tax rate since Ohio raised its rate from 10% to 20% last year, becoming the second highest in the nation only to New York’s 51% tax rate.

Revenue-wise, Illinois is one of the larger states for sports betting, so this change would not be immaterial and clearly would result in an increased tax burden, particularly for the large operators like DraftKings and Flutter (owns FanDuel). This news was not a complete surprise though, given that back in February, the governor proposed a 35% flat rate. Nonetheless, both stocks still took it on the chin in reaction to the update.

Looking ahead, Illinois’ decision does set a precedent for a new tax structure, and one would think that other states have taken notice. Also, the question remains about how much of the tax increase will just be passed onto consumers and how much can be offset by operators’ reducing expenses elsewhere.

See below for some more color…(link / link)

-> DraftKings down as much as -14% during trading Tuesday, while Flutter, owner of FanDuel, plunged -8%; ESPNBet operator Penn Entertainment saw its shares lose -6% Tuesday; Representatives from the three companies didn’t immediately respond to requests for comment

• What are the thresholds for the new progressive sports betting tax in Illinois if enacted? Sports betting operators will be taxed as follows, depending on their adj gross sports betting revenue totals –
• $0-30mn: 20%
• $30-50mn: 25%
• $50-100mn: 30%
• $100-200mn: 35%
• Over $200mn: 40%

• The tax rates apply separately to retail and online sportsbooks
• Timing: If the bill is signed by Governor Pritzker, the new rates will take effect on July 1
• Company impact:
  • Only FanDuel and DraftKings would be subject to the highest tax rate of 40%, as their adj gross revenues exceed $200mn+
  • BetRivers and Fanatics Sportsbook would see their tax rates increase to 30%
  • Caesars, ESPN BET, and BetMGM would face a 25% tax rate

• What other states are considering tax changes?
  • New Jersey and Massachusetts have also seen proposals to significantly increase their sports betting tax rates

Which streamer is expected to see the most benefit from bundling? WBD’s Max. On the flip side, Netflix may be the most at risk of cannibalization through bundling. This is as per data from Antenna, which looked at the ratio of “Curious Customers” (viewers who have canceled a svs in the past or have been subscribed to a svs for <6 months) and “Committed Customers” (viewers who have been subscribers for 6+ months) to assess the potential impact from bundling.

This introduction of new bundles remains in full force, with Verizon announcing more services to its bundled offerings this week. Verizon is adding Comcast’s Peacock to its streaming subscription hub and plans to offer YouTube Premium at a discounted rate, adding onto existing options its offers with Netflix, Disney, WBD, Apple, Walmart, and more.

While bundling is the streamers’ latest strategy to attract new customers and mitigate churn, the password sharing crackdown which Netflix initiated two years ago has continued to spread across the industry, and this week YouTube TV reportedly has joined in. There were also some new stats out suggesting a potentially strong reception for the upcoming Disney-Fox-WBD sports JV, Venu Sports, as well as a price increase update from Philo.

See below for more.

Which Streamers Stand To Benefit The Most From All The Bundling Happening Across The Industry? WBD’s Max… Netflix Is More At Risk (Based On Data From Antenna)

• Hulu has the highest number of “Curious Customers” while Netflix has the least

Curious Customers are defined by Antenna as individuals who have canceled a service in the past, or are currently subscribed with a tenure of six months or less

• Netflix has the highest % of Committed Customers, while Max has the highest % of Curious Customers
  • Committed Customers are defined by Antenna as subscribers who have a tenure longer than six months
  • Services with a higher ratio of Curious Customers have a higher potential upside from using bundles: Bundles will motivate these Curious Customers to subscribe more loyally, with less risk of losing revenue from existing loyal subscribers “trading down” to a lower cost bundle
    • The most productive bundles will pair svs with a strong overlap between Curious Customers: These Curious Customers have displayed a willingness to pay for each service, but not a high level of loyalty to them, so a discounted bundled offering has a large base of individuals who may be prompted to engage more loyally with both services together than they were with either service on a standalone basis
  • Svs with a higher ratio of Committed Customers may see bundles represent more cannibalization risk, with less upside potential
    • The least productive bundles maximize Committed Customer overlap: These Committed Customers have shown a willingness to pay for a given service, and a higher level of loyalty, so offering them a discounted bundle could be value-destructive

