Modern Times Group MTG AB (publ)

Thank you very much, and good morning, and welcome to MTG's interim report presentation for the first quarter 2020. My name is Lars Torsensson. I'm responsible for communications and IR here at MTG. I'm joined today by Jörgen Madsen Lindemann, our group president and CEO, and Maria Rudin, our CFO of MTG. We will start with a formal presentation, as we always do, followed by a Q&A session. Please keep in mind, questions are only enabled for those participating through dialing. Our webcast is listen-only. So without any further delay, please, Jørgen, can you take us through the presentation of our quarter?

Jørgen Lundqvist Yeah. Thank you, Lars, and a warm welcome to our Q1 resource conference call. I hope everyone on and off this call stays safe and healthy. The global impact of this pandemic has been severe on societies and markets in which we, our portfolio companies and partners, operate in. What I am and continue to be very impressed with how our companies are navigating and mitigating during this uncertain and extraordinary situation. I would like to extend a huge thanks to our customers, to our people, to the esports teams and players, and all our partners for your support that has enabled to deliver on our strategy. If we then go to the next slide, as for basically any company worldwide, as I said, the coronavirus pandemic has also impacted the NTG Group's companies in the quarter. But the outcome has been different for our two verticals. While the interim regulations on international travel imposed quarantine regulations and restrictions on hosting events, audiences have had a negative impact on our esport business, the gaming vertical has continued to perform stable towards more positive results, indicating resilience to the current pandemic. In order to optimize our performance, we have set out three key policies to deal with the coronavirus pandemic business impact, focusing on our business continuity, racial efficiency, and last but not least, business opportunities. So in relation to business opportunities, our focus is to deliver our products to the fans and partners, either through moving events online or to reschedule to a later date in the year. The gaming vertical, we have continued to develop the existing and new gaming product pipeline games we have scheduled to launch or test in 2020. In terms of operational optimization, we are taking the measures needed to preserve the financial health of our companies, so we can navigate and mitigate the impact to make sure we remain competitive and also learn from the crisis to understand if our companies are set up the right way and that we continue to be fit for purpose. Looking at business opportunities, we see examples of how we can accelerate growth by investing more in advertising, which is the case for InnoGames. We also discussed new partnerships with relevant industry partners for esports. Throughout the history of MTG, we have improved in our capital structure, so we are also now ready to capitalize and invest in changes in the landscape and in changing consumer behaviors, which we see these days. In October 2019, we initiated a strategic review about gaming assets. MTG has since then received multiple expressions of interest in the business from both strategic and financial investors. The Board of Management continues to believe that a separation of the gaming and esports businesses, which would allow them to adapt their own financial structures and independent strategic objectives, is the best way to maximize shareholder value. This separation may be implemented either through a sale of the gaming business or through a listing of the gaming vertical at the last and foremost growth market. The coronavirus pandemic has caused some disruption to the review process and the decision on the best route to separation would be taken once markets have stabilized and we're able to present two strong equity stories in a similar fashion as we did when we listed NEN back in March 19. Go to the next slide, looking at the highlights for the quarter. Our gaming vertical has shown resilience and maintained stable performance, and we have seen an upswing in user activation towards the end of the quarter. We were just an inch from setting an all-time high in daily active users in March. Instead, we broke the record now in April. While the eSport vertical has been negatively impacted, we quickly adapted and changed to ensure business continuity and performance, and we continue to deliver on our strategic agenda. This has been done primarily by successfully converting live audience eSport events to be online only, ensuring the show goes on, in a way that is responsible towards the teams, partners, fans, and society. Operationally for esports, we have done slightly better than what we anticipated when we communicated the impact of the coronavirus pandemic in March, delivering an almost flat revenue development for the whole of NGG. In esports sales, it climbed by 11% or 50%. assumption of minus 25%, with owner and operator seeing a decrease by close to 20%. Esports services enjoys a growth of 14%, and we expect ESS to grow also in Q2. Owner and operator continues to be the biggest part of the revenue. However, our revenue pipeline is taking a hit due to many current and potential future partners are holding back on their spendings due to the impact of the pandemic has had on their business. And isolating the quarter, we saw a negative impact from moving events online and postponing one market property to Q2. Having to operate already committed events with no audience or move events fully online meant that there were limited possibilities to reduce the cost base in the quarter, leading to an adjusted EBITDA loss. The gaming vertical grew in revenue by 3%, supported by an accelerated performance in March by InnoGames, There is a coronavirus effect when it comes to the increase in overall time spent on mobile games, as well as downloads and use of browser games when looking at the weeks before and after the lockdown in various countries. Thanks to a very accommodating ad market, InnoGames increased its marketing investment in the quarter, and the adjusted EBITDA margin for gaming ended at 21%, with adjusted EBITDA contribution growing in absolute numbers. Kongregate has