June 10, 2021 – On today’s show, we welcome special guests Chris DeWolfe, CEO & Co-Founder of Jam City, and Emil Michael, CEO of DPCM Capital. Jam City recently announced a merger with SPAC DPCM Capital in a $1.2 billion deal.
On the podcast, Chris and Emil discuss:
- How their experience in the C-suite at MySpace and Uber helped them in their entrepreneurial journey
- Keys to success in the mobile gaming industry
- Insights into the future of mobile games
- DPCM’s thesis on Jam City as a merger partner
- Jam City’s growth plans and outlook on acquisitions
- And more
Welcome investors to the Absolute Return Podcast. Your source for stock market analysis, global macro musings and hedge fund investment strategies. Your hosts Julian Klymochko and Michael Kesslering aim to bring you the knowledge and analysis you need to become a more intelligent and wealthier investor. This episode is brought to you by Accelerate Financial Technologies. Accelerate, because performance matters. Find out more at www.Accelerateshares.com
Julian Klymochko: All right, we’re alive with Chris and Emil. Chris coming from Jam City, Emil coming from DPCM. Excited to chat with you guys today. So, thank you for coming on the podcast today. Big news coming with DPCM and Jam City and the growing public transaction. What I find very interesting and intriguing prior to getting into that is, you guys have some pretty unique backgrounds coming from very well-known companies. Chris, your CEO and co-founder of Myspace, the original social network from 2003 to 2009 and Emil your Chief Business Officer at Uber up until 2017. So certainly, a very well-known brands by pretty much every kind of North American consumer or perhaps global. I was wondering if you guys could touch a bit about your background? Chris, you first. Tell us about your historical experience at Myspace, lessons learned and how you applied that to co-founding and leading Jam City as CEO?
Chris DeWolfe: Yeah, sure. So, we started Myspace in 2003 and it was interesting for me because I’m always about sort of looking at the trends that are out there and trend spotting. And for me, the success of Myspace was late combination of the team that we had assembled as well as the trends that were in place that I saw around me. And what I mean by that is everyone had a phone and in that phone was a camera. So, people were taking pictures, but they didn’t have any fun places to store them and share them with their friends. Around that time, everyone was beginning to have a broadband access, 2003-2004. I said before that there was sort of a stigma with socializing online, that was beginning to go away. There was this sort of confluence of macro factors that were happening in our culture that just went itself really well to creating a platform where people could connect around their shared interests and you know, be able to share their favorite media and what was going on in their lives.
Julian Klymochko: Interesting. Now, what was the thesis behind the founding of Jam City in 2010? You mentioned perhaps there’s a similarity in my space with respect to trendsetting, certainly mobile games is a massive trend that we’re still going through 11 years later?
Chris DeWolfe: Yeah. I mean, for me, it was even a little bit more micro. There were a lot of trends that were sort of happening that got me really excited about gaming. So, like at it essence Myspace was a platform for sharing personal media, as well as traditional media. And when we were able to take a deep dive into the analytics around all the media that was shared on Myspace. Games by far in a way the most shared, and so that had these viral mechanics that were leveraged better in a social atmosphere than any other medium. So that was really interesting to me. And then looking at the folks that were playing games on that platform. The majority of them were first-time online players. So, you could see would be a very large, very fast-growing market and a large market that is comprised a very wide demographic group. And then to your point, just a minute ago, mobile was beginning to take off in a big way and certainly had taken off in social networking and in gaming and music and in Japan and Korea. So, it’s only a matter of time and everything’s sort of aligned for me around all of those factors.
Julian Klymochko: So, Emil I wanted to touch on your background quickly as well. You used to be at Uber up until 2017. Do you want to touch on your career track record and why you started DPCM?
Emil Michael: Yeah, so Uber was actually my third startup. I’ve been in the Valley at tech companies since 1999, right in the beginning and I had some good successes with companies, but nothing like Uber that was sort of, you know, lightning in a bottle. But what was exciting about that company was a couple of things. Number one, consumers all over the world wanted the same thing. They wanted to push a button and get a ride. It was almost a human universal need. So, when that was enabled for the first time, Uber was sort of magic. And if you’ve talked to people, I still talk to people, use Uber for the first time. They were like, that was magic. The first time I pushed a button and a physical car showed up where I was and took me away and where I want to go. And so that’s why the business took off with the speed that it did.
