OnlyFans back and forth this week on whether it would ban sexually explicit content on its platform to appease investors had Wall Street buzzing. We ask what this means for the wider creator economy.

In this episode we also discuss:

• How Reese Witherspoon and the Blackstone Group are disrupting the new media industry.
• Our thoughts on Virgin Orbit going public via SPAC.

James

Hi there and welcome to the Stock Club podcast. I'm James and joining me on today's show is Anne Marie and Rory from the MyWallSt investing team. Today we're talking about the self-inflicted debacle OnlyFans got itself into and what it says about the future of the creator economy, how Reese Witherspoon and the Blackstone Group are disrupting the new media industry, and our thoughts on Virgin Orbit going public via SPAC.

So Anne Marie last time I was speaking to you, you were stranded in New York, thanks to a hurricane. Have you managed to get back to Ireland yet and also, I didn't know New York had hurricanes in August.

Anne Marie

Yeah, I think it was the first hurricane to hit New York since Hurricane Sandy. So it's like a very much like once every kind of five years thing.

James

Yeah.

Anne Marie

And it wasn't too bad because it degraded into a tropical storm as it hit the city. It just it rained the most in a single hour that it had ever rained in New York City.

James

Wow.

Anne Marie

So all of the subway stations immediately flooded.

Rory

Who was it, Hurricane Henry or Hurricane Henri.

Anne Marie

Henri.

James

Very Fancy

Anne Marie

Which I think is why a lot of Americans didn't take it seriously. We're not going to take a Hurricane named Henri seriously.

Rory

Irish people have a bad relationship with the name Henry, I tell you some other time.

James

The auld 'handball incident'. Let's move on before we get too bitter about it. So the first story I want to come to today concerns a company that we've definitely never talked about in this podcast before, but has been making headlines across the world over the past week or so for all the wrong reasons. Just before we get into the story, I want to point out that if any of our listeners have sensitive ears in the vicinity, they might want to skip past the story, just given the nature of its content.

So OnlyFans, a platform where content creators can charge to follow a subscription fee to access exclusive content, announced last week that it would be banning sexually explicit images and videos from its site. It has prompted a massive backlash from both content creators and its community of users, who claimed that the service was abandoning the sex workers that have made it so popular in the first place.

OnlyFans is quite an interesting company. Though it's still private. It has more than 130 million users, 2 million content creators, and reported $150 million in free cash flow last year, it was rapidly outpaced competitors in its industry, most notably Patreon. But a lot of this growth was apparently driven by the high amount of sexually explicit content on the site. The reasons for this ban are a little unclear. OnlyFans management seemed to blame payment processes like Bank of New York Mellon and Mastercard. But a lot of commentators also suggested that the decision rested with concerns over the ability to secure fresh investment in the company. In any case, the management reversed the decision a couple of days ago, but the reputational damage amongst its community of creators seems to have been done.

Rory, I know you've been doing a lot of reading on this. What do you make of all this? Have you ever seen something like this happened before?

Rory

Yeah. As you said, it's not an industry we usually ever talk about, mostly because I don't think there's many public businesses is to discuss. I think there is actually one strip club that is publicly listed. Or there was a couple of years ago. Anyway.

James

Yeah

Rory

But this has most certainly been the story of the week, and what was kind of interesting was, as I said, this is a pretty kind of standard policy across most social media sites. And of course, OnlyFans wasn't actually created as a site for adult content. And it's not only adult content that's on there, but of course, that content had become kind of the biggest draw for use. And certainly in the zeitgeist, OnlyFans was a kind of adult content platform. So this announcement kind of came like, well, what are they going to do? It would be like, it'd be like TikTok banning dance videos or Facebook banning fake news. What's the point in the company if they're not gonna have adult content on it? And if you're buying? And also, like, if you're gonna ban this, is this company even viable anymore?