Verizon Introduces New Partnerships With YouTube and Peacock And Is Now “The Only Provider Offering Savings On 10 Of the Top Streaming And Content Services”

• Verizon adds Peacock to its streaming hub and offers the discounted YouTube Premium plan (link)
  • Peacock is joining Verizon’s +play content hub, which will offer Peacock at its regular price, but with Verizon’s myPlan, customers can pay $10/mo for a $15/mo credit towards +play services, saving $5
  • YouTube Premium has been added as one of its monthly myPlan perks, letting customers sign up to the service for $10/mo, which represents a 30% savings off the regular $13.99/mo price
    • What other subscription add-ons are available through Verizon’s myPlan for $10/mo each?
      • Apple One (Apple TV+, Apple Music, Apple Arcade and iCloud+)
      • Apple Music Family
      • Disney Bundle (Disney+, Hulu, ESPN+), which is currently being offered for free for 6 months
      • Netflix & Max (with ads) bundle
      • Walmart+ (which includes Paramount+)
      • 100 GB/mo of mobile hotspot data
      • +play monthly credit (spend $10 on the perk, get $15 to use toward subscriptions in the content hub)
      • Three TravelPass Days
      • Unlimited cloud storage

-> Verizon also annc’d a new Ultimate Phone Upgrade program option that will let Unlimited Ultimate customers get the “best” trade-in deals regardless of the condition of their phone; An Unlimited Ultimate plan costs from $100/mo for one line with no discounts to $55 per line each month if you have four lines and an auto-pay discount

Another Streamer Jumps Into The Password Sharing Crackdown…YouTube TV

It was back in May 2023 when Netflix kicked off the initiative to curb password sharing and to try to convert some of these consumers to paying users and it has proved to be quite successful in driving incremental growth. Disney is slated to launch its crackdown for its Disney+ service next month, while Warner Bros Discovery will start later in 2024, and now Google joins the bandwagon by reportedly starting its own crackdown for YouTube TV…all in all, while not all users will convert, this should bring in some incremental paying subscribers and hence, more revenue…

See below for more color:

• YouTube TV reportedly is locking some users out of accounts until they show a driver’s license (link): This is per Cord Cutters News citing reports from YouTubeTV subscribers that…
  • They have been locked out of accounts that are shared with people that do not live with them (they can only share with 5 people that live at the same address)
  • And that have been locked out until they prove their home address as they log in from different locations (ie traveling for example but YouTube says travelers should log in at least 1x every three months in their home area)
    • YouTubeTV is reportedly getting more aggressive on these types of lock-outs and apparently the only way to get the account unlocked is to provide Google customer support with a driver’s license

• Netflix announced in March 2022 that it would be cracking down on password sharing, which the Co began implementing in May 2023
• Disney+/Hulu password sharing crackdown will start rolling out in June 2024 in “just a few countries in a few markets” before expanding to all subscribers in September
• Max announced its crackdown would begin rolling out in the later part of 2024 and into 2025

A Few Other Quick Hit Streaming Updates From This Week… 

• In anticipation of the launch of Venu Sports in the fall, an early read from Horowitz Research into potential subscribers to the Disney, Fox, and WBD sport JV (link/link)
  • Assuming a price point of $35-40 a month, 42% of 2,008 surveyed US adults who identified themselves as “sports viewers” said they’ll “likely” or “very likely” subscribe to Venu Sports
    • 58% of viewers aged 18-34 said they are likely to subscribe
    • 57% of viewers aged 35-49 said they were likely to subscribe
    • 23% of viewers aged 50+ said they were likely to subscribe
  • Among those sports fans likely to subscribe to Venu, 38% said they’d alter their other subscriptions
    • Cancelling their virtual MVPD service is the most mentioned change these viewers would make
    • Sports viewers also indicated that they may consider cancelling some of their other subscription streaming services and MVPD (traditional cable/satellite) service