It was a basic human need is to get around their city or their town. So, what that led to after four years of global growth and new business lines from Uber Rides, Uber Eats and then the grocery delivery. I really went into DPCM Capital looking to find another founder led company that had global appeal, that was also tied to basic human needs. And in this case, it’s entertainment. And the Tam is just as big. Right now, I think there’s about almost 3 billion gamers in the world and that’ll go to 4 billion and 5 billion as everyone gets smartphones and data prices come down as they have dramatically in India, in China in the last few years. So, if you think about what Chris has built at Jam City, it’s the global enterprise running on computers that everyone has in their pocket across income spectrums. And in the time, they spend on games rivals that of the time that people spend on Instagram and YouTube. So, it’s an incredible total addressable market. Once you monetize users and entertainment and have them be part of the Jam City sort of collection of titles that they pulled together.
Julian Klymochko: Yeah, certainly the macro thesis makes sense. 3 billion gamers, global appeal, massive total addressable market, but mobile games are incredibly competitive. And Chris, you probably have my childhood dream job growing up. I definitely want it to be a video game developer, programmer, and a publisher. But nonetheless, I figured that throughout university, I didn’t like programming as much as I thought, just doing engineering, but I digress. I mean, you guys have some certified hits, Cookie Jam, Panda Pop, what are some keys to success in the mobile game business? And, you know, I don’t want to encourage your competitors, but you guys, you know, have seemed to make it work with pretty massive success
Chris DeWolfe: Yeah, the mobile gaming business is really that intersection of where, you know, the magic meets the measure. And so, you know, we’re always striving to make incredibly deep, rich mobile entertainment experiences. And so, we have folks on board that have the experience either from the movie, television industry or, you know, traditional gaming industry that can put those types of experiences together. But then you have the measure piece which is the technology that all of our games run on. And that’s really what accelerates our games to the next level. And then the kind of M&A, we do with accelerates it to the next level. So, we built this platform that all of our games run on top of. It’s called jam city vibe. And we’ve been building that over the last 10 years and spent tens of millions of dollars on that. Essentially helps us with three different activities.
First one is bringing more players into the game. Using machine learning, artificial intelligence and data science. The second thing it really helps us out with is player retention. And so, customizing the experience where all of the players that come on to any of our games, making sure they have a good onboarding process and, you know, they’re getting into the game in the right way. And then finally, you know, with monetization to make sure that the game is merchandised really well. And so, you know, we have this massive investment in this platform that we’re able to leverage all over, over all of these super creative games. And then we’re able to go out and do M&A and find these incredibly creative companies out there that have built these deep, rich mobile entertainment experiences that haven’t had the capital or the time or the resources to build such a rich, deep technology infrastructure. So, we put those two together and, you know, really the goal for us is to double the bookings and our games after the M&A is complete.
Julian Klymochko: So, to an outsider like myself, it appears like having a hit game is somewhat like catching lightning in a bottle. I look at something like flappy bird, which is kind of developed by some guy in his basement and turns out to be massively successful, you mentioned you have this jam city live platform, basically making it somewhat formulaic in terms of building successful games, bringing players into the game, retaining them, and then monetizing them. Is that what you guys approach it with respect to a formula on each of the games that you put out there? Or, you know, is there a significant luck component in terms of knowing what’s going to be successful, what’s going to work? And the other thing that I was wondering about is, you know, a massive games kind of like Fortnite, that kind of changed the environment like freemium and that type of model. What are your thoughts on the current environment for games?
Chris DeWolfe: Yeah, so like, I think first and foremost, it starts out with the story and the world that you built. So, it’s definitely not formulaic from that perspective. So, you have to have incredibly creative goals that can build that story and create the world and, or adapt the cannon from an IP that’s already out there like a Harry Potter Hogwarts Mystery, or even Disney IP. We’ve translated it into mobile gaming experiences, so that’s important to note. When you’re talking about sort of pick games, we look at it in a little bit of a different way. So, we have what we call seven forever franchises. And what that means is, we have seven franchises that have generated a hundred million dollars or more in lifetime bookings. And we do that by continually updating the content literally every day, if not every week. That can be new levels, that can be new features, new worlds, new collectibles. And so, it’s always a fresh and fun experience for our players. And so, Emil mentioned. Like how many minutes, the engagement per day, that folks on our platform will play 40 to 50 minutes a day. It’s become part of their daily routines, like our goal and our belief is that our players should be playing for many years if not decades, and that’s where we approach the business.