been negatively affected by the pandemic due to low ad spend in their games. Let's move on to esports more specifically. And as I said, we have kept on pushing our strategic agenda despite the circumstances. Esports being digital by design creates potential to offset some of the negative impact as we as fast-growing sport can continue to deliver great entertainment by moving pure online. to pure online competitions and thereby creating new products and business opportunities. Our work to further professionalize the commercial part of esports has continued in the quarter and we have been trying to walk you through the main events. If we look at the development of our properties, in the quarter we made sure that esports as an entertainment form continued despite the coronavirus pandemic. DreamHack was also able to follow through with their properties live, while EIN Katowice, ESL One Los Angeles, ESL Pro League Season 11 and its final in Denver were all successfully converted to existing and well-received online events. ESL One Los Angeles and Denver final were moved to Q2 and fully online. We've been equally active on the esports service end. For example, in February, the biggest Rainbow Six event took place in Montreal, delivered by ESL. Also, together with Supercell, we conducted a big online Brawl Stars event in the quarter to reimagine Riot Games that partnered around their league, their title league of legends, creating a Northern Europe championship and a UK circuit. Looking into the viewership, the fans' behavior, and speaking of fans, The impact of ESL in general and the Pro League season 11 in particular, we delivered very strong audiences and was topping the Twitch chart the first three weeks of the tournament. Also, it broke year-on-year records in viewership. Overall, during Q1 2020, the spotlight has been on esports, providing the industry some well-deserved attention as a compelling and convincing media product, and not to forget one of the only sports which continued to be live in these difficult times where many Other sports, unfortunately, have come to a pause. Looking at the publisher partnership, we managed during and following the end of the quarter to secure seven new publisher deals. On the owner-operated end, together with the Blitzer, we will create a pro tour circuit around the time of Starcraft 2 and Warcraft 3, showcasing scalability of our new format. For esports services, several key deals have been closed. We have set a super sale. She has newly built ESL Studio in Katowice and will produce tournaments around the popular mobile games Ball Start and Clash of Clans. ESL will, in partnership with Tencent and PUBG Mobile, create a World League tournament with qualifiers broadcasted globally. With Bethesda, ESL will create a Quake Pro League with four events taking place in Italy, two times in Poland, and the US. Many of the events have been affected by the ongoing pandemic, but the products are in either online or postponed to new days to accommodate live audiences. Also, ESL and DreamHack strengthened their partnership with the teams, as ESL and DreamHack signed a historical agreement with 13 global leading esport teams. We adopted the Louvre Agreement, a sudden nod to the Formula One circle, for whom the Concorde Agreement from 81 played a pivotal role in shaping the sport. Between then, the partners of the Google agreement have won 28 ESL and GreenHack master level competitions and two Intel Grand Slams in the last four years. The partners will present all of the top 10 ranked CSGO teams in the world. The agreement further established the ESL Pro Tour as the leading esports circuit former globally while also serving yet another example of ESL and GreenHack shared ambition to build and commercially professionalize the global business of esports. We onboarded several new media partners, such as MediaCast in Russia, TV2 Denmark, TV2 Norway, Colset, Telia, Mediaset, Sky, and so on. Today, we are also thrilled to announce Twitch as the most strategic media partner for GreenHack and ESL. This is a significant deal and a milestone for our eSport companies, and it shows the attractiveness of the media product that we have. Our collaboration with Twitch dates back to 2009, when it still was called Just Into TV. This new collective media partnership is reconfirming our long-standing operation and highlight the importance and relevance Twitch has to ESL and DreamHack communities, as well as the value the ESL and DreamHack eSport content brings to the global Twitch audience. Our sponsorship is sold during the quarter. Our eSport companies prolong important partnerships with brands such as TSL and TFT, Corsair and Pepsi, and onboarding new partnerships such as Sony Mobile, U.S. Pringles, and many more. Our revenue pipeline is taking a hit due to many current and potential future partners are holding back on their spending due to the impact of the pandemic has had on their business, an impact we should expect to continue in 2020. While ensuring acquisition of new partners remain a priority, we also ensure that our existing partners are pleased and can value the return and therefore continue to deepen their involvement in esports. Now let's look at our esport B2C services, also known as ESL Play, ESEA, and Batline. The B2C part of our business has seen an increasing amongst fans to play online and participate in smaller amateur competition. As a result, when looking at our B2C business, such as ESL Play and our Counter-Strike subscription services here, has seen a record-breaking engagement from users during the quarter. We've also seen more new and existing user participating driven in part by our partnership with Sony, where it still powers the competition, including titles like FIFA and NBA 2K. Even though the current turnover is relatively small, these are very interesting trends, and from a B2C product perspective, we will spend more time understanding them and opportunities within B2C Esports. And last but not least, build a relevant commercial product around these fan-relevant B2C products and results. We move on to the gaming. Take the next slide, please. As mentioned earlier, our gaming vertical has been more resilient towards the pandemic, primarily driven by continued positive development for InnoGames. Comm2Games, given its