We have seen a Tsunami of connected televisions building for several years now. A recent global forecast says that in just five years, 30 percent of the world’s TV sets will be connected to the Internet, up from 12 percent in 2014 and 4 percent in 2010¹. The numbers are growing very fast and by 2020, the number of TV sets linked to the Internet will approach 1 billion².
How consumers connect their TVs is also interesting. Smart TVs are the big winner at the expense of the incumbent game consoles along with pay TV operator set top boxes, growing from virtually zero in 2010 to 14% in 2020³.
Furthermore, according to the 2015 Essential Facts About the Computer and Video Game Industry report by The Entertainment Software Association (ESA), video games are the new social setting. Almost half of the US population plays video games, the average game player age is 35, there are two times more adult female gamers than young male games, 59% of parents play video games with their children at least weekly, and consumers spent $22 billion on game content, hardware and accessories in 20144
This data, taken as a whole, paints a picture of TransGaming’s engine of growth. We expect to thrive in this next frontier of Smart TV apps – with games in particular. People like to play video games socially and there has never been a more ubiquitous platform for them to access this form of entertainment. We believe that with an entertaining catalogue offering easy discovery and fun family entertainment amazing things can happen.
We expect to make a unique contribution to and prosper in this huge market. In order to do this, I set out with a sense of urgency earlier this year to focus on fewer initiatives that in the long term would drive sustainable and consistent revenue growth, improve profitability and enhance shareholder value. Among these was to identify technology assets not central to our core priorities and to pursue opportunities to unlock the value of our investments in these assets to improve the company’s liquidity and capital structure. The first outcome from this process was announced today – we signed an agreement with NVIDIA Corporation for it to buy our cross-platform portability technology for cash consideration of US$3.75 million.
TRANSGAMING SELLS ITS PORTABILITY TECHNOLOGY TO NVIDIA
When we first announced support for NVIDIA’s SHIELD in March, a transaction like this was not expected or even contemplated. But in recent months it became very apparent that there was a strong strategic fit for our technology with their plans.
The assets purchased by NVIDIA form part of the company’s Graphics and Portability Group (“GPG”) and include the Company’s core enablement or translation technology, Cider™, and related technology, along with the customer relationships. The transaction does not include SwiftShader, the world's fastest pure software 3D rendering technology, and its patents.
This is a win-win transaction for both TransGaming and NVIDIA. We believe that NVIDIA’s SHIELD is an exciting new platform for serious gamers and Cider will enable NVIDIA to accelerate the delivery of A-list titles to a hungry audience. For TransGaming it is the first strategic step in our plan to focus our business, to strengthen the company’s balance sheet and build up cash resources. We will report a significant gain in the first quarter of this 2016 fiscal year reflecting the value unlocked from the sale of Cider and related technology. After repaying the BEST Funds debt in full, we will have a healthy working capital position with cash to invest in our growth priorities.
UPDATE
As I mentioned above and we highlighted over the past couple of quarters, we have concentrated our initiatives this year. Here are the four areas of focus with some brief updates in the context of the NVIDIA announcement.
First, while GPG had been focused on building a catalogue of high-end titles for various platforms, including NVIDIA, we found that while the portability & enablement business was valuable to our publisher clients, is was not as valuable to us as a sustainable growth business.
For TransGaming to flourish, revenue growth remains a paramount objective. A multi-prong strategy is being pursued that includes both the launch and enhancement of service operator deployments of GameTree TV. In addition, we plan to introduce new premium content across our network later this summer.
Social casino is currently absent from the TV and, with its extreme popularity on mobile platforms, we believe that it is poised for serious growth. These are games without cash payouts that currently are played on sites or apps like Slotomania, GSN.com, Zynga Poker, or Big Fish Casino. We have plans to bring similar social casino content to Smart TV imminently. Also, we believe that Smart TV needs more compelling applications – apps that are alternatives to existing channels (with more narrow interest for example) and/or advanced interactive services that are an overlay to existing programming. This is necessary to achieve its promise as a regular port of call for entertainment services. Social casino and advanced interactive apps are both examples of premium content currently being developed and expected for a summer launch.
Second, we remain determined that the Company establish a leadership position in monetizing cloud gaming for Smart TV by integrating and deploying a digital payments system. As planned, a subscription-based offering for our global footprint of 100 million Smart TVs, currently with more than 200,000 monthly active users, will be launched by August through our continued partnership with Paymentwall.
Third, we remain hyper-focused on achieving profitability.
And finally, we will continue to unlock the value of technology not core to our priorities as a cloud gaming service provider. With the NVIDIA acquisition, our financial position has been very meaningfully improved. The sale of SwiftShader next will afford us the prospect of building further resources to fully pursue the initiatives described above as well as strategic partnerships or acquisitions.
I am very pleased with our successful efforts to turn around the financial position of the company and now even more excited about TransGaming’s prospects. As I said when I finished my message in January earlier this year, the game plan is to put up consistent runs so that with incremental outcomes we build strong momentum and many wins. This is a unique turning point for TransGaming that has generated very meaningful runs in this game plan.
Sincerely,
Dennis Ensing
COO & Interim CEO