Michael Kesslering: And can you speak to margin profile of the mobile gaming industry and why it’s such a great business as well?
Chris DeWolfe: Yeah, so you know, we’re fortunate in that we have a large network of folks, I should say, players throughout all of our games. And so many of our players play multiple games in our network, and so that definitely helps margins. We’re able to reuse like game engines. We get a lot of word of mouth that brings players into our games and then our games are built inherently social. So, my background is in social. And so, we’re always thinking about ways to make our games more fun by making more social because games were meant to be played in a communal way. And so, the more organic users you’re getting into your game, you’re reducing your marketing costs. Also, and many of our larger gross end games, we licensed third-party intellectual property, which we’ve then translated into these mobile gaming experiences.
And in a lot of those games about, you know, up to 70% or more of those players come into the game organically, again, keeping your marketing costs down. And so, between the sort of notion of reusing a lot of your infrastructure, like I talked about in jam city live. Reusing a lot of the game components, your game mentions that you’ve built, and then having third party IP that people are finding, and then having this huge cross-promotion network that we can send players around to our different games really helps with the margins, at least within our company.
One final thing I would say is that as our forever franchises, so much of these seven games that are just steady eddie in revenue, our bedrock of revenue, growing every year. As they grow, as our cohorts of users that may have joined the game in 2014 are still playing in 2018, 19 and 20, like your margins expand because you’re not again spending marketing dollars, you spent those back in 2014 and you’re generating revenue in 2020 and 2021 from those players. So that’s where retention becomes so important in your games. And to build those games that we call forever franchises, or you can think of them as big as evergreen as possible.
Michael Kesslering: Absolutely. And I mean, that’s what’s really interesting about the franchise model, right? It’s a very sticky relationship and theoretically those users will be earning more money as they age as well. So, it’s a really great business model. So now I’m looking to the future of the mobile gaming industry, where do you see some significant opportunity for innovation in the next 10 to 20 years?
Chris DeWolfe: So, I’ll talk about what I sort of believe in the industry in general, not necessarily what our strategic initiatives are right now. Although we think about these things every day, we believe that consumers becoming a lot more sophisticated. So, as I mentioned before, in the early days of mobile gaming, you know, many of the players were, were first time online gamers. Now many of them have been playing for, you know, five, six, seven, eight, ten years. So, they’re becoming more sophisticated, to the point where you can build more complex games and mash up different game mechanics and different ways to make the games more fun and create unique experiences. And I think, you know, machine learning and artificial intelligence to provide that more bespoke experience to each individual user will also become more prevalent.
And that’s something that’s actively happening in our game. I think the use NFTs will become more mainstream. We’ve seen that a little bit on the collectible side and in niche ways in the art markets. But I personally believe that’s going to be a huge growth area for mobile gaming because mobile gaming in general, there’s a lot of collection mechanics that are leveraged there. And I think the notion of ownership, owning things within a game is something that’s interesting and being able to show off those items that are of value to you and others that play the game is going to be incredibly important. So, the notion of NFTS, I think could be a big growth area for the industry. And then I know everyone’s been talking about VR and AR, and what that’s going to do to gaming for the last, you know, 10 years. And sometimes it feels like it’s never going to happen, but I honestly do feel like that’s going to be an important evolution as there are more and more, you know, sort of real-world experiences that are unreachable to the average person that are now within reach, as VR becomes more and more sophisticated.
Julian Klymochko: One thing that I think would be very helpful to investors to understanding the gems of the story is, getting into the monetization. Now, one thing that stood out to me in your investor presentation is, and I was really surprised at this. Average monthly spends per player, $44.75 cents. That just seems very, very high. So, you guys certainly have a successful way of monetizing the players. Roughly 1.1 million monthly players per month, so how does that average monthly spend per payer work? Is it, you know, do you have a small number of whales that are just spending a fortune each month and many that don’t really spend, is it a pareto distribution? Are you finding they’re able to effectively monetize, you know, most of the consumers of the content in the game?
