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The social media world is a buzz with the failure of the fyre festival. The same media that served to build tremendous awareness in the millennial segment, equally tore the event and the organizers down with fervor.
Out of the event, various staff have surfaced and spoken ill of it. More interesting to startup nerds is the fyre pitch deck was outed. The media commentary have generally swam with the prevailing sentiment of the crowd and belittled the deck. However, I believe there is more than meets the eye here. I’m not saying it’s the next great thing, but there’s something here, and if all had gone well we wouldn’t all be laughing.
My views here are inferences as the deck in a traditional VC sense is off the mark. It’s far more like an agency pitch for sponsorship. Indeed, one of the slides looks like it was copied from a pitch to the Bahamas tourism agency. The details are missing but the high level vision is compelling in a manner. This ties well with the fyre festival – great marketing but no operational execution.
Fyre business model
Fyre first and foremost is attempting to build a media empire of sorts. It is not simply a festival. The deck describes it as two parts:
- Fyre bookings: This is a talent booking platform
- Fyre festival: The hunger games (Festivals on islands with government subsidies in exchange for long term tourism)
Fundamentally this is a basic talent matching marketplace. There are a number of people in the space such as Thuzio (Have raised $22.6m) and CTI; Thuzio having a different focus. Marketplaces work when they work.
I’m slightly dubious about the market sizing, but who knows if it shapes up to be larger over the coming years as the media industry evolves and becomes more au fait with reality. Given their industry relationships it’s fair to say fyre has a shot building a dominant position here (if they execute).
Festivals are really hard. One of my friends runs CSS and JS conference in Asia. He was quick to post on my FB that he can understand how things went wrong and fast. His events are far smaller but they are no less onerous and require meticulous planning and observance of finances to ensure they break even.
Sky Stack on Quora writes a fantastic summary here worth noting:
Music festivals are generally not profitable until the third or fourth year. If you are thinking about starting a music festival, budget at least three years in advance. Do not put on the first year if you don’t have the capital for three years. Prepare to lose money the first year, break even the second (or get close), and make money the third year.
This is because festivals are only as profitable as their reputation. Each year a festival delivers good experiences to attendees, staff, and artists, it sets up the next year for success. It takes multiple successful years to build the reputation that attracts sponsors and makes attendees choose your festival over another. Likewise, a year with poor experience can ruin a festival’s reputation and run the financials into the ground.
I love this quote “festivals are only as profitable as their reputation.” Fyre gets an A+ for their marketing. I believe they sold out tickets for their targets 40k attendees. Furthermore, according to their deck they were already able to attract sponsors. No doubt if they had succeeded, with the social media buzz they would be swimming in sponsors in future years.
There are a few fascinating things about their business model:
- Marketing: You need to seed this business with marketing, which they did. They got this perfect and whilst they no doubt pulled in favors, I’m sure it cost them some cash. However, you don’t need to spend the next amount in future years as everyone is going to be talking about it on social media to show they are cool etc. This ensures attendance and with attendance you get sponsors
- Cost structure: Now I don’t know enough about festivals to speak with certainty on the unit economics, but the starting price is $1000. People with $1k to blow have more to spend when they are there. They need to fake appearances for the Gram, right? Their chosen locations are islands with no infrastructure, which means CAPEX and they need to import everything. The cost base will be high, but so should their margins and basket size. There has to be decent money to be made here
Now let’s dig into the market sizing here. By way of reference, their benchmark is Coachella. This is the most profitable festival in the U.S. in 2015 it sold 158,000 tickets which is $47.3 million in revenue, according to Billboard Boxscore (That’s up from $17 million in 2007). This equates to $300 per person, which doesn’t make sense since the general admission pass in 2015 was $435… Messes up the comps, but let’s go with it. 40k tickets at the starter price of $1k is already $40m (excluding booking fees etc). If people spend on average $1k (stuck on an island pretending to be rich with people who actually are), then that’s another $40m. In total that’s $80m gross revenue- that’s 1.7x Coachella revenue with a quarter of the people. This excludes sponsorship…
It’s hard to speculate on the margins, but it is fair to say there is gold in them hills. Also, I believe fyre could run multiple events per year, rather than one monster one a year like Coachella.
