Endeavor, the “global entertainment, sports and content company,” which owns and operates such varied businesses as the leading Hollywood talent agency WME, the mixed-martial arts sport Ultimate Fighting Championship, the Miss America pageant, the Miami Open tennis tournament, the Frieze Art Fair, and much more, released its long-anticipated IPO prospectus on Thursday.
It should be a momentous occasion for Hollywood, with one of its most prominent characters–Endeavor CEO Ari Emanuel–having built his boutique talent agency into a conglomerate that generated $3.6 billion in revenue last year and will likely be a public company sometime this summer. (Imagining Emanuel, who is both legendarily foul-mouthed and not renowned for his patience, fielding the queries of the usual suspects of media analysts on quarterly earnings calls fills a nerd like me with delight.)
Yet in reading Endeavor’s IPO prospectus, I couldn’t help but think about how thoroughly the tech industry has overrun the entertainment business–and Endeavor knows it. Which is why it drapes itself in the language and the corporate trappings of a high-tech startup going public rather than present itself as the 24-year-old product of growth-by-acquisition that it is.
Endeavor wants potential investors to know that it is a “platform.” As Emanuel writes in his CEO letter about Endeavor’s journey and its history of acquisitions, he states, “These companies combined to form a platform distinguished not only by its longevity–having collectively withstood over 120 years of disruption–but also its access, scale, and global network.” The word “platform” appears 89 times in the S-1 document filed with the SEC, and it’s overwhelmingly used in reference to Endeavor’s own business rather than that of the companies it relies upon to be buyers of its projects.
As any tech observer knows, the companies that can convince everyone that they are a platform are the envy of the business world. “We’ve also built a socially engaging platform in the workouts themselves,” Peloton’s head instructor told CNBC earlier this year as the company seeks to be the “digital platform revolutionizing the future of fitness,” according to Harvard Business School case study. WeWork is a “platform for creators.” The high valuations of Amazon, Apple, Facebook, and Google stem from Amazon Marketplace and Amazon Web Services; the iPhone and iOS; Facebook, Instagram, WhatsApp, and Messenger; and Google’s search engine, Android, and YouTube being considered the dominant platforms in e-commerce, cloud computing, mobile computing, social networking, messaging, search, and digital video.
If you control a platform, then other businesses build their own on top of yours and they benefit from your ability to amass a large number of consumers and other key players to the ecosystem such that, in theory, everyone wins. In addition, platforms enjoy the benefits of lock-in, switching costs, network effects, and other aspects that lead them to grow their influence over an industry over time.
If world domination is your goal, then what’s not to like about being a platform?
Platforms, though, have become a lot more controversial in the last decade–and particularly the last year or so. Over time, platforms compete against the companies who build on top of them, deprioritizing or usurping their partners’ products and services in favor of their own competing ones, raising rents as their monopoly kicks in, etc. The tech platforms have come under increasing scrutiny for these practices, among others, from the media, politicians, and others, but, as yet, their stock prices have not suffered. If platforms aren’t going to be regulated, again, it’s very easy to see why a company like Endeavor would want to be one!
Endeavor can use the word platform all it wants, but that isn’t going to make it one.
The company does a good job of finding ways to cross-pollinate its disparate elements across the many things it owns. For example, Endeavor can help its client Chrissy Teigen get into live events, it can steer Rami Malek to voice act in a new Endeavor Audio podcast, and it can create corporate sponsorship opportunities for its global marketing clients around the sports rights and experiences it produces. But a tennis tournament or beauty pageant isn’t going to have a dominant monopoly on tennis players and fans of outmoded notions of attractive women. There are no network effects. Rivals can start similar competitions with little difficulty. Endeavor may own the dominant organizations for professional MMA fighters and bull riders, but Facebook owns four of the most popular services humans use to communicate digitally. Endeavor could own the NFL, NBA, and every major soccer league, and it still wouldn’t have a platform for sports fans the way that Facebook does merely by coalescing the global conversation of sports players and fans alike.
What Endeavor has is a machine to execute ’90s-style corporate synergy. It may have packaged “more than 300 television series that premiered across broadcast, cable, and streaming channels, represented more than 60% of headliners of the major music festivals in the U.S., and managed 7 of the 10 highest-paid models,” but there is nothing proprietary in Endeavor’s talent representation. There is no compelling user experience binding me as a consumer to Endeavor. Even the talent Endeavor represents is held there only by its personal relationships with the agents and managers who work there.
This has not prevented the company from embracing the excesses of actual platforms. Namely, Endeavor competes against its own clients, as it effectively admits in the prospectus’ risk factors section and which is the subject of an industry dispute with the Writers Guild of America. It states that its “dynamic culture in turn attracts clients and partners who are themselves aspirational and growth oriented,” but it also acknowledges that it has, by its own measure, increased the percentage of its adjusted earnings “contributed by owned assets to approximately 50%.” [I have reached out to Endeavor for comment and will update this story if they do so.]