Chris DeWolfe: Yeah, I probably should have led with this, that all of our games are absolutely free to download. And we regenerate our revenue on a combination of in-app purchases which are bundles where items that you can buy in a game that make the game more fun to play, and then sets maybe approximately give or take 85% of our revenue.
Julian Klymochko: Okay.
Chris DeWolfe: And then 15% of our revenue comes from advertising.
Julian Klymochko: Okay, that helps clarify it. So, I wanted to get into the transaction. You guys recently announced a business combination between Jam City and DPCM a $1.2 billion merger. This is happening 11 years after the founding of Jam City. So, Chris, why are you going public? And why is now the right time?
Chris DeWolfe: Yeah, so the market is, we’ve talked about this a little bit earlier that there’s almost 3 billion players now worldwide in the industry. The market is growing incredibly quickly. I think in 1995 it was something like 150 million. So, it’s a huge growing market. It’s consolidating, we’ve been a consolidator, we want to continue to do that. We’ve been very successful in the past at M&A. We would like to do more of that and access in the capital markets to do more M&A in the future is absolutely a strategy of ours and something that we’ve, you know, proven out over the years at Jam City. And it proven out over the years, even prior to that between everything I’ve done at Myspace and past companies that I’ve started as well as my co-founder Josh Yguado who was in corporate development at Fox.
And then like obviously one of the reasons I wanted to partner up with DPCM was not only like our shared thesis on sort of where the future of people lives. We’re going to be in a meeting, playing online games was going to be incredibly important, but like their experience and strategy, growth in M&A, between everything Emil did at Uber as well as Denmark West, who we’ve known for many years, who’s on Emil team and is going to be joining our board. Denmark ran corporate development for Viacom Networks for many years. Then was one of the top executives at BET. And so, we’re going public to, you know, really try and consolidate the industry and continue to do what we do best, which is invest in new games that we build organically in house and execute on M&A.
Julian Klymochko: well, it’s always great to have both the sponsor and the business combination company on the same podcast, because I can ask you guys kind of equivalent questions, but on the flip side of the coin, so Emil, what were the main reasons you selected Jam City for your business combination? Some people say, you know, having a SPAC, you go out there, you date a number of companies, and then ultimately get married to one. Can you tell us some of the background, the due diligence process and what ultimately led to the business combination with Jam City?
Emil Michael: Yeah. So, a few important things. One is because it’s a compressed process [Inaudible 00:22:58] move fast, and it’s been competitive. The fact that we, as a SPAC knew Chris and his team well over many years was really important because that means we had a rapport, we had trust. And you saying, like you mentioned Denmark West, worked with them when he was at Viacom. One of our other partners had sold his company into Jam City. So, we had a decade long relationship with Chris and his team, which meant that we trusted them, we agreed with their vision. And we’ve been tracking them for years. So that was sort of principle one. Principle two was we wanted a real business and in the SPAC market these days, there’s a wide variety of businesses that are trying to go public the via SPAC. And some of them are not in revenue till 2025. So, how about we find a business as a product in market today, that’s generating revenue and cashflow and has a strategy for winning in the public markets, which is Chris said, getting your currency to do more acquisitions faster and better. Sort of just adds to the velocity that the company is already running on. So that was a big factor too, and I think we chose right, because right now you’re seeing a dramatic slow down in the stock market for companies that don’t have businesses that exist today, but exist, you know, in theory or in the future. And then third was founder led. And the reason founder led is important and having come from Uber and sort of seeing that go from the founder led to not founder led is the passion and the long-term vision that one can do when they’re founder led because they’re patient, and this is their baby is really in my view, a really important part of building a long-term sustainable great company. And so all three of those were part of why we chose Jam City.
Julian Klymochko: Yeah, and you guys mentioned one of the main reasons in going public is to continue your successful consolidation strategy. You mentioned M&A is a key component, so can you discuss your M&A strategy and initiatives in general? And then also specifically, do you want to touch on the concurrent acquisition of Ludia?