And comparisons were actually made to Tumblr -- the microblogging site that Yahoo once paid a billion dollars for -- had a similar change in policy back in 2018, and it now has essentially kind of vanished into complete obscurity. So, like I said, the question was, why are they doing this? And the CEO, Tim Stokley, came out, and he basically put all the blame on the banks. He did an interview with the Financial Times, he's saying that those three banks, in particular, have been actively trying to shut down the corporate accounts and blocking their transactions to content creators

Now, we don't actually know just yet what truth is behind that. We know there has been issues in the past with companies like Visa and Mastercard. They brought in policies that curtailed payments towards the industry in general. So, yeah, one of the bigger 'tube' sites, which I'm sure everyone has heard of, had to make big changes just last year. Now there have been suggestions that OnlyFans, like you said, were having problems raising capital because of the type of content that was on their platform. And according to a report by Axios, who managed to actually get hold of the company's pitch deck, OnlyFans began looking for investors in the spring, and were basically immediately shut out of a lot of the big firms. They kind of refused to even do any due diligence. Those big investors basically cited reputational risk.

And this was a big problem for the factors who were looking. They were kind of trying to figure out "when are we ever going to get out of this. Where are we going to get a nexus event to kind of make some money off this company." And they were just essentially being completely stonewalled. So there's a lot of speculation. We don't actually know the full story. But according to the financials that Axios posted, any other company that was growing like this would have absolutely no problem raising capital. Their gross merchandise volume for 2020 was $2.2 billion. That was expected to go up to $5.9 billion this year. We expect to go up to $12.5 billion in 2022 and that would have translated into net revenues of somewhere around $2.5 billion, which would certainly have made this a multibillion-dollar company.

James

Yeah.

Rory

Anyway, as I said, the announcement was not taken well by OnlyFans creators. They believed that they were the reason behind the company's success. And the company didn't necessarily reverse this decision yesterday, they actually used the term suspended.

James

Okay.

Rory

So we don't know exactly what the future holds. But so what I find interesting about the story is it's not the first time that we've seen either payments companies or the platforms themselves make these policy changes that impact content creators. So in 2010, for example, PayPal banned donations to WikiLeaks, which caused quite a stir and then over the years of being a number of other groups that have complained that YouTube, for example, has sought to demonetize their content. And just hours ago, as I was researching the story, we heard, the TikTok is set to ban accounts that discuss cryptocurrency.

So this is, I think, an example of a kind of ongoing misalignment where platforms are increasingly wary of the kind of content that is shared by its content creators. And so these creators are kind of now moving towards this idea of decentralizing themselves off these platforms. And decentralization has been an ongoing discussion for many years now. It's the driving factor behind the cryptocurrency movement. So for content creators, decentralization would be ensuring that they're not tied to one particular platform. They control the relationships that they have built up with their own fan bases.

A lot of work has gone into this. Whether you agree with what these people do or not, you know, they've put an awful a lot of time and energy to build up these fan bases. And these tech companies are essentially able to kind of just completely deplatform them at their whim. So I think it's bringing up quite a lot of interesting kind of conversations about what rights do content creators have in this digital space and you kind of have to wonder how long it's going to be before we start seeing platforms spring up that are designed to bypass these old tech companies. These old financial infrastructure firms. And like I said, it's not happening already. It is happening in some of the more kind of out there edges of the Internet. But how long before we start seeing these things start entering into the mainstream?

James

Yeah. Well, that was one of the first things that struck me about this whole story was that if OnlyFans were going to ban this type of content, surely a dozen other platforms will spring up straight away that will latch on to the growth that fueled OnlyFans to this point.

Rory

Yeah and there already were competitors to OnlyFans who were jumping on this opportunity instantly coming in and saying, "if you're not welcome here on OnlyFans you're welcome in our platform." Of course, that's very harmful to the creators. They can't bring their fan base with them. So it's just a very kind of interesting story. It was one of those weird ones where; was it a storm in a teacup? Because they changed, or reversed their position very quickly. But I think it's just another kind of a sea change in this kind of creator economy. And I'm interested to see where it's going to end up going from here.