• Philo raises its monthly price for the first time since 2021, but will add AMC+, and is expanding its FAST offering to non-subscribers (link)
  • The monthly subscription price for Philo will increase from $25 to $28 per month beginning June 12, 2024
    • Will impact new and returning customers but NOT existing customers
    • Price increase will include an AMC+ subscription (normally $8.99/mo), which has been added to the Core package
    • Cited an increase in contract fees with content partners as being behind the price change
  • Will now also offer access to its FAST platform to non-subscribers, which includes 70+ live channels and gives viewers the ability to record content; Credit card details are not required, but viewers will have to sign up for an account

Post the dislocation during the pandemic, retail foot traffic has been making a comeback, and new estimates from the CBRE this week suggest that a full recovery to pre-pandemic levels will occur by Q3 this year. That said, finding economical retail space in prime locations is not an easy feat, and retailers are having to find alternate solutions given that an omni-channel presence is still the name of the game.

See our takeaways from the report below. (CBRE report/link/link)

• Retail foot traffic in prime areas is anticipated to surpass pre pandemic levels by 2025
  • Last year, foot traffic in 10 prime retail areas had already reached 81% of 2019 levels
  • CBRE projects full recovery of foot traffic in prime areas to pre-pandemic levels by Q3:24 and an increase beyond those levels by 2025

• Challenges exist to find economical retail space in prime locations given increase in rents: Retail rents in prime areas have risen since the pandemic lows, with an increase of +9% in the Americas and +5.8% globally since 2021
  • Record-low availability and high rents are major challenges for retailers
  • This situation forces retailers to adopt creative strategies to meet growth targets

• Alternative retail locations are gaining popularity: Due to space constraints in prime locations, retailers are considering multiple smaller locations in alternative districts which offer lower rents and fewer operational restrictions; This strategy aids in brand expansion and customer convenience for digital transactions
• Physical stores boost digital sales and the interconnectivity of offline & online: According to shopping center industry association ICSC, opening a physical store can increase a brand’s digital sales by nearly +7%, while closing a store can decrease them by -11.5%
  • Brick-and-mortar stores remain crucial for driving online sales
  • In-store sales accounted for 78% of retail growth in 2022 (vs 46% in 2019) per Forrester
  • The synergy between online and offline sales is expected to continue

In the connectivity space this week, Verizon and T-Mobile inked a couple of notable deals that were primarily concerned with expanding coverage. Following earlier reports of talks between the two, T-Mobile annc’d plans to acquire the majority of UScellular’s assets in a $4.4bn deal. For its part, Verizon signed a new partnership with AST SpaceMobile, a move that will provide Verizon’s customers with space-based connectivity in hard-to-reach parts of the country.

See below for details.

• T-Mobile plans to acquire most of UScellular in a $4.4bn deal (link/link): Specifically, T-Mobile is looking to acquire UScellular’s retail stores, some of its spectrum holdings, and its customers; The deal is expected to close in mid-2025
  • The deal includes cash and up to $2bn in debt financing: Addt’ly, up to $100mn of the deal’s cash portion depends on certain financial and operating metrics being met between signing and closing
  • T-Mobile will purchase ~30% of UScellular’s spectrum assets…: Improving T-Mobile’s rural coverage
    • … And become a “strong anchor tenant” for UScellular for at least 15 yrs: UScellular will lease space to T-Mobile on at least 2,100 addt’l towers; T-Mobile will also be able to sign new long-term leases on at least 2,015 UScellular towers and extend existing leases on ~600 others
    • Other players could carve up UScellular’s remaining spectrum (link): The WSJ reported earlier this month that UScellular was also in talks w/ Verizon but said that a separate transaction could take longer or fall through
  • UScellular customers will get access to “better connectivity”: Upon deal closing, millions of UScellular customers will receive nationwide access to the internet using T-Mobile’s network and will no longer have to rely on roaming when outside of UScellular’s coverage
    • UScellular customers have the option to stay w/ their current plans or switch to T-Mobile’s: In aggregate, this could save them “hundreds of millions of dollars”, per T-Mobile