There is a reasonable investment thesis
I believe the central thesis is:
- The millennial segment is coveted by brands. This is supported by the rise of Snapchat and the Gram
- Millennials increasingly want to consume experiences and share them
- Concurrently, the media industry is looking for alternative business models. Monetization such as through live events is appearing as a viable one…. however
- There is capacity utilization issue in media, such as for bands and celebrities (whom I am generally unsure what they do other than ‘stage’ photos) and a willingness to increase their yield through discovery
- A platform which brought media, millennial consumers and brands together would be able to generate high CPA and CPMs whilst benefitting on the CAC side through a decent k-factor (given the predilection of their audience to share…. Everything)
- This platform would become increasingly valuable through the extension to ancillary b2b2c spaces and create a supporting brand moat though various offline consumer events
Fyre is grounded in insights
Interpreting the pitch deck there seems to be a real insight and understanding of the ‘problems’ faced by the media industry, underdeveloped economies and the attitudes of their target demographic; the millennial. Let’s run a through a few observations.
Media industry in trouble
It’s no shock that the general media industry is not living in the halcyon days and is looking for new methods of monetization, though arguably at a glacial pace. One of the founders himself is a rapper, and no doubt is leveraged to the industry.
One can imagine the inception of fyre, with the founders hanging out, lamenting the industry and attempting to put the world to rights. “Wouldn’t it be great if I could get booked more!” says Ja, “I know my friends would like more gigs given no one buys CDs any more…” Hey “Kids love hanging out with rappers, models and stuff. We would be legends if we got the kids in the same area as celebs, and got them to do marketing for us by taking lots of photos and sharing them…” says Billy. You can fill in the blanks on how the conversation unfolds to the idea of fyre.
What gives fyre credibility is that one of the founders is a former celebrity. He has insight into the ‘mystifying, inefficient and inconsistent process’ of booking celebs and knows ‘live bookings is the fastest growing segment of the entertainment industry’.
Demographic is in pursuit of experience
It is understood that many millennials value experiences over ‘things’. They are willing to spend to obtain these experiences. As seen on page 17, they explicitly align themselves with this trend. They have an ‘understanding of the millennial demographic” and they want experiences. A party on the private Exuma island is one such (failed) example.
Tourism subsidies from those in need and aligned brand
Fyre got $8.4m of land on Exuma ‘in exchange for hosting the festival and advertising the land’. I presume this means they get it rent free rather than owning (I wouldn’t be surprised if you could negotiate that), but the slide is entitled ‘land ownership’ (The deck is poorly written). This was with a view to “bring awareness, visitors and livelihood to the land.’ The economic impact of Coachella in 2016 was around $900m. The pitch to developing economics such as the Bahamas who live off high-end tourism is quite compelling. Once or twice a year, 40k aspiring affluent people with camera phones and trigger fingers will descend to their lands and try their best to say all the best things in the world that they can about the place.
It’s not hard to see how they could replicate this across the world with a strong case study. Why could they not invest in infrastructure and develop a resort to operate year-long when events are not on? It totally plausible and they get a lot of free marketing to boot.
The deck is pretty but generally terrible
The deck, from a VC perspective is fairly terrible. The time was spent making it pretty and filing it with celebs. There is no content and limited intellectual rigor. It would have been far better in my view to make the deck more boring and then let their amazing marketing abilities speak for itself, like a quiet confidence underpinning the glitz. The deck instead is a clown wearing a tie, rather than a Saville suit with an extravagant pocket scarf.
- Great consistent, formatting
- Attempt to really convey a vision with passion
- They understand the problems and have insight into the demographics
- Some of the founders/team have credibility
- They are AAA in marketing
- Credible network and relationships in the industry they are focused on. This could have been framed as an ‘unfair advantage’
- Their revenue model includes a kickback to celebs in the form of ‘benefits.’ I presume this means entertainment. This likely shows wisdom in knowing how the business works. This is one of the few smart things I like in the deck
- Pending partnerships illustrates some traction and business development capability
- Font size often too small
- The vision and passion is not communicated in neither a logical nor comprehensible manner. See slide 15… huh? Five elements of the earth. Sounds like the kind of thing you would say in Bali to pick up a yoga instructor with daddy issues
- The solutions and problems are not brought together to explain why this is a compelling opportunity to investors. The ROI seems to be implied in getting to be cool by association
- No competitive analysis and benchmarking
- No market analysis and sizing
- The quotes are OTT. This is a pitch deck for cash, not sponsors. The audience loves to party, but they want to make money and don’t give a toss about the fluffy stuff like marketing people do (Read this, seriously!!). They haven’t thought about the audience
Things really have gone Pete Tong for the chaps due to an inability to execute and general naiveté. I’m not sure the way forward for them now other than a few years of rehabilitating their brand and earning trust. It will be hard, but it’s possible. Investment is unlikely, they will have to bootstrap.
It’s not popular to give these guys credit, but I think there is some genius in what they are doing. Sure, it’s not a typical ‘startup’ but there could be real money here if they build the right team.
I personally wouldn’t invest, but it would be a lot of fun to whiteboard the opportunity here as a business model and the strategy.