Note: CRV is not currently an investor in Intermedia Labs, the parent company of HQ Trivia. The following are our personal views and don’t necessarily reflect the views of CRV.
As early players of HQ Trivia (and three time winners!), it’s been exciting to watch the app grow from ~3k DAUs in early October to 1M+ now. HQ seems to be on the path to becoming a household name — host Scott Rogowsky made an appearance on New Year’s Rockin’ Eve, Jimmy Kimmel guest-hosted a game, and Twitter is awash with videos from hysterical winners.
It’s been a while since we’ve seen a new consumer app take off the way HQ has. We know regular HQ players who range in age from eight to 80, from college students alone in their dorm rooms to companies who stop work twice a day for the game. HQ’s large recurring user base is particularly impressive given that it’s only live twice daily — usage numbers are therefore more comparable to TV shows than consumer mobile games that are playable 24/7.
Given the buzz around the app, we decided to dig into the business model to better understand HQ’s long-term potential. In this piece, we discuss the economics of traditional game shows, monetization options, HQ competitors, and potential risks with the business. We’d love to hear your feedback on our analysis or on your experience with HQ — you can find us @venturetwins.
Game Show Comparables
We took a look at the five most popular TV game shows in the U.S. — The Price is Right, Family Feud, Jeopardy, Wheel of Fortune, and Let’s Make a Deal — to see how their costs and revenue compare to HQ. These shows make money through ads, and their major expenses are host salary, cash prizes (product or travel prizes are often donated), and production expenses. Compared to the standard TV game show, HQ likely saves money on the host salary, production budget, and contestant vetting and travel expenses.
On the costs side — in mid-November, we found that HQ was paying around $0.01-$0.02 in prize money per viewer, with a nightly user base of ~100K and a $1k daily prize. This was right in line with our calculations for the top five televised game shows, which we estimated pay $0.01-$0.02 in prize money per viewer. Notably, HQ now regularly has 1M+ viewers, with a $2k nightly prize (except for Sunday shows, which feature $10k prizes). Assuming 12 weekly shows, an average of 1M viewers per show, and a $2k prize on every day except Sunday, prize money/viewer/show averages $0.003.
This is compelling both because it is ~3x less than TV game show comps, and because prize/viewer/show has declined significantly for HQ over time — they have been able to scale their user base much more quickly than they’ve needed to scale the prize money. This also speaks to HQ’s power as an addictive consumer experience independent of the prize money.
In terms of valuation of these game show franchises — we estimate that a successful franchise (10+ seasons) is likely worth $500M-$1B+ based solely on ad revenues (not including syndication rights). We calculated the CPM for a network TV game show at $15*, which would put yearly revenue for a 30-minute show with 5M viewers that airs 200 episodes a year at $210M. A long-lasting franchise of this nature is rare — we estimate that 75% of American game shows last two seasons or less. Therefore, a show that has a long tail of consistent annual cash flows could be expected to valued at at least 2–5x revenue, but likely higher.
If HQ was able to expand to a similar 5M viewers per show, with a $15 CPM and 12 shows a week, they could see ~$50M in revenue/year from playing one ad before each game. This assumes that advertisers would see ad spots on HQ as more similar to network TV ($15 CPM) than YouTube (~$5 CPM). With YouTube CPM rates, HQ’s yearly revenue from pre-game ads under this scenario would fall to ~$15M.
*Based on our metrics in the table above, we can assume that the average 30-minute network TV game show has 5M viewers per episode, 200 episodes per year, plays 7 minutes of ads per episode, and charges $75k (on average) for each 30-second ad, or a $15 CPM. We calculated the $75k/ad rate based on The International Business Times’s 2013 article on network TV ad rates, with $70k — $80k as the approximate range for shows with similar viewership.