-> UScellular shares rose +12.2% in response to the news and ended the week up +29.0%; YTD, UScellular stock is trading up +33.5%

• Verizon annc’d a new partnership w/ AST SpaceMobile (link/link): The partnership will see Verizon commit $100mn and will, in turn, provide Verizon customers w/ direct-to-cellular AST SpaceMobile svs when needed
  • The partnership will enable Verizon to target “100% coverage” of the continental US: AST’s space-based connectivity will utilize 850 MHz bands to help Verizon eliminate dead zones and reach remote areas of the country
  • A breakdown of Verizon’s $100mn commitment: Includes $65mn in the form of commercial svs prepayments and $35mn in debt via convertible notes; $45mn of the prepayments are conditional, requiring regulatory approvals and the signing of a definitive commercial agreement
  • Verizon’s partnership’s w/ AST appears to be following a similar path as AT&T’s: AT&T was a co-debt investor in AST alongside Google and Vodafone in Jan; Then, the two established a commercial agreement earlier this month
    • AT&T welcomes AST’s partnership w/ Verizon: In an interview w/ CNBC, AT&T Head of Network Chris Sambar said that “[it] reinforces the shared commitment to providing nationwide space-based broadband to everyday cell phones”

-> AST SpaceMobile shares jumped +69.2% on the back of the news, closing the week up +74.7%; YTD, AST SpaceMobile stock is trading up +37.3%

-> In addition to AT&T and Verizon’s partnership w/ AST, a variety of other major players have been making moves to capitalize on the direct-to-device (D2D) oppty as well; In 2022, T-Mobile partnered w/ SpaceX’s Starlink to provide coverage throughout the US (link), while Apple has been investing heavily to develop its Globalstar-supported “Emergency SOS w/ Satellite” svs, which was rolled out in iPhone 14 models (link)

Although delayed releases have been a common theme in the interactive entertainment industry as of late, it appears that some companies have responded to this trend by making existing content more accessible, namely, this week Microsoft made the decision to make Call of Duty: Black Ops 6 available on Xbox Game Pass upon release. Also, Big Tech continues to make some moves to expand interactive entertainment offerings and along those lines, YouTube’s Playables platform is being rolled out to all users on YouTube vs just only for paying subscribers…see more details below.

• Microsoft annc’d that Activision’s Call of Duty: Black Ops 6 will be on Xbox Game Pass at release (link): The title is the next installment in the popular franchise, and it is expected to be launched later this yr on Game Pass
  • There were some concerns regarding the move: Including that Game Pass sales could potentially cannibalize traditional sales, which typically account for sales of 20mn+ copies, on avg, at ~$70 each; This led to some internal debates at Microsoft b/c it could undermine rev from traditional sales
  • Other details are still somewhat murky (link): Including the exact timeframe that Microsoft plans to release Call of Duty: Black Ops 6 as well as whether or not the Co plans to increase the price of Game Pass again
    • More info on what’s to come: Microsoft plans to host a special stream after its main Xbox summer showcase on June 9; The main showcase will also “feature a new Gears of War announcement, alongside the next Doom game”, as well as redates for other titles

• YouTube’s “Playables” games will become available to all users in coming weeks (link): Playables is an app store of free, lightweight games, and it is now rolling out to all users on YouTube after being launched exclusively for paying subscribers last Nov; The move stands to drive further competition in mobile gaming
  • Details on accessibility: Users can find Playables in the Explore menu on YouTube’s home page, including on both desktop sites as well as via the iOS and Android versions of the app
  • YouTube has released 75+ individual titles on Playables: Including Angry Birds, Showdown, Words of Wonders, Cut the Rope, Tomb of the Mask, and Trivia Crack
    • Playables also has older games: One example is StackBounce, which originally premiered on Google’s initial HTML minigames svs, GameSnacks