Endeavor makes little attempt to present its “platform” advantage as having anything to do with technology. Its discussion of tech consists largely of prosaic explorations of the IT that underpins every business, with the exception of the streaming company it acquired. Endeavor Streaming, as it’s now known, is used by the NFL, NBA, and WWE, as well as Endeavor’s own UFC and Professional Bull Riders digital-video subscription offerings. There is no talk of proprietary data that helps it do what it does better than anyone else.
The company does use a lot of tech signifiers to muddy the issue. It makes a point of noting that its primary financial backer, the private-equity firm Silver Lake, is “the global leader in technology investing,” and stating that Silver Lake has a “singular mission of investing in the world’s leading technology, technology-enabled, and related growth businesses.” It brands one of its divisions “Endeavor X,” a clear homage to Google’s moonshot factory and according to the prospectus, it’s a “portfolio of digitally focused, direct-to-consumer, and business-to-business offerings leveraging the capabilities and reach of our platform.” But rather than working on the entertainment-world equivalent of “smart contact lenses,” self-driving cars, and dirigibles that deliver internet access, Endeavor X is merely home to Endeavor Streaming, as well as its nascent Audio and Experiences divisions.
But this hasn’t stopped Endeavor from expecting investors to grant it all the perks of being a tech company going public in 2019. Its founder-friendly, shareholder-unfriendly corporate governance structure mimics that of Alphabet, Facebook, Snap, and, more recently, Lyft and Pinterest. In Endeavor’s case, CEO Emanuel, Endeavor executive chairman Patrick Whitesell, and Silver Lake, will control the company via a special class of shares with 20-to-1 voting power and together have an irrevocable voting majority. The prospectus makes clear that the company doesn’t have to–and won’t–abide by traditional rules around independent directors and board compensation committees.
In the spirit of Uber, Pinterest, and many other recent tech IPOs, Endeavor is losing a lot of money: $107 million last year from its operations, almost twice as much as in 2017 and a far cry from 2015 and 2016 when it eeked out modest operating profits. Much like Netflix, it has a significant amount of debt: $4.6 billion as of March 31, 2019. Interest payments on that debt were $71 million in the first three months of this year. Through some accounting pyrotechnics, Endeavor says it’s profitable when it adjusts its financials to push its debt, the interest payments on that debt, and other costs off its balance sheet.
Unlike the tech companies, though, there’s little evidence that Endeavor’s spending can be seen as helping it dominate its industry by tying up consumers and suppliers in such a way that it would have an effective monopoly in its category. Endeavor defines the market it’s in as the $1.9 trillion global entertainment, sports, and media business, which means that it has a mere .19% of its target.
Entertainment as an “oh, by the way”
Emanuel is one of the rare entertainment executives who saw the changes to his industry early enough to adapt his business for the new reality in many ways. He’s an aggressive dealmaker, and his restlessness has largely served him well in this evolving landscape.
But the tech giants have reduced entertainment to a free or low-cost add-on, the toaster that banks of yore gave away when you opened a new checking account. Original content is another lock-in for their platforms, whose unprecedented scale makes every Nielsen rating and box-office record seem puny by comparison. That content doesn’t have to be good, either. Just good enough–and convenient. There’s a chilling anecdote in Recode’s recent oral history of Amazon Prime, in which one former exec describes Amazon CEO Jeff Bezos coming up with the idea of adding entertainment to Prime. “I remember Jeff used those exact words–it’s an, ‘oh, by the way.’ ‘Yeah, Prime is $79 a year. Oh, by the way, there’s free movies and TV shows with it.’ And how much could consumers complain about the quality of movies and TV shows if it’s free?”
Endeavor, in the end, may be caught in the middle: In some ways it wants to be like Amazon, bundling content that doesn’t have to be good so long as it increases the value of some other asset it possesses. The only problem is that it lacks something as compelling as Amazon’s shopping marketplace and free shipping to entice people. On the other hand, Endeavor also wants to be Disney, but its properties just don’t rise to that level. An UFC fight can be an event, but it’s not Avengers. It can try to use Fashion Week to promote its Professional Bull Riders, or vice versa, but it’s never going to be as cohesive as putting Star Wars and Pixar attractions in Disney theme parks.
The company may not possess any proprietary tech, or any defensible platform, but what Endeavor believes it has that is its most significant competitive advantage is access. “Amidst both industry shifts and our own evolution, access has remained at Endeavor’s core,” the prospectus states. “Once defined by access to talent (e.g., writers, actors, musicians, models, and athletes), we have broadened this access to include blue-chip brands (e.g., consumer product companies, sports federations and properties, global broadcasters, and digital companies), IP (e.g., television shows, films, books, podcasts, and video games), and owned assets (e.g., UFC, PBR, the Miami Open, and Frieze), reaching diverse audiences across key media verticals globally.”
There’s only one problem with Endeavor’s assertion that it sits at the center of the “entertainment, sports, and content ecosystem”: If there’s anything tech companies are good at, it’s destroying middlemen.
Disclosure: Fast Company editorial staff is in the process of unionizing and is represented by the Writers Guild of America-East.