How Does HQ Trivia Make Money?
By now, most 20-somethings know of the HQ Trivia game show app, the viral sensation from the creators of Vine. Since its October launch, the app has reached millions of daily users. It is the first real success in connecting hundreds of thousands of mobile users to the same program at the same time. Some call it the future of live TV, others see a Black Mirror dystopia. Despite the polarization, HQ might be the first step towards interactive TV. We might not be far from a world where you actually participate in the show from your phone. Can this be replicated with The Bachelorette? How about Survivor? A democratized game show could be the new norm, and Hollywood is perking its ears. So let’s get out in front of this trend and explore its inner workings from an investor perspective. Specifically, how will HQ Trivia even make money?
What exactly is this app? HQ Trivia is a Millennial-friendly game show on your mobile phone. At certain times everyday, players tune in for a live broadcasting of a 12 question trivia game that pits you against players from around the world. It’s totally free to play, but the winners receive totally real money. Prize pools range from $2,000 to $18,000, and that number varies depending on how many people play. At the end of November, there were over 100,000 users per show. On New Years Eve, that number hit 1 million while on January 1st, HQ was the fourth most popular app on iOS. That number surely expanded after their Android release this month.
So how does a free app that pays free players make money? Unfortunately, they dodged our request for a comment so we’re left to our own devices on that question.
The company has been cryptic with their plans for monetization. One thing is clear though: they’re not making any money as of now, and they’re not too worried about it. They are “not focused on profitability” and are simply making the best user experience. In classic tech startup form, they’re exploiting their first mover advantage by growing the user base at all costs — a slash and burn tactic for gaining network effects before competitors. They’re even making it easier for people to win prizes if they invite friends to join, further driving up costs.
This means the player payouts are coming from financial backers, a.k.a Lightspeed Venture Partners, the famed VC firm that invested in Snapchat. Add on astronomical video streaming costs and that original $8 million investment is running dry fast. According to Recode, HQ is looking to raise an additional $15–20 million at a $80–100 million valuation. Not bad for three months post-launch. There are, however, concerns about the founders and their “creepy behavior,” which has caused at least one VC to pull their offer. Despite that, there has been “a ton of interest from brands and advertising agencies looking to collaborate,” meaning investors are very interested. It’s rare to get Millennial eyeballs glued to a live program en mass, something advertisers know all too well.
It’s questionable whether they will ever be able to monetize. After all, these founders created Vine, which was popular but unsuccessful after it failed to make money. It appears there are clearer paths this time around. One can imagine several types of advertisements, product placements, and in-game upgrades. “Welcome to HQ Trivia brought to you by SoFi: put those winnings to good work with our stock trading app.” How about a strategically placed bottle of Coke? Or sponsored questions like “how much faster is Verizon’s load time over Comcast?” Or, in Tinder fashion, you can buy extra lives to keep you in the game if you get a question wrong.
There still remain unanswered questions. Namely, what does HQ even stand for? Will it flame out, or redefine how we interact with live events? Can their technology properly scale without glitching? Did Obama actually win HQ last week? One thing is for certain, though: this trend is worth keeping an eye on. Oh, and keep an eye on MoviePass as well.
Disclaimer: This article does not intend to provide investment advice. The companies mentioned are not currently or planning to raise funds via Slice Capital’s funding portal. Slice Capital does not view the companies mentioned as direct competitors to any of the issuers currently raising on Slice’s funding portal.