Earlier this week, Salesforce’s stock experienced its worst trading day in nearly 20 years after it reported a mixed FQ1 print alongside disappointing forward guidance. The company was buffeted by a “measured buying environment” that had shown signs of dissipating in FQ4 but resumed again in FQ1, evidenced by “elongated deal cycles, deal compression, and high levels of budget scrutiny” among customers. Nonetheless, Salesforce still has some irons in the fire that could potentially provide a strong foundation for future growth, including providing services around AI transformation, data management, and industries clouds. Changes to the company’s go-to-market strategy, which weighed on FQ1 results, should also help improve the long-term productivity of its own sales force.

See below for some key points that we wanted to flag regarding Salesforce’s FQ1 print:

-> Salesforce shares dropped -19.7% in reaction to earnings but recovered some losses to finish the week down -13.9%; YTD, Salesforce stock is trading down -10.9%

FQ1 Represented Another Qtr Of “Cont’d Discipline And Transformation” For Salesforce

• Headline metrics were mixed, w/ top-line and op margin both missing estimates: FQ1 total rev grew +10.7% y/y (vs +10.8% y/y in FQ4), closing -0.2% short of cons; Non-GAAP op margin of 32.1% was below cons 32.2%, though non-GAAP EPS beat by +3.0%; FCF topped cons by +13.1%
  • Other forward-looking top-line KPIs were underwhelming:
    • Current Remaining Performance Obligation missed by -1.4%: Incr’d +9.5% y/y in FQ1 (vs +12.2% y/y in FQ4); Includes a -$200mn FX headwind
    • Unearned Rev missed by -1.6%: Finished FQ1 up +6.2% y/y (vs +9.4% at the end of FQ4)
    • Billings missed by -5.7%: Grew +2.9% y/y in FQ1 (vs +7.9% y/y in FQ4)

Despite A Lower Than Projected FQ2 CRPO Guide, There Is Still Confidence In The Full-Yr Outlook

• FQ2 guidance broadly disappointed expectations: Forecasts FQ2 total rev between $9.20-9.25bn, missing cons by -1.3% at the mid-pt, as well as non-GAAP EPS range of $2.34-2.36, which was -2.1% below cons at the mid-pt
  • CRPO growth is expected to slow slightly seq: FQ2 CRPO is projected to rise +9% y/y, including another $200mn FX headwind

• The FY25 non-GAAP EPS outlook was revised upwards: Reaffirmed FY25 rev between $37.7-38.0bn, which was -0.5% below cons at the mid-pt, and now anticipates a non-GAAP EPS between $9.86-$9.94 (vs prior range of $9.68-9.76), beating cons by +1.0% at the mid-pt

Cont’d “Measured Buyer Behavior” Was Reflected In “Moderated” FQ1 Bookings

• Several factors pointed to the “measured buying environment” during the qtr: The Co saw “stronger bookings” in FQ4, but “momentum moderated” in FQ1, as Salesforce faced “elongated deal cycles, deal compression, and high levels of budget scrutiny” from customers
  • Intentional changes in Salesforce’s go-to-mkt strategy also contributed to “softer bookings”: These are aligned w/ the “typical” changes that the Co makes in FQ1 each yr and are intended to “drive long-term productivity and create better customer experiences”