focus on more ad-based revenue model, has been negatively impacted during the pandemic. Also, compared to last year, the quarter was negatively impacted by the terminated published deal with HyperHippo. I'd like us to take a closer look at InnoGames and the uplift in user matrix that started in the month of March. The environment for making marketing investments has been very good, leading us to spend more on user acquisitions, this together with organic growth and higher user activation. We have seen good traction amongst players across several games, especially Force of Empires and the classics. As an anecdote, it is interesting to see that it's not only new players joining, but also fans from before enjoy new content that we have created. Elvanar is not yet seeing the same positive trends. However, we feel that the current work being done with the game on the mobile side should help it to perform better going forward. Because of more registrations and increased activations, our daily active users has increased for InnoGames in March, and we broke a new record for the KPI in April. The relationship is not one-to-one. but this trend should indicate that we are looking at a strong revenue trend for Q2 2020. And we are not just seeing increased DAO, the playing time has also increased quite significantly for in-game, close to 30%, and this shows that we see a higher engagement of the whole community. Even though there is not a perfect correlation between DAO and average revenue per 80 active users at DAO, we have slowly but surely also seen an improving trend for this matrix. I said more users that are engaging at a higher level with our games create an interesting platform for future positive revenue development. It needs to be mentioned as a caveat that these positive trends might or might not be temporary on the back of the pandemic. That needs to be seen, but for now we are happy to see a surge in users at the InnoGames side. If we then look to the next slide and look at our top priorities in Q2 and the full year for 2020 going forward, as I started out, we continue to push in our strategy, and we have an opportunity to move our positions forward in both our verticals. We have three clear priorities going forward, business continuity, operational efficiency, and sizing of new business opportunities. If we look at the business opportunity first, for the esports vertical, we will continue to build our pro tour format despite not being able to have live audiences. Consistency and relevance are key to maintain our growing relationship with all our stakeholders and make esports a commercially interesting and relevant sport for all stakeholders, fans, teams, sponsors, media buyers, and publishers. As a result of the current situation, DreamHack and ESL are moving a significant portion of their schedule online. Between ESL and DreamHack, We will cover more or less all days through multiple titles in Q2 2020, providing esport entertainment to fans. The gaming world, we are maintaining the schedule for the nine new game titles being either tested or introduced across 2020. We are also on the back of an accommodating market, investing in marketing to further grow our user base in the gaming world. For Kongregate, we would like to continue to secure publisher agreement and partnership with Nickelodeon, Kongregate will be developing a SpongeBob SquarePants idle game that will be launching in 2021. SpongeBob remains one of Nickelodeon's biggest franchises, beloved by millions of fans worldwide, and we are very pleased to see that Kongregate will be able to work with such a strong IP. Being nimble and efficient during the coronavirus pandemic is, of course, key. especially for our east border vertical, which, as mentioned, is severely impacted by the ongoing pandemic. It will also create the possibility to get out of this crisis much stronger than it went in with a setup that is more fit for purpose. For Q2-20, ESL and DreamHack are reducing both costs of so-called good soil and fixed costs. As we have indicated to you, these cost reductions will be at least 150 billion cents and will be predominantly in Q2. The lion's share of the savings come from us taking down variable costs as a result of our properties moving online. Examples of cost of this category is what we call venue-built operating travel. We're also making use of follow agreements with governments in our key markets. We are also looking at a more permanent fixed cost being taken out. This has more to do with the way we organize and work and would be independent of the pandemic. With what we know right now, we'd be comfortable reaching at least the $150 million in savings in Q2 2020, maybe even slightly more. With our strong position in the market, the current situation is also providing us with opportunities in both the esport and gaming world. With the esport first, as has already been shown in Q1 2020, we are building closer relationships with the publishers, together developing the esport format both online, mobile, and live. The focus is to continue making progress here during 2020. In an environment where live sports entertainment is scarce, we will, of course, continue to develop our online format and provide opportunities for both digital and traditional media buyers to engage in esports. Within the gaming vertical, we will continue to push our investments into marketing on the back of significantly improved return on ad spend levels. That's a window of opportunity to attract even more users and create a larger base for both indie games and common games to leverage upon. Then I also believe that the testing and trial market for our new games would be excellent, with so many gamers being available as a result of more people spending time at home. As a matter of fact, we will accelerate the launch of three common games to happen already in Q2. With all this in mind, we feel that our guidance for Q2 needs to be slightly adjusted, Earlier, we anticipated revenues in the esports vertical to decline 35% to 45% in the first half of 2020 in comparison to the same period for 2019. Now we feel this will be in the range of 25% to 35% instead. And as I've already alluded to, the savings in Q2, 20 would be at least 150 million SEK. With that said, over to you, Maria, to walk us through the financials.

