(Bloomberg) -- Twitch built an internet giant around people’s love of video games. Caffeine is trying to do the same with music competition.
A live-streaming website, Caffeine said Thursday it raised $113 million to invest in new forms of entertainment that users can watch and engage with in real time. The aim is to differentiate its programming from industry leaders Twitch and YouTube.
Media giant Fox Corp., Cox Enterprises Inc. and Sanabil Investments led the investment round, joined by the Silicon Valley venture-capital firms Andreessen Horowitz and Greylock Partners. The new funding values the company at more than $600 million, according to Caffeine officials.
The company has attracted more than 2 million users since launching to the public in November, and has positioned itself as an alternative to Twitch, Amazon.com Inc.’s dominant site in live streaming. While Twitch caters to gamers, Caffeine has had its biggest success with rap-music competition, in particular the Ultimate Rap League, an organization founded in 2009 by hip-hop promoter Troy Mitchell, recording artist Jean “Cheeko” French and Eric Beasley.
The Ultimate Rap League has amassed more than 230,000 followers on Caffeine, which streams contests between lyricists four times a week. Its most-watched event drew a live audience that topped 100,000 people, and it’s preparing for NOME X, its biggest tournament yet, on July 11.
“Our anchor content is battle rap,” said Ben Keighran, co-founder and chief executive officer of Caffeine. “It’s working super, super well.’
The organizers of the Ultimate Rap League said the audience for shows recapping previous bouts -- think “SportsCenter” but for rap battles -- have been growing at a rapid rate as well.
Keighran, who previously worked at Apple Inc., has raised more than $250 million for the company. It hasn’t been easy for startups during the pandemic, and the company settled for a valuation in the current round that was lower than prior expectations.
“This is one of the hardest fundraising environments I’ve ever seen,” he said. “If we weren’t in the middle of Covid and a global pandemic, it would be a different story.”
Live streaming has surged during the pandemic, as people stuck at home have turned to Twitch, Alphabet Inc.’s YouTube and Facebook Inc. to broadcast themselves or watch others. People spent more than 5 billion hours watching Twitch in the second quarter of the year, almost double a year ago, according to StreamElements.
Caffeine isn’t profitable, but revenue is growing, said Keighran, who declined to offer specifics. The company doesn’t charge viewers to watch events and doesn’t sell advertising. It relies on viewers to purchase props -- virtual goods. The average user spends $78 on digital items every 90 days.
Some of these goods, like a virtual heart, are meant to show support, while others can influence the outcome of a stream. Such virtual goods are popular across Asia. Caffeine splits the proceeds of prop sales with the creators.
Should Caffeine continue to get traction, it will invite the attention of three of the largest companies in the world. YouTube, Facebook and Twitch are the three biggest sites for live streaming in the U.S., according to Stream Elements.
Keighran remains confident his strategy will pay off. “Just copying the next guy doesn’t tend to work well,” he said.
©2020 Bloomberg L.P.
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