• Salesforce’s growth was “constrained” in the US, EMEA, and parts of LatAm: Americas rev was up +11% y/y in FQ1 (vs +9% y/y in FQ4), while EMEA ex-FX rev grew +9% y/y (vs +11% y/y in FQ4) and APAC ex-FX rev incr’d +21% y/y (vs +19% y/y in FQ4)
  • The Americas remained a “tough industry”: Cautiousness from buyers was worsened by the country’s higher exposure to tech; Still, Canada was flagged as a “strong region”
  • “EMEA was weaker during the qtr”: Indicated that the “measured buying environment” was “most profoundly” felt in Europe
  • There was “particular strength” in Japan: The Co’s Japan biz “really accel’d during the qtr” and posted a “really strong performance”, w/ key wins at Seibu Prince Hotels Worldwide and Hitachi

• The Co is still seeing “strong momentum” across various parts of its biz: Highlighted “strong demand” for Data Cloud and multi-cloud deals, in particular
  • 6 of Salesforce’s top 10 deals included 6+ clouds: The Co’s multi-cloud biz has been seeing benefits from recent pricing and packaging changes
  • Data Cloud have been seeing “incredible momentum”: The segment is Salesforce’s “fastest-growing organic” one as well as its next billion-dollar cloud; 8tn+ records were ingested in the Data Cloud and 2+ quadrillion records were processed, +42% and +217% respective y/y increases
  • Adoption of Salesforce’s industries projects has been “very healthy”: Half of the Co’s top 10 deals included industry clouds during the qtr
  • Attrition rates have been “very healthy”: FQ1 rev attrition ended at ~8%, which was in-line w/ previous qtrs; Customers are still relying on Salesforce to run their bizs; Is expected to remain “slightly above” 8% for the full yr

AI Transformation Continues To Be An Exciting Oppty For Salesforce

• “Every Co in the world, across every industry, is being transformed by AI in the next few yrs”: The Co has been seeing “good demand” for AI-driven transformations and believes its customer data mgmt capabilities will provide it w/ a competitive advantage in this transition
  • “Models and UI are not the critical success factors” for enterprises: Instead, “the one thing that every enterprise needs to make AI work is their customer data”; As the number one CRM provider, Salesforce is now managing 250+ petabytes of data for its customers
  • “75% of the value of GenAI use cases is in the front-office”: Per McKinsey data cited by Salesforce, which stands to uniquely benefit from this trend as its position as the “leader in front-office software”

Salesforce Is “Going To Continue To Look At [M&A] Oppties” Moving Forward

• The Co is “not going to shy away from M&A… if its within [its] framework”: Conversely, Salesforce will be “extremely cautious” if a potential target is outside of its framework; The Co “need[s] to prioritize [its] use of the balance sheet, and it’s got to be a best-in-class asset”

Given a faster start to the year regarding ad revenue growth and the expectation for momentum to continue in H2 with major sporting events and the political calendar, Dentsu tweaked up ad growth forecasts for 2024 and provided a detailed mid-year update. See below for our key takeaways and a handy chart on ad revenue estimates across the key global agencies …(link to download the detailed report / (link)

Dentsu Ad Forecasts & Changes

• Raised 2024 global ad growth forecast from +4.6% y/y to +0%, vs +3.3% in 2023
  • Improved spending in the UK, Germany, US, Japan, and France
  • Fastest pace is predicted in the Americas (+5.9% growth, 46.8% share of global spend), followed by Asia-Pacific (+4.2%, 31.3%) and Europe, Middle East, and Africa (+4.0%, 21.9%)
• 2024 drivers: The US presidential election alone is forecast to account for ~ 1/3 ($11bn) of the 2024 incremental ad spend; The Paris Olympics and Paralympics will also boost ad investments
• Digital ad spend is beating previous growth expectations / Raised forecasts by ~ one % point to +7.4% y/y to capture 59.6% of global spend in 2024: Double-digit growth expected for retail media (+32% y/y) and paid social, whilst paid search remains a major spend driver
• Programmatic digital spend consolidates its position as preferred choice for transacting media, rising at a forecasted 10.9% in 2024 and reaching the equivalent of three times nonprogrammatic digital spend in volume
• TV ad spend is forecast to rise by +2.6% y/y to reach $170bn in 2024: Growth in connected TV (+24.2%) is offsetting linear weakness
• Growth is expected to slow in 2025 with tough comps but remain ahead of economic growth: Expect +4.2% y/y growth in 2025 (vs world economy forecasts at +3.2%) and a consistent with +4.2% in 2026

