Super League Enterprise, Inc. 10-K

Item 1. Business   Overview   Super League Gaming, Inc. (Nasdaq: SLGG) (“Super League,” the “Company,” “we,” “us” or “our”) is a leading publisher of games, monetization tools and content channels across metaverse gaming platforms that empower developers, energize players, and entertain fans. The Company’s solutions provide incomparable access to an audience consisting of players in the largest global metaverse game environments, fans of hundreds of thousands of gaming influencers, and viewers of gameplay content across major social media and digital video platforms. Fueled by proprietary and patented technology systems, the Company’s platform includes access to vibrant in-game communities, a leading metaverse advertising platform, a network of highly viewed channels and original shows on Instagram, TikTok, Snap, YouTube, and Twitch, cloud-based livestream production tools, and an award-winning esports invitational tournament series. Super League’s properties deliver powerful opportunities for brands and advertisers to achieve impactful insights and marketing outcomes with gamers of all ages.    We generate revenue from (i) innovative advertising including immersive game world and experience publishing and in-game media products, (ii) direct to consumer offers, including in-game items, e-commerce, game passes and ticketing and digital collectibles, and (iii) content and technology through the production and distribution of our own, advertiser and third-party content. We operate in one reportable segment to reflect the way management and our chief operating decision maker review and assess the performance of the business.   Our Strategy   We believe that virtual world platforms are where the next generation lives and are a launchpad of unlimited new interactive worlds and content. In a world of blended physical-to-digital lives and smarter, more immersive screens, consumer expectations are increasing for more customized and personalized digital experiences, changing the way consumers will socialize, play, create, collaborate, shop, learn and work.    While our roots are in open gaming platforms where interactive worlds were first spawned, we believe our success is in the creation, growth, and monetization of digital experiences across the wider immersive web landscape. Super League’s vision is to build the most comprehensive immersive web publishing engine and driver of the next generation of digital platform businesses and experiences.   Built on a powerful foundation of unmatched capabilities, solutions and software platforms that have driven consistent success for innovative brand experiences, creator growth and monetization, and significant consumer engagement, our scalable, vertically-integrated engine offers:     ● Successful owned and third-party publishing worlds, experiences and destinations;   ● Innovative marketing solutions for brands and developers; and   ● Valued tools and services for creators and developers.   Our Business   As an early-mover creating engaging experiences inside of metaverse, or “open world,” game platforms since 2015, Super League has converted our deep understanding of young gamers into significant audience reach in virtual world gaming platforms. We believe we have successfully iterated our business model through these market insights, and our organic and inorganic growth to establish scale and ultimately drive our monetization strategies. Our strong and growing product-market fit currently reaches over 100 million monthly unique players in Roblox, Minecraft and Fortnite and generates over one billion monthly impressions. Our software supports the creation and operation of our owned and third-party metaverse gaming worlds and experiences, along with creator tools and analytics underpinned by a creator economy. These tools enable Super League to access these extended audiences with our innovative in-game and in-stream ad products, and allow our game designers and content creators to participate in our advertising economy. Our analytics suite provides Super League, brands and advertisers, and game developers data that informs campaign measurement and insights, along with enhanced game design. Beyond our primary advertising revenue stream, we have the opportunity to extend further downstream in the metaverse gaming worlds we operate, and generate direct to consumer revenues. In addition, our platform, and our capability to produce compelling gaming-centric video and livestream broadcasts drives viewership to our own and our brand partner’s digital channels, and generates content production and syndication revenues from third party partners.   Specifically, Super League’s digital experience and media products provide a wide range of solutions for brands and advertisers. From branded in-game experiences, through to custom content and media, Super League can provide end-to-end solutions for brands to acquire customers, deepen brand affinity and deliver campaign performance with innovative advertising inventory. As Super League has scaled in both metaverse player and viewing audience reach, we have experienced growth in both the average revenue size of advertiser programs, along with a strong percentage of repeat buyers, while upholding our premium cost per impressions (“CPM”) advertising rates and margins, further validating a new premium social marketing channel for advertisers to reach elusive Generation Z and Alpha gamers. Additionally, our capability and proprietary technology is now being applied to new virtual world platforms beyond our core offering and is proving to be an enterprise solution for our owned and branded digital experiences that are less temporal and campaign-centric, generating revenue opportunities that are more diversified, annual in nature and less impacted by traditional advertising seasonality.    -1- Table of Contents   Digital Properties and Offerings   Our gaming content and media network is underpinned by our proprietary tech and applied to much of our owned and operated consumer properties as well. Our consumer facing digital properties include:   Minehut: Attracting younger gamers and creators, Minehut is an "always on" social and gaming portal and one of the largest server farms for advanced, avid Minecraft players in the world. Within Minehut is a vibrant community in which players create their own Minecraft worlds to share, socialize and play with friends in addition to Super League operated communal game lobbies for enhanced gaming and social experiences that serve as a portal for branded experiences and advertising.    Mineville & Pixel Paradise: Through a relationship with Microsoft, the owner of Minecraft, we operate two additional Minecraft server worlds for more casual players enjoying the game on consoles and tablets. Two of only seven partner servers with Microsoft that, while “free to play,” monetize the players through in-game micro transactions, such as gameplay passes and durable goods which run through the Microsoft marketplace.   Super League Arcade & ABX: Our more recently launched owned and operated game worlds in Roblox, these open-world games are targeted to more competitive esports gamers and anime enthusiasts respectively. These game worlds attract targeted players and offer a channel for brands and advertisers, along with in-game player transactions, such as gameplay passes and durable goods through the Roblox marketplace.   Framerate:   Framerate is a fast-growing social video network in gaming, generating tens of millions of monthly views, with multiple channels across social media, namely Instagram and Tik Tok. Targeting more young-adult gamers and creators, Framerate enables gamers to submit their own user-generated highlight reel for recognition, and channels for us to package and monetize to meet advertisers’ objectives.    Our brand partner and creator facing digital properties include:   Super Games:   One of the preeminent game creation resources in virtual world game platforms, our Super Games publishing capability provides bespoke game development and custom game experiences within our owned and affiliate game worlds and is a power source connecting our developer network to our brand partners.   Super Biz: Our proprietary suite of metaverse media products and analytics connecting brands and advertisers to hundreds of Roblox games and our extensive Minecraft audiences. Through our technology, we partner with game developers to bring innovative ad inventory and custom brand experiences into game worlds, allowing developers to participate in our advertising economy and benefit from our analytics to continually enhance player experience.   Super Studios: Super Studios is our fully virtual production studio providing state-of-the-art, scalable solutions for video, television, and branded content, powered by our patented Super View technology, offering a browser-based, fully remote control room solution. Whether for the creation and broadcast of premium content, or monitoring productions from remote locations, Super Studios and Super View are an innovative, affordable solution to deliver compelling content to meet advertiser objectives and generate additional sources of revenue.   Super Mob:   Our experience and accessible pool of gaming influencers, both on and off platform, allows us to offer a full 360-soltuion for brands and advertisers. This advertising amplification not only allows us to maximize campaign objectives, but also to obtain a greater share of advertisers’ wallets with our end-to-end solution, increasing our related revenue generating opportunities.   -2- Table of Contents   Monetization   Innovative Advertising   The highly sought-after Generation Z and Alpha audience is increasingly difficult for brands to reach due to the fragmentation of content distribution channels, ad-blocking technology and a sentiment against overt marketing and promotion. Our ability to uniquely aggregate a diverse, global user base across young age ranges, skill levels and game genres and embed direct, authentic branded product placement creates a base of high-quality, premium advertising inventory attractive to brands and advertisers. We stand for inclusive, fair and fun gameplay and entertainment and believe that our brand is at the forefront of the new, more social and creation-centric gaming experience, providing a positive access point for both endemic and non-endemic brands to reach these mainstream audiences.   