Chris DeWolfe: Yes, our strategy is to find the most creative teams in the world, creative studios in the world that have found the fun or the magic in the game that they had built and a following in the game that they have built, but haven’t necessarily invested in the technology. So, then we can acquire that team, bring them onto the Jam City team, plug their games into the jam city live platform, increase the monetization and the retention through our technology, and then maintain this wonderful, you know, creative game leadership where they do what they want to do, which is built amazingly creative experiences for their many fans. But we’re able to, you know, broadcast that game to many more players throughout the world and expose that to many more players throughout the world, and the perfect example is Ludia. They’re one of the most creative, mobile gaming companies in the world.
You know, one of their biggest games is Jurassic Worlds Alive. I think it’s the second largest mobile AR game in the world. And they had continued to build this large base of users, but haven’t had the time to, or resources to develop this technical infrastructure that I’ve talked about, that we have to with jam city life. So, we feel that this is an especially important feature to this transaction that we’re talking about today with you and with Emil that we have a strategy of M&A and organic growth, but we have the bird in the hand in this partnership acquisition that we’re doing concurrently with this SPAC merger and acquiring Ludia and we couldn’t be more excited about it.
Michael Kesslering: And so, Chris and Emil, you both are serial entrepreneurs, but also a serial successful entrepreneurs. I was just wondering for our listeners; do you have any advice for future founders?
Emil Michael: I’ll go first and Christie you chime in. There is in some ways never been a better time than to be in tech. And for a lot of reasons, number one, there’s just the global capital markets are fully behind tech disruption in every continent and almost in every sector. So, the opportunities are sort of endless. When Chris and I came up, this was not a worldwide global phenomenon with almost infinite money. You have to really hustle for VC money and, you know, you couldn’t hire as fast. You even had to live in San Francisco just to get the money, you couldn’t be another city. So, I think right now the opportunity is global. So, my advice to up-and-comers would be, you know, if you had to choose between sort of a stable job at a bank versus starting a company that’s disrupting the banks, maybe take a shot when you’re young at theup-and-comers, because there’s a lot more to come in terms of disrupting old school industries right now. And I think taking that as both fulfilling and you learn faster.
Chris DeWolfe: For sure, all that’s consistent and true for me. I think some other distinct differences and interesting reasons why now is a great time to become an entrepreneur is that you can build a lot more, everything is cheaper to build. So, you know, it used to be, again, at least when I was coming up, I’m going to be a little bit older than Emil. Maybe when we were coming up. You built create this, you know, 30- or 40-page deck, you know, that would take you many weeks and you’d always iterate on it. Now you can create, you know, a much smaller deck, but you can actually create a prototype of whatever it is, the product that you want to build. You know, before you’ve even gone out to raise a Series A round of money, a very small investment.
You can create a prototype of what you want to build, so everything is cheaper. It’s much easier to explain, it becomes more real. You can be more nimble in terms of adjusting that product to make sure you have the right product market fit.
And the final piece of advice is definitely stay humble. You know, I think we can all say that, probably everyone on this podcast can say that. There were times at Myspace when I thought there was no one that could ever catch up to us because we’re three times bigger than everyone else. And there’s a lot of competitors out there and you can always learn from other folks. Like really assembling the right team has been incredibly important to me, you know, and I mentioned that a little bit about the team that we’ve assembled at Jam City where, you know, one of my co-founders, my COO was top executive at Fox. Responsible for working on some of the top franchises there. My other co-founder was one of the top CTOs in the world and was my CTO at Myspace. And so, kind of making sure that all those holes are filled with the greatest people in the world is incredibly important, especially when you’re running into a situation where things aren’t always going, right. You always have someone to lean back on and figure out the right solution. And so over the years, I think a lot of the success has been attributed to staying humble with team and being really nimble.
Julian Klymochko: So, being nimble, staying humble, building a great team, appreciate those words of advice, all your insights today, Chris and Emil, thank you for coming on the podcast. For investors interested in looking at the stock, currently trading under the symbol XP0A. Closing later this year as expected. Yeah, thank you guys so much for coming on The Absolute Return Podcast. We wish you the best of luck in the future and we’ll be monitoring how things progress.
Chris DeWolfe: Thanks guys.
Julian Klymochko: All right.
Emil Michael: Thanks for having us on.
Julian Klymochko: Bye everybody.
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