As far as we know, HQ has not yet monetized its user base. Here are some of the ways we see the company potentially making money in the future:
- Pre-game ads. While HQ displays ad-free, 2.5 minute countdowns before each game, competitor The Q push notifies users five minutes in advance and occasionally plays ads as the clock counts down. It seems as if users could easily avoid ads by waiting a few minutes after the push to log in. However, our attempts to do this have ended poorly, as we often forget to log back on and miss the game — we’ve resigned ourselves to waiting out the countdown and would be a fairly captive audience to these ads.
- Sponsored questions. HQ’s questions span a range of topics, many of which either center around companies or brands or feature them as an answer choice. It would therefore be fairly natural for HQ to offer sponsored questions, as long as they aren’t phrased in an obviously promotional way (e.g. “Nintendo Wii was the first video game platform to debut which feature?” would work, while “What amazing new feature does the Nintendo Wii enable?” would not).
- In-game purchases. Consumer mobile games like Trivia Crack have been able to monetize in-app purchases fairly effectively. As of 2015, purchases of extra lives or bonus “power ups” composed 50% of Trivia Crack’s revenue, which proves that users are willing to pay for in-game advantages even without the chance of winning real money. HQ users currently can only get free lives through referring the app to friends, but we could easily see the company charging for lives, free passes, or hints.
- Subscriber-only games or content. Similar to how YouTubers and podcasters provide exclusive content on Patreon and Stitcher, HQ could host special games for paid subscribers or give them recurring benefits (an extra life each game, ability to start late, etc.). As HQ’s hosts (particularly Scott Rogowsky) continue to gain fame, users may also be willing to pay for content or merchandise featuring them — Rogowsky recently hosted a Cameo campaign where users paid $36 each for a custom video from him (he donated proceeds to the National Multiple Sclerosis Society).
A number of competitors have launched with the hope of capitalizing on HQ’s success. We’ve played all of them, and find none of them as compelling as the original — HQ’s production value, host quality, and online community far outclass the rest. However, there are a few apps to watch in this space:
- The Q — The most popular of the HQ competitors, the Q attracts 5,000–10,000 viewers per game and typically hosts games twice a day. The game has an identical format to HQ, with 12 questions and 10 seconds to answer each. However, the prizes tend to be smaller — usually $200 on weekdays and $500+ on weekends. The Q briefly benefited from having an Android version before HQ’s launched this month, but has also struggled with the server issues that plagued HQ (see the Google Play reviews).
- Genius — Genius is a less popular competitor — most games have a few hundred viewers and a $100 prize — but it has some interesting features. With only five questions, the game is faster, and it’s also more forgiving, as you can change your answer before the time is up. The same person hosts every game, and he tends to ask more cerebral questions like “How many prime numbers are between 1 and 51” (try to answer that in ten seconds!). The app is on a five-day break, and we’re excited to see the improvements they’re working on. We like that Genius isn’t just an HQ clone — the team is testing different factors like length of game and type of question.
- Qriket — Qriket isn’t a trivia game, but it’s a live game show competitor. There are two games daily, and you pay to play with an in-game token that you buy via PayPal or earn by completing tasks (e.g. following the game on social media, watching ads from sponsors). The hosts spin a wheel with blue and yellow panels, and you guess which color it will land on. If you’re right, you move on to the next round, and eventually start winning part of a $500 total prize. We’re less excited about this one — it’s missing the challenge of a skill-based game, and the ads get pretty annoying.
Though HQ currently dominates the market, it’s worth noting that the live trivia show space doesn’t have to be “winner take all,” as traditional TV game shows illustrate. There’s no real cost to participants to play a game (other than 5–15 minutes of their time) — there’s only the upside of potentially winning money. We can envision a scenario where users tune in for several games a day from different apps, with games varying by length, topic, or skill level.
While HQ has been able to grow and maintain an impressive user base, there are risks when it comes to the company’s ability to succeed as a stand-alone platform in the long term. Here are some of the concerns we have:
- Limited user base due to time-specific nature of games. The fact that HQ is live only twice a day creates a powerful sense of FOMO that pushes users to open the app, even if they might not otherwise play if the game was constantly available. However, it also excludes potential users who have other commitments at the daily game times. We’ve been impressed by the willingness of some users to reschedule meetings in order to make HQ, but are unsure of whether this will become a limiting factor, especially as the newness of the app wears off and users have to continually decide whether to sacrifice other activities for HQ.