We have experienced significant organic and inorganic growth in our audience, further expanding our premium advertising inventory, increasing deal-sizes and strong repeat buying across the advertiser verticals of retail, entertainment, toys, fashion, consumer packaged goods, and automotive. We further developed our in-house direct sales capability to monetize our domestic experiential and media inventory and launched a global network of resellers to sell our international media inventory on our behalf.    Our various advertiser offerings include:     ● Dedicated, on-platform experiential spaces;     ● Custom integrations into existing, popular games;     ● In-game media placement including digital billboards, 3-D ad products, portals and catalogue units;     ● In-game branded digital goods;     ● Display and video advertising;     ● Social amplification through influencer partnerships;     ● In-stream and in-video custom and banner ad products;     ● Entertainment and competitive play broadcasts, on-demand clips and other custom content;     ● Brand lift studies, performance reporting and advanced analytics; and     ● Children’s Online Privacy and Protection Act (“COPPA”) compliant and kidSAFE-verified inventory.   -3- Table of Contents   Direct to Consumer   Direct to consumer revenues are comprised of revenues generated from the growing number of Minecraft and Roblox virtual gaming worlds we operate. An increasing part of our revenue diversification strategy, consumer monetization includes in-game items, e-commerce, game passes and ticketing, and digital collectibles.    Content & Technology   As part of our strategy to provide an end-to-end solution for advertiser objectives, Super Studios and Super View augment our advertiser offer to take a greater share of campaign dollars. Additionally, we leverage our technology and capability to generate content production revenues with third-parties and support our ability to syndicate and monetize our sizable library of our own and player-generated entertainment content.   Industry     According to Statista (2022), there are over 3 billion gamers on the planet and more than 500 million monthly active players in metaverse, open-world game platforms, namely Roblox, Minecraft and Fortnite. Generation Z spends 7.2 hours per week hanging out with friends in immersive spaces, two times more than in real life per the Newzoo Gen Z & Alpha report (2022), which is relevant to advertisers. Per Newzoo (2022), immersive content warrants a 252% higher engagement rate, and 33% of 13 to 39 year olds say their virtual life influences their real-world life interests.    Other notable trends that amplify these statistics:      ● The rise of metaverse, open-world gaming as preferred social channels that go way beyond the traditional concept of gaming;     ● The democratization of content creation, launching self-produced social content platforms and new creator economies;     ● The further disaggregation of content and increasing underperformance of traditional digital advertising channels forcing advertisers to find new solutions;     ● With smarter screens, an increasing consumer expectation for more personalized, customized and interactive web experiences;     ● Cross-generational reach of gaming as a lifestyle trend placing it at the intersection of pop culture, cutting broadly across dimensions, and;     ● Younger generations live a blended life where digital and physical personas are viewed as one, driving cross-over consumer preference.   -4- Table of Contents   Our Scalable Technology Platform   Our platform is focused on the creator and player journey and provides innovative ways for brands and advertisers to engage with audiences of gaming enthusiasts. We access players and creators through our vast network of digital game worlds and content channels and then drive them into branded digital experiences through our media products and creator tools. Our proprietary cloud-based platform serves three core functions (i) advertising technology (ii) metaverse game experience and tournament technology, and (iii) fully remote production and livestream broadcast technology. Furthermore, our platform enables digital tools for scale, including, but not limited to, data services, event creation and management, ecommerce, advertising technology, COPPA compliance, search engine optimization, and email and mobile marketing.      Our advertising technology, both in the size of monetizable ad products and the creator tool suite, was materially expanded with the acquisitions of Bloxbiz Co. ( doing business as, and hereinafter referred to as “Super Biz” ) and Bannerfy, Ltd. (rebranded to “Super Biz”) during the year ended December 31, 2021 (“Fiscal Year 2021”). In addition to Super League’s original owned and operated consumer reach, including, but not limited to, Minehut, our Roblox games worlds and Framerate, advertisers can now reach tens of millions of monthly metaverse players in-game through our distributed game world network and hundreds of millions of viewers in-stream distributed across social media channels including YouTube, TikTok and Instagram. This, coupled with custom brand integrations and content, powerful campaign analytics and insights and compliance, offers an immersive and high-performing marketing channel for brands and advertisers. Specifically, our turnkey metaverse ad products are a progressive and differentiated way for advertisers to embed natively into games through dynamic digital billboards, interactive 3-D characters, and portals to access their target audience by enhancing the gaming experience without interrupting the play itself. These are high-performing ad units; for example, our digital billboard impressions are ten seconds of cumulative view time offering a best-in-class benchmark for in-game advertising. In addition, we ensure viewability with advanced technology that observes if ads are on screen, unobstructed, meet a screen coverage threshold, and other requirements set by Interactive Advertising Bureau (“IAB”) which translates into our premium CPM business model.    