Thank you, Juergen. And if you can all then move to the next slide. As Jørgen has presented, we ended the quarter with slightly higher sales than anticipated on the esports side, driving overall group sales to 924 million kronor in the quarter. That is a 2% decline year-over-year or a 6% decline including currency impact. As the Swedish kronor further weakened against both the euro and the US dollars, we continue to see a big impact on both reporting revenues and earnings and similar to balance sheet items. Gaming increased its proportionate revenue contribution in the quarter to account for two-thirds of the turnover, and I expect it to further increase in the second quarter. Adjusted EBITDA losses increased year over year, even though we had improved performance in both our gaming vertical and lower costs at our central operations, but this as esports losses increased. If we then look further into the increased losses in esports, this is a combination of revenue loss and fund costs. And with the risk of repeating, the main reason was because of us having to operate already committed events with no audience or to cancel events at a short notice, which means that there are limited possibilities to reduce the cost base in the quarter. This means that roughly 50% of the increased losses in the eSports segment in the quarter is due to sunk costs because of moved and canceled events, and the remaining 50% is a combination of us moving the ESL1 loose-and-loose event into Q2. not fully monetize the IEM Katowice, and the fact that the Katowice this year is not a major as it was last year. Rather, this year we will have the CSGO major in Rio, which is moved from Q2 to Q4. And then finally, that the underlying investments we have made into the ESL structure and the operation teams in ESL, DreamHack, and DreamHack Sport Games. Several of these cost items will be addressed in Q2 as a part of the $150 million savings that we have identified, and also in the quarter, this some costs will be limited. And as Jørgen also presented, we are working on identifying more permanent savings as we are reviewing our way of working at ESL and DreamHack, and we come back with more details on this as we have concluded the work. If you can turn the page, the EBITDA adjustments in the quarter amounted to negative 48 million SEK, to be compared to 79 million SEK last year. And as some of you might have noticed, the cost for the LTIP and MIT was elevated in the quarter, This was mainly due to the management incentive programs in the gaming vertical, and as a temporary effect in the quarter, I expect the run rate to go back to a more normal level going forward. And as we will not launch a new program at the headquarter in 2020, the new expected run rate will be approximately 20 million per quarter. If we then look at the depreciation and amortization, which increased slightly in the quarter, this reflects the higher amortization within the gaming segment as we both launch and acquire new games. which we're amortizing on backup. This quarter is also the first quarter with the IFRS 16 comparable numbers year over year. Finally, the net financial items were positive in the quarter, predominantly driven by the exchange rate movement. We should remember that we have our cash balance held in euros, and given the weakening of the Swedish krona, we do see positive impact here, partially realized and partially unrealized. And if I could then have you turn the slide again. We're moving to cash flow statements, and the group reported an improved net cash flow from operation of negative six or nine million. The positive contribution versus last year is following the effects in the working capital, where we see a positive improvement, and this is related to the timing of receipt and the service delivery within our esports verticals. And this, I believe this is a temporary change, and I do expect it to reverse throughout the year. CapEx was slightly up in the quarter. This is we're having nine games in development within both InnoGames and Kongigate, and this is key driver behind that. And we did also back on some of the new publishing agreements in ESL, invested some studio build-up, also driving CapEx in the esports vertical in the quarter. Within our VC fund, we did two follow-up investments within Bitscroft and PlayVenture, and we also realized our first exit with Phoenix Lab. Thus, the NIST investment in the VC fund amounted to $6.5 million in the quarter. The group remains well-funded with a net cash position of $1.8 billion as of Q1 2020. Gaming continues to be the cash flow contributing entity, and we are working focused with eSports to optimize the current cost structure to minimize the cash outflow. Post-quarter end, we did pay the annual dividend to the Indie Games minority. It was later than normal this year due to the strategic review. Does the cash balance post-quarter end was immediately impacted by SEC 190 million outflow? And that concludes my financial review, so back to you, Jørgen.

Jørgen Lundqvist Thank you, Maria. So let's summarize, and there are three things that I would like you to bring with from this session. So number one, for most companies, our core was impacted by the ongoing pandemic. but we were still able to execute and push our strategic agenda to commercialize esports and grow the user base of our gaming vertical and maintain the time schedule for our new game pipeline. Going forward, we want to mitigate and navigate the impact of the pandemic. Our priorities remain clear. Business continuity, operational efficiency, and sizing of new business opportunities. And last but not least, we have a very strong financial position to make this a reality. We'll come back with an update on event schedule for Q3 as soon as we have certainty. So despite difficult circumstances, I feel that we're in a good position to come out stronger and cement our position as the market leader when it comes to tomorrow's entertainment. That concludes our formal presentation, and now over to you, Lars, and questions.

Thank you, Juergen. That ends our presentation for the first quarter of 2020, and we are now ready to take any questions that you might have. Operator, could we have the first question, please?

Thank you, ladies and gentlemen. To those who wish to ask a question over the telephone lines, please press star 1 and wait for your name to be announced. Once again, star 1 if you wish to ask a question. Your first question comes from the line of Martin Arnold from D&B. Please ask your question.

Good afternoon, everyone. So my first question is on your change in the first half guidance. If you could please elaborate on what's changed since your update end of March.

Thank you, Martin, and good afternoon. So regarding guidance and the change in guidance, that is for you, Maria, of course. Could you elaborate on why we have adjusted the guidance?

Yes, hi, Martin. As you saw, we came in slightly better in Q1, which is predominantly back on the growth that you saw on ESS. And similarly, what we're seeing Q2 now is stronger development in the ESS side, which is a little bit more ad hoc work, which we have talked about before as well. But we're very happy about it, and it's also strategic cooperation that we see coming through. So that is the key driver behind the revenue improvement.

I'll follow up. Martin? Yeah, please, if I may. On the puts deal, can you just please go through what's the difference compared to historical deal?

Yeah, it is, first of all, the duration of the deal is a three-year deal. And that, of course, means a more strategic partnership where we have the time to develop We will, together with Twitch as well, introduce a range of new commercial opportunities for our partners to make sure that their returns on investing into esports is even bigger. So there's a lot of discussions we have had how we can make this joint strategic cooperation stronger. So it is very different from Twitch just buying our

Okay. Yeah, just a final question on your communication about gaming, the increasing bow trends that you see. Is it possible for you to quantify roughly the COVID-19 impact in your Dow trends? Is it sort of 20, 30% better than it would have been in a normal situation, or can you give us some flavor on that, please?

Okay, so a question around Dow then and how that has been impacted by the coronavirus pandemic that we are currently experiencing. I mean, Maria, what can we share with Martin here when it comes to the Dow?

No, but I think that on the graph you saw some of those key growth drivers, and we did see, I mean, quite much correlation in the activity uptake with the further close down of the different markets in mid-March. So, I mean, as you can see, we grew 11% from the beginning of the year to the end of the quarter, and then 14% to the peak, and the main part of that is coming towards the end of the quarter.

Okay, Martin, are you happy with those answers, or would you like to follow up?

No, I might get back later. Thank you very much.

Thank you, Martin. Operator, could we have the next question, please?

Thank you. Your next question comes from the line of Tom Singlehurst from Citi. Please ask your question.

Good afternoon. Tom here from Citi. Thank you very much for the call, and thank you for taking questions. I missed the very beginning of the call, so you may well have talked about this, so I apologize if I'm covering old ground. But obviously better trends in esports than feared, both in the 1Q and by implication in the second quarter as well, and I know in the release you mentioned better trends in particular within ESS. Can you just clarify why ESS is less impacted, and can you talk about regional variations. I presume in the Far East, some of the shows are coming back. And then I think you alluded to this in the end, but in terms of base case expectations, are you assuming that events get back to normal from July? Is that the base case assumption, or do you assume that you'll see disruption all the way through to October? And then the second question, very quickly on gaming, I think you said it was 4% growth in the first quarter in terms of revenues. I mean, in the current environment with COVID-19-related disruption, anything that's growing is very, very impressive. But if that had been a figure that you sort of were delivering in steady state, would that be a number that you'd be pleased with? I sort of had in my mind that you should be delivering consistent sort of high single-digit growth, so some some commentary on whether, you know, ex-COVID, that would have been a