- Reverse network effects. Unlike most consumer social platforms, HQ arguably has reverse network effects, as each user is disadvantaged by a larger total user base. For example, lags and delays are more likely as the number of users increases. In addition, with a larger user base, the company has to decide between increasing the prize size, allowing more winners (with a smaller prize for each) or making the questions harder, which could dissuade some users from participating. The comments feed, which once felt like more of a community, has become almost impossible to follow, as hundreds of comments are posted a minute. We expect the HQ team can work around these issues as the company scales, potentially with segmented feeds of the same game.
- Consumers are fickle, and may leave the app if they never win. As early stage investors, we are well aware that consumer behavior is often unpredictable. Apps can skyrocket to success and then plummet back to earth as consumer preferences change, better alternatives become available, or people simply lose interest. As the co-founders of Vine, Colin Kroll and Rus Yusupov have more experience than most in building sticky consumer products, and winning free money is a strong value prop. However, while the early traction is compelling, HQ needs more time to prove it’s not just a trend, and we worry that the continued discouragement from not winning may cause significant user attrition.
Related side note: Psychological experiments have shown that intermittent conditioning (e.g. winning HQ or coming close once in a while) is actually more likely to produce the instrumental conditioned response (playing HQ) than continuous reinforcement (winning or coming close all the time). This would suggest that if a user can at least occasionally have a taste of victory, they’ll keep coming back to the app. We’ve certainly found this to be true!
- Difficulty of building a lasting franchise. While game shows like Jeopardy, Wheel of Fortune, and The Price is Right demonstrate the value of a lasting franchise in the space, our research suggests that a new game show is much more likely to flame out than be a hit. In a random sample of 100 game shows that aired in the U.S., we found that the average show lasted three seasons. However, this was heavily skewed by a few shows that lasted 10+ seasons — 75% of shows lasted less than two seasons. This demonstrates how challenging it is to build a game show that survives over time, which is definitely a risk to consider when evaluating HQ.
- “Key person” risk with host. HQ’s main host, Scott Rogowsky, has become a celebrity due to his magnetic on-camera personality and ability to roll with the punches when the app glitches. Rogowsky was a popular choice for Halloween costumes this year, is nominated for the 2018 Shorty Awards, and has recently been the subject of profiles and features in NY Mag, W Magazine, and HuffPo, among others — he even made an appearance in Page Six. Rogowsky is one of the first digitally native stars to appeal to a demographic beyond Gen Zers and millennials — he’s famous enough to be seen as a celebrity, but approachable enough that fans feel comfortable striking up a conversation or asking for a selfie. HQ has had success experimenting with guest hosts in Rogowsky’s time off, but Scott remains an important part of the HQ brand, and we suspect the app would see some attrition if he were to leave the company.
- Difficulty with user acquisition as a media company. Though HQ is a mobile game, the most obvious revenue stream (ads) makes it more comparable to a media company like Facebook, Twitter, or Buzzfeed. Gaming companies can make substantial recurring revenue from their core customer base on in-app purchases. This allows them to have a high CAC, as it will be paid back in the first few months of use. Revenue per user for a media company is typically much lower — even if HQ was able to achieve the $15 CPM, and a user played every game for an entire year, the company would only make ~$9 in ads off this user in a year (assuming one ad per game). HQ will need to be smart about user acquisition and keep CAC low when the initial hype dies down, or find a way to incentivize substantial in-game purchases.
Thanks to Saar Gur for his feedback and contributions to this article!
Thanks for reading! We’d love to hear your feedback on this post or thoughts on HQ. You can find us on Twitter @venturetwins, and our email addresses are email@example.com and firstname.lastname@example.org. You can also give us extra lives on HQ — our usernames are justine and oliviam.