• TikTok is reportedly prepping a US version of its algorithm (though TikTok denies it) (link/link)
  • According to Reuters, TikTok is working on a clone of its recommendation algorithm that may result in a version that operates independently of its Chinese parent, citing sources with direct knowledge of the efforts
    • Per the report, ByteDance started working on splitting the source code late last year, before the “divest or ban” bill was signed into law in April
    • Once the code is split (a project which could take over a year to complete), it could lay the groundwork for a divestiture of the US assets, although there are no current plans to do so
  • TikTok declined the report, saying “The Reuters story published today is misleading and factually inaccurate” and reiterated that “the ‘qualified divestiture’ demanded by the Act to allow TikTok to continue operating in the United States is simply not possible: not commercially, not technologically, not legally. And certainly not on the 270-day timeline required by the Act”
  • Reuters responded saying “we stand by our reporting”

• Another player jumps into retail media – PayPal planning to launch an ad business using customer data (link/link): Will create an ad network that allows merchants and brands to target PayPal’s ~400mn users with personalized promotions and ads based on their transaction histories
  • Hired former Uber ad exec to lead the newly-created PayPal Ads division: Mark Grether will lead the effort as senior vice president and general manager and will be responsible for developing new ad formats, overseeing sales, and hiring staff to fill out the division
  • Will collect data from customers by default, while also offering the ability to opt out: Will receive shopping data from customers using its credit cards in stores, as well as PayPal and Venmo
    • What kind of data will PayPal collect? Per a PayPal spokesperson, the advertising platform is still in “early stages” and the Co doesn’t have “definitive answers” yet but “alongside the advertising business, PayPal will build transparent, easy-to-use privacy controls”
  • PayPal already offers an “Advanced Offers” ad product that uses AI to serve PayPal users with targeted discounts from merchants whenever they make a purchase
    • Plan to expand this to sell ads to brands outside of its merchant network that could be displayed across the web and CTV
  • PayPal is not the only Co selling ads based on transaction data:
    • Facebook gets information about users from thousands of different companies, including retailers like Walmart and Amazon (link)
    • JPMorgan Chase announced that it’s creating an ad network based on customer spending data (see Theme #9 from 5/17/24 Weekly)
    • Visa is rolling out new technology that will allow it to share more information about customers’ preferences based on their shopping history with retailers (link)

• Sony reportedly in talks to buy Queen’s music catalog in potential $1bn deal (link/link/link/link/link): Sony is said to be working with another investor on the transaction that would be the largest sale of its kind and include recorded music and publishing as well as other income, including merchandise and licensing and revenue from the biopic film Bohemian Rhapsody
  • Current shareholders: Brian May, Roger Taylor, John Deacon, and the estate of Freddie Mercury are equal shareholders in Queen Productions Ltd., which produced revenue of £40.9mn ($52mn) for the year ended Sept 30, 2022, according to the latest available filings
  • Queen has been shopping its music catalogue around for more than a year and had held talks with Sony Music and Universal Music, according to people familiar with the matter; Sony was still among the bidders, while Universal had let an exclusivity period on negotiations expire because the price the band wanted was too high
  • Talks are still early: Negotiations “are ongoing and may not result in an agreement”
  • If the deal goes through, it will be the biggest acquisition for a single artist’s catalog
    • Deal would add to Sony’s portfolio of catalogs: Earlier this year, Sony acquired a half interest in Michael Jackson’s music catalog from the singer’s estate for at least $600mn, Billboard reported; Sony Music also acquired Bruce Springsteen’s recording and publishing rights for $550mn in December 2021, as well as Bob Dylan’s recorded music catalog for an estimated $200mn in January 2022