Additionally, a core differentiator for Super League is our ability to deliver Roblox metaverse game worlds and experiences along with bespoke tournaments and entertainment content through our Super Studio’s game technology and capability. Beyond our hundreds of Roblox partner game worlds, we have deepened our internal capability to create compelling gaming and custom metaverse Minecraft experiences for our player bases in our Minehut, Mineville and Pixel Paradise properties, as well as extending that capability to virtual world platforms such as Fortnite and The Sandbox.    Finally, from our earliest inception we utilized a local hardware solution to create interactive physical spaces for in-person gaming experiences. In doing so, we created a second-screen perspective that would make the experience more immersive for players and entertaining for spectators, much like professional sporting events, resulting in our Super Studios capability powered by Super View, our patented, fully-remote visualization, production and broadcast technology. Super View automates and scales various gameplay processes and functions that would otherwise need to be accomplished manually. These processes and functions primarily include ways to ensure that visualizations of gameplay and other value-added data and graphics are both captured and delivered efficiently and timely supported by computer vision to glean key events, graphics and data from the game screen. Since COVID-19, we have augmented our virtual control room with remote monitoring and communications and enhanced broadcast-level graphics, for an end-to-end, cloud-based production system built around Super View’s proprietary workflow.     -5- Table of Contents   Our Growth Strategy   Our core strategy is to further monetize the audience reach we have built on existing metaverse, or “open-world” game platforms and begin applying that smart backbone to other virtual world engines for extended reach and diversification of revenues. We have several leverage points including:     ● Deepen our owned metaverse game worlds to grow direct to consumer revenues.   ● Grow our publishing, media and creator tool suite to expand audience and further drive average advertiser deal-size.   ● Expand and optimize our global network of sales partnerships to further monetize our international audience reach.   ● Increase domestic sales force effectiveness resulting in higher salesperson throughput and net revenue.   ● Move beyond our advertising model by applying our end-to-end immersive experience and media engine to new platforms for ownable and third-party intellectual property for greater control and share of the consumer experience, digital economy, digital to physical crossover, and first-party data.     -6- Table of Contents   Intellectual Property   and Patents   Similar to other interactive entertainment and esports companies, our business depends heavily on the creation, acquisition, licensing, use and protection of intellectual property. We have developed and own various intellectual properties, including pending and issued trademarks, patents, and copyrights. We also have obtained licenses to valuable intellectual property with game publishers. We leverage these licenses and service agreements to operate online and location-based competitions, and in parallel, use them to generate a wide array of content.   As of the date of this Report, we have one pending patent application and five issued patents, and various trademark applications, most of which are granted and some of which are currently pending, covering our technologies and brands, as more specifically set forth below. We intend to file additional applications for the grant of patents and registration of our trademarks in the United States and foreign jurisdictions as our business expands. Our issued patents relate to methods of visualization of gameplay across a wide array of game titles for the purpose of content creation and broadcasting. These visualizations manifest as web streams with related textual, graphical, and video content targeted for consumption by audiences across various streaming and VOD platforms such as Twitch and YouTube. To achieve these visualizations, we leverage patent protected technology that places “camera” characters into certain games alongside the competing players, and use the perspective of the ‘camera’ character to provide unique views into the action. We also have pending patent applications for certain bleeding edge virtualization methods that allow us to generate, at scale, many concurrent visualizations from the cloud.   