James

We often talk about, obviously, OnlyFans is a private company with public companies we often talk about the effect of the scrutiny of the market and investors have on decisions they make in directions they go. So this is one of the first times on this podcast anyway, we've talked about a private company and influence things like VCs and big investment firms have on it. What does it say about that influence that they can kind of completely change a company's policy based on whether they give them money or not?

Rory

But it's not actually the first time we talked about private companies. Of course, TikTok, we are constantly kind of talking about the new rules or policy changes that are coming into TikTok and the impact that that company has by being located or headquartered essentially in China. So it's not always public companies that have to face this kind of scrutiny. And, of course, at the end of the day, money talks. And if the big investors aren't interested in you, companies will make changes to ensure that they are whether it harms or hurts their content creators, the people who essentially make the platform viable in the first place.

James

Yeah. Absolutely. Let's move on. So and the next story I want to talk about is actually a very interesting story that completely flew under my radar anyway.

Anne Marie, you mentioned to me earlier this week that an unnamed media group backed by Blackstone, which is one of the largest investment companies in the US, has bought a majority stake in Hello Sunshine for a reported $900 million. Hello Sunshine is a media company founded by actress Reese Witherspoon and Interestingly, the unnamed company that's bought the majority stake is led by Kevin Mayor and Tom Staggs, both of whom are former Disney execs. Anne Marie, we've spoken before about the media industry and how you believe it's fragmenting and kind of maybe coalescing again around these standalone streaming services. What do you make of this latest move?

Anne Marie

I think this is kind of something that we discussed when MGM was purchased by Amazon. I talked about how these streaming services are now very focused on production, and we were going to kind of see a consolidation of the type of films that were going to be made. And I kind of made the prediction that I think all the films of the future are either going to be like massive IP fueled blockbusters that the streaming services know they can pour a bunch of money into and definitely gain a profit from, or they'll be very small independent films, which will have to be fully produced and then sold as a completed product to the streaming services after the fact.

And I think that this new company is an attempt to strengthen the position of independent filmmakers by basically squishing a bunch of independent production companies together and having them share resources and connections and then give them leverage when they're attempting to negotiate with streaming services to maximize their profits. So just a little bit of background on the company itself, Hello Sunshine was founded by Reese Witherspoon in 2012, and kind of very famously was a product of the fact that she was very frustrated with the type of roles that she was being offered.

So she made a decision that she was going to start purchasing the rights to female-centered stories. And she started that by gaining the adaption rights to 'Gone Girl', which went on to become an incredible blockbuster success. It was a critical success. And the way that she won the rights to adapt it is that she went to Jillian Flynn, who was the author before anybody else approached her. She had read the book via manuscript before it was published. And she went to her and said that she wanted to adapt it and that she would star in it.

And by using her star power, she then took the book around to a bunch of studios and was able to get into the room, which an author wouldn't normally be able to. And she was able to sell the book for a tremendous amount of money. When Fox ended up buying the production, it was like one of the most expensive acquisitions of a book adaption right that they had ever agreed to purchase. And then from there, she's gone on to produce a number of very successful projects, such as 'Wild' and then the TV shows, 'Big Little Lies', 'Little Fires Everywhere', and then they have a film coming out this year, 'Where the Crawdads Sing', which is very hotly anticipated because that book was, like the number one best seller on The New York Times for all of last year.

James

So it's an Indie Media House, but they've got some big blockbusters in there?

Anne Marie

Yeah. They have a really strong reputation of success. And so I think this acquisition is smart if you're trying to kind of corner the independent market. But it's in addition to two other production companies that they already have an established relationship with, which with the Westbrook Company, which is founded by Will Smith, and then the Imagine Entertainment Group, which is co-founded by Ron Howard, the very famous director. And so essentially, with the two Disney executives are trying to do, Kevin Mayor and Tom Staggs, who both were instrumental in Disney's negotiation and acquisition of Lucas Films, Marvel Entertainment and 21st Century Fox, is they're going to bring all of these independent companies together in an attempt to strengthen their negotiations when they go to streaming services to sell the productions. And the reason they can kind of get away with this is as all of the production and streaming rights have siloed together, it's kind of sometimes left streaming companies in direct competition with producers and with actors.

To quote The Washington Post: "is major do is direct movies and shows to their own streaming platforms that can sometimes put them in conflict with actors and producers who want to ensure that the value of their work is being maximized."

And we're seeing this right now with, say, Scarlett Johanson and Emma Stone suing Disney for in violation of their contracts because the movies went to streaming platforms first, they didn't go to the box office. The actresses undoubtedly had clauses in their contracts, has guaranteed them percentages of box office returns. And now they're being denied, probably tens of millions of dollars. And so this is really going to place more power in the hands of producers and actors. And to quote Mr Mayor, "that's where a scaled, independent entity like ours can really have an advantage in the marketplace."

They're essentially taking advantage of the fact that the streaming wars are heating up, that all of these streaming companies are competing together, and they're going to basically start bidding wars. They're going to produce really good independent content, and then they're going to be able to walk it in front of Netflix and Amazon and Apple and bid up the prices on all these projects and probably gain a greater return than they would if the production companies were operating independently.

James

And that kind of answers my next question. So obviously, Blackstone, who are backing this unnamed media group, have a lot of faith or a lot of belief that there's a lot of money to be made here, especially if they're pumping so much, hundreds of millions of dollars into it. Is their opportunity creating these bidding wars and bumping up the price of this kind of intellectual property?

Anne Marie

Definitely. I think it's a play for IP. I think that they've identified, I think IP data has become kind of like the new gold or the new oil, where everyone is realizing; oh, my gosh, this is worth a lot of money when it exists on a streaming platform because it could, in theory, make money for much longer than it could benefit traditionally released in cinemas and then was sold as DVDs. People are like, oh, the longevity of this has increased substantially. And so, yeah, I think that this is the new wave for investors, is how do we control IP? How do we own its Copyright? How do we maximize it? How do we license it?

James

Yeah. And what do you think the impact of this would be then on streaming services like Netflix and Amazon Prime? Are they going to see themselves squeezed if more and more production companies are joining together in this way?

Anne Marie

I think it's going to go one of two ways. We're either going to see more kind of big conglomerates like Blackstone acquiring up small IP collections, or we're going to see more and more smaller production companies be looked at by Netflix and Amazon to try and break down these silos. They own big IP. How do they create development within their own Studios? How can they go and find the next kind of Blacklist project, which there's very famously in Hollywood, a list of undeveloped film projects called The Blacklist. It's released every year. And Studios very famously look on The Blacklist to figure out what small independent film from some unknown writer can we make. And it might be a big surprise hit at the box office.

I would be interested to see if maybe Netflix begins like a developmental program where they began acquiring writers very early in their careers and spending money there because there's not really much else to do in terms of traditional IP anymore. Most of the big Studios have been bought up. Most of the big content has already been negotiated and signed in a contract for the next five or ten years. Now we got to create new IP. We have to create new characters.

James

Yeah, absolutely. It's going to be a real sea change in the industry. I was just thinking that the signs of these battles over intellectual property was shown to us a while ago when Peacock bought 'The Office' back off Netflix. And when you think of 'The Office', I think I saw some stat that it was still one of the most-streamed series on Netflix. So however long it's finished, it shows the long tail of it really, really lasts. So let's move on and just talk about some of the things that are going on in MyWallSt the moment.

So we're coming towards the end of another month, which means that the loads catch up on, the Stock of the Month report. The Stock of the Month podcast and a brand New Stock pick. Remember, you can only find all of this great content in the MyWallSt app, so make sure to start your free access by hitting the link in the notes for today's show. I also want to mention that we've launched a new look blog too. Here you can find loads of great articles about the latest events in the US stock market, as well as analyses and companies both in and outside of our market beating shortlist. To check it out, just follow the links in the notes for today's show or simply Google MyWallSt blog.

Mailbag. So this week's mailbag is actually a very interesting one. A couple of weeks ago on Stock Club Rory, we talked about the new space race and how the main players in the industry, including Virgin Galactic, SpaceX and Blue Origin, all competed against each other. Earlier this week a new player entered a game, at least for investors like us. Virgin Orbit is part of the wider Virgin brand that includes Virgin Galactic and announced earlier this week that it's set to go public via special purpose acquisition company, or SPAC to you and me.

Whereas Virgin Galactic deals primarily with the industry of space tourism, Virgin Orbit is more focused on space haulage. We were inundated with questions asking us better thoughts on Virgin Orbit. So Rory, seeing as you were already on CNBC talking about the new space rate, I'm going to give this to you first. What are your thoughts?

Rory

Yeah, strange announcement. It's actually a shame we don't have Emmet on for this podcast because, of course, he was very early in on the Virgin Galactic SPAC that happened back in 2019 and generated very impressive returns on that ever since. I myself was always a little bit hesitant of Virgin Galactic acting, and part of that was because I wasn't as bullish on the idea of space tourism. I was kind of more interested in this kind of idea of space infrastructure. You can go back and actually read a great article by a guy called Charles Duhigg. It's called 'The Pied Piper of SPACs' and it was published in The New Yorker three or four months ago, I can't remember exactly. But that delves into the history of that merger between Virgin Galactic and Chamath Palihapitiya's SPAC. It was really the kind of the original SPAC wasn't it, the first big one that kind of came to market. And obviously considering Branson and the kind of subject matter, it got a huge amount of media attention.

Funny enough, Branson had never heard of a SPAC when the deal was first proposed, and it was kind of a sort of a marriage of convenience because Virgin at the time, wanted to distance itself from the Saudi Sovereign Fund. And I don't really think he intended the company to be public so early. Since then, the stock that has been it's been highly volatile but still trades way above its opening price.

James

Pretty good for a company with no revenue.

Rory

That's very good for a company with no revenue. It's a company that has challenges, of course. But of course, they managed the first flight back in July. It's now opened up the reservation list again. But what you find out with, though, looking back on the history of that merger was that Chamath was very keen to take this orbit side of the business into the SPAC as well.

And Branson very much didn't want that to happen. He wanted to keep them separate. And since then, I think Branson and Chamath have not particularly endeared themselves to investors by selling a lot of stock over the last few months. And it's rather telling that they didn't team up again. Branson and Chamath aren't teaming up on this particular SPAC, even though Chamath is definitely still in the SPAC business. But he said this is not the space tourism in business. This is the haulage business, which is essentially bringing stuff into space for other companies. And I know Boeing are involved, and the combined company's going to be valued at about PS3.2 billion. They're gonna have half a billion dollars in cash. I think it would be I'd be understating if I said they had very ambitious revenue projection. They're estimating $15 million in revenue this year. That's to grow to over $2 billion by 2026. That's 166% CAGR over 5 years in revenue growth. Worth keeping in mind that I think it was Google that were the fastest companies to ever make the billion-dollar run rate, it took them eight years just to get $1 billion.

James

Amateurs!

Rory

Total amateurs over there at Google -- they reckon that's going to come from commercial and civil launches. It's going to come from national security contracts. And then Space Solutions is the kind of other revenue stream they're pursuing. And I think looking back on 2020, it was certainly the year of a massive rush on electric vehicle SPACs. We've talked about that multiple times on the show. And in that kind of cadre of businesses, we have seen a couple that have just completely fallen flat, the likes of LordstownMotors, for example, or Nikola.

2021 is certainly looking like it's going to the year of the space SPAC. We've already had companies like Rocket Labs, Astra and a company called Black Sky, which I'm having looking at is going to SPAC. Always keep in mind, as investors right, that what management is allowed to say to potential investors in SPACs is much, much looser than what they're allowed to do at an IPO. And so this company, he's had success previously, with Galactic, certainly in terms of the stock price going up. Just be wary before you invest in this business.

These are definitely the kind of businesses I think you should absolutely use that kind of six-month rule before you get investing in them and realize that space companies are very different. There's loads of different types of space companies, they're not all the next SpaceX. They're not doing the same things as SpaceX or Blue Origin. So do your research, do your due diligence, and don't just be drawn into the shiny word space. I think that's going to be a great investment.

James

But as we spoke about before, Anne Marie talked about on the Space Race podcast we've done, the business of space haulage and how much money there is to be made there. Do you think Virgin Orbit is worth more research and a bit more of a digging into?

Anne Marie

Yeah. I took a look at kind of their haulage capabilities in comparison to SpaceX, and they are interesting, like they do have some advantages, the main one being; so Virgin Orbit is like Virgin Galactic in that it takes off like a plane. It's actually attached to a plane. A standard passenger plane flies up to average height, and then a rocket drops off it and launches up with the payload. And that actually gives quite a lot of flexibility in terms of where you can launch from, whereas SpaceX and Blue Origin need to launch from traditional launch pads like the Kennedy Center or something like that.

And so that has an advantage. They also can carry about 1000 pounds, which is less than SpaceX, but places them right kind of in the middle of the payload, which allows them to carry smaller satellites, which actually hasn't really been something that SpaceX has been too focused on. They've been focused on being able to carry very large satellites. That being said, SpaceX has now realized that they could be making a lot more money if they begin kind of doing this ride-sharing, which we talked about on their last episode.

So they now are beginning to carry in smaller satellites. So there's not really an advantage for them there. And another thing that Virgin Orbit has is they can take off in much worse weather conditions, whereas SpaceX has actually had to cancel their first launches of 2021 because of adverse weather conditions. So Virgin Orbit, I think, is betting on the idea that there are going to be so many satellites launching in the future. They're going to be launching from all over the world that surely they will be able to capture some of the market share.

And they do have some contracts with the US military, with some European agencies. But I think SpaceX will continue to kind of be the preferred candidate within the United States. They have very large contracts with the United States military, and they also just have been tested more like SpaceX has launched over 100 missions now, at this point. Virgin Orbit has launched three, and only two of them are successful. So I think SpaceX is just a bit more tested. But I don't think that Virgin Orbit is necessarily going to be squeezed out of the market. As of right now they're actually the cheapest option. They can launch for $12 million because they're attached to a plane. SpaceX's Falcon, which is huge and can carry a much larger payload, it's $28 million for them to launch that. That being said, Musk is sure under his spaceship initiative that they can drive down costs by making everything reusable. And he wants to get it as low as $2 million to launch, which would then make them more competitive. And then I guess SpaceX has the advantage of they want to launch satellites for other companies so that they can carry up their own satellites for nothing, for no cost.

And so I guess in that way, you can always say, oh, SpaceX will eventually have recurring revenue if it can make enough money off of its own satellites, which are meant to be providing 5G connectivity. So it's definitely still up in the air.

James

I was going to finish this section by asking both of you if you had to pick Galactic, Orbit, SpaceX or Blue Origin to bring you to Space, which is you pick -- but Anne Marie, I think you answered our question by your tone when you were talking about Orbit's hit rate. Rory, who would you pick?

Rory

I would, I mean, I love that it would be, I can't imagine it's kind of a unique set point for Virgin Galactic to say guess what, guys? Good news; SpaceX wouldn't launch in these weather conditions, but we can don't worry about that.

Anne Marie

The one idea I did have is maybe they would maybe one day in the future, they'll be able to attach Rockets to traditional commercial flights that are, like going over the Atlantic or something like that. And then you'd be on a plane, and there would just be, like, a rocket attached to your plane, you'd be like, oh, eventually that'll drop off and go up into space. So maybe that's some way that they can cut their prices. But I don't know.

James

All I know is, Anne Marie, Virgin Orbit would have got you out of New York in a Hurricane, no problem, they don't care. They don't care about a bit of wind.

So that's it for this week's Stock Club, remember, if you have any investing questions you want answered or elevator pitches you'd like to hear, make sure to get in touch. You can find us on Twitter, that's @MyWallStHQ. You can find us on TikTok now @MyWallSt or simply just email us at pod@mywallst.com.

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