Behind Streaming Upstart Caffeine’s Plan To Take On Twitch: Draft Drake

Some business deals are made on the golf course. Others get sketched on a napkin over drinks. In Silicon Valley, they’re just as apt to happen courtside at a Golden State Warriors game. That’s where venture capitalist Ben Horowitz pitched his guest, a DJ who manages Grammy-winning artist Drake, on a new tech startup taking on live-streaming giant Twitch.

Caffeine founder Ben Keighran says he received a surprise call from Horowitz, an early backer and board member, who connected him with Drake’s manager during last June’s NBA finals. The discussion culminated in a deal that will bring Drake exclusively to Caffeine to co-produce monthly battles of rap skills with the Ultimate Rap League, starting Feb. 29. “This is a name that everybody knows,” says Keighran. Drake means “live broadcasting in a way that hasn’t been shown at this level before.”

The deal represents a milestone for the nascent live-streaming service, which allows anyone — entertainers, athletes, esports stars, amateurs — to broadcast to fans, who can chat with each other and the person they are watching. Launched to the public in November, the free service that Apptopia estimates has been downloaded 1.6 million times is going head-to-head with Amazon’s Twitch, which has 40.1 million downloads over the last year, thanks to popular gamers such as Turner ‘Tfue’ Tenney and Timothy ‘TimTheTatman’ Betar. But Twitch is largely associated with streaming video games. Caffeine wants to go well beyond that, offering live sports, concerts and, yes, rap battles.

“I think of teenagers wanting to watch Fortnite but also wanting to watch Coachella or wanting to watch sneaker drops and wanting to watch the X-Games,” say Keighran, 37, a former Apple executive and entrepreneur. “There’s a lot of people out there that would love to stream, but a sort of hardcore gaming platform like Twitch doesn’t feel right.”

Keighran’s vision for the future of entertainment, which he calls “social broadcasting,” attracted $46 million in investment in January 2018 from Silicon Valley firms Andreessen Horowitz and Greylock Partners and celebrity backers Ashton Kutcher and Kevin Durant. Fox Chief Executive Lachlan Murdoch was similarly intrigued, and months later invested $100 million in Caffeine, at a valuation of $500 million, through his family’s media company, then known as 21st Century Fox. Together they set up a joint venture, Caffeine Studios, to produce esports, sports and live entertainment from the Fox studio lot in Los Angeles. “These big media companies are all hedging against the future,” says Doug Perlman, a sports media advisor.

As a child growing up in Sydney, Australia, Keighran brimmed with moonshot fantasies. He wanted to build the world’s fastest go-kart or build an earth-orbiting hotel. At age 10, he taught himself the C++ programming language and created The Zone, an online gamer bulletin board that attracted so many people his parents shut it down. The budding entrepreneur dropped out of college after six months to launch his first startup, a mobile-social messaging app Bluepulse, eventually moving to San Francisco.

Yahoo executives he’d met in Australia through a family friend helped pave the way, arranging introductions that led to a dinner in the upscale Bay Area suburb of Woodside with LinkedIn co-founder Reid Hoffman and former Mozilla CEO John Lilly. Keighran’s second venture, Chomp (a reference to finding “snack-sized content”) was gaining traction, striking a deal with Verizon to power searches on Android phones, when Apple swooped in and bought it in 2012 for a reported $50 million.

Chomp became part of iTunes in the App store, and Keighran took over the design team working on a version of an Apple TV device that shipped in 2015. But he struggled over whether to rejoin the startup world. “You’re a dreamer,” his grandfather and mentor told him. “Keep doing that.” He left the tech giant in 2016 to launch Caffeine.

One Sunday night in October, Keighran is on the historic Fox Lot in Los Angeles where Shirley Temple once sang, to watch a Caffeine TV broadcast by Offset. The rapper, a member of hip-hop trio Migos, gives Keighran a vigorous bro hug then prepares to host a livestream playing the video game Call of Duty: Modern Warfare.

“I’m going to be talking, hands on, with my fans,” says Offset, clad in fatigue green pants and matching tactical vest. “It’s not going to just be me playing the game. I’m going to interact with everybody.”

Keighran is counting on the magnetism of Offset, Drake, and athletes including one of the NBA’s projected top draft picks, LaMelo Ball (who has been attracting crowds off the basketball court playing Fortnite on Caffeine) to stand out in a crowded space.

The Redwood City, California upstart doesn’t make money from advertising. Instead, it mints its own internal currency, called Caffeine Gold. Users purchase these coins to buy virtual items (a snow globe sells for 5 coins, or the equivalent of 50 cents, a unicorn goes for 150 coins or $15) that they send to the broadcaster as virtual gifts — and the broadcasters and Caffeine take a cut. Big draws such as Drake and Offset are guaranteed a minimum take. These kinds of virtual gifts can add up to big sales. For instance, Chinese streaming app DouYu gets most of its revenue, or $261 million in its most recent quarter, from its own virtual gifts. “That’s where all the money’s made,” says Keighran. Caffeine is likely to generate $1-2 million in its first year, according to Forbes estimates.

On Super Bowl weekend, Pittsburgh Steelers wide-receiver JuJu Smith-Schuster headed to Florida’s South Beach to host the “JuJu Bowl” on Caffeine. He and other pro athletes competed in a video game tournament before an enthusiastic studio audience with Fox branding on display, while online viewers cheered them in dialog bubbles that appeared below the livestream.

It’s the kind of personal interaction fans might only ever get jostling for an autograph at the sidelines before a practice, and never from the other side of a television screen. Generation Z might find NFL or Major League Baseball games infinitely more entertaining if a friend or social media personality offered funny commentary instead of a longtime announcer like Fox Sports’ Joe Buck. The challenge will be attracting a sizable enough audience to convince professional sports leagues to offer up Fox’s big-ticket content.

“That’s where it is like a killer opportunity for us,” says Keighran. “To work with Fox and NFL and any of these folks on bringing that more interactive experience to your device.”

Keighran isn’t alone in seeing this opportunity. Twitch unveiled a redesign last fall with the goal of moving beyond Fortnite and has struck deals with sports leagues, including the NBA and NFL.

Twitch represents a tough hurdle. The best prospects for Caffeine may be a buyout, predicts one analyst. “Caffeine is a late entry and what that means is … It’s basically a dollar short and a day late,” says Joost van Dreunen, head of gaming research at Nielsen’s SuperData.

That’s not how Keighran sees it. Caffeine’s current program offerings, which lean heavily on esports and extreme sports competitions, should open the door to more ambitious broadcasts of concert tours, live entertainment or professional sporting events. Plus it also produces its own original programming, such as the live tabletop role-playing game, The Dungeon Run, in which five players navigate an interactive Dungeons and Dragons game from a studio in Burbank.

“Look, we understand what Twitch is,” says Keighran. “We want to build the next big thing.”

Original Post: Forbes, Dawn Chmielewski, 2/11/20