To protect our intellectual property, we rely on a combination of patent applications, published and issued patents, copyrights, pending and issued trademarks, confidentiality provisions and procedures, other contractual provisions, trade secret laws, and restrictions on disclosure. We intend to vigorously protect our technology and proprietary rights; however, no assurances can be given that our efforts will be successful. Even if our efforts are successful, we may incur significant costs in defending our rights. From time to time, third parties may initiate litigation against us, alleging infringement of their proprietary rights or claiming they have not infringed our intellectual property rights. See the section entitled “Risk Factors” for additional information regarding the risks we face with respect to litigation related to intellectual property claims.    Our Corporate Values and Company Culture   Super League is a creator-first company, a credo embraced by every employee. We are committed to empowering our creators, energizing our players and entertaining fans through our vibrant and immersive gameplay experiences, innovative creator tools and viewing entertainment. Because we have successfully built our own metaverse gaming worlds and content network over the course of several years, we deeply understand the ecosystem of players and creators and what it takes to help brands and advertisers navigate this this new social channel in an authentic and engaging way. Our corporate brand values are:     ● We fearlessly pioneer.   ● We excite creativity.   ● We ignite connections.   ● We live where we play.   Seasonality   Our revenue fluctuates quarterly and is generally higher in the second half of our fiscal year, with the fourth quarter typically representing our highest revenue quarter each year. Advertising spending is traditionally seasonally strong in the second half of each year, reflecting the impact of seasonal back to school, game release and holiday season advertising spending by brands and advertisers. We believe that this seasonality in advertising spending affects our quarterly results, which generally reflect relatively higher advertising revenue in second half of each year, compared to the first half of the year.   Employees and Labor Relations   As of December 31, 2022, we had 101 full-time and full-time equivalent employees. Additionally, we occasionally enter into service agreements with independent contractors, on an as-needed basis, to perform certain services. As of December 31, 2022, four of our full-time employees were subject to fixed-term employment agreements with us, and all other employees served at-will pursuant to the terms set forth in their offer letters.   We believe that we maintain a good working relationship with our employees, and we have not experienced any labor disputes. None of our employees are represented by labor unions.   Governmental Regulation   Our online gaming platforms, which target individuals ranging from elementary school age children to adults, are subject to laws and regulations relating to privacy and child protection. Through our website, online platforms and in person gaming activities we may monitor and collect certain information about child users of these forums. A variety of laws and regulations have been adopted in recent years aimed at protecting children using the internet, such as COPPA. COPPA sets forth, among other things, a number of restrictions related to what information may be collected with respect to children under the age of 13, as the kinds of content that website operators may present to children under such age. There are also a variety of laws and regulations governing individual privacy and the protection and use of information collected from individuals, particularly in relation to an individual’s personally identifiable information (e.g., credit card numbers). We employ a kick-out procedure during user registration whereby anyone identifying themselves as being under the age of 13 during the process is not allowed to register for a player account on our website or participate in any of our online experiences or tournaments without linking their account to that of a parent or guardian.   -7- Table of Contents   In addition, as a part of our experiences, we offer prizes and/or gifts as incentives to play. The federal Deceptive Mail Prevention and Enforcement Act and certain state prize, gift or sweepstakes statutes may apply to certain experiences we run from time to time, and other federal and state consumer protection laws applicable to online collection, use and dissemination of data, and the presentation of website or other electronic content, may require us to comply with certain standards for notice, choice, security and access. We believe that we are in compliance with any applicable law or regulation when we run these experiences.   Cost of Compliance with Environmental Laws   We have not incurred any costs associated with compliance with environmental regulations, nor do we anticipate any future costs associated with environmental compliance; however, no assurances can be given that we will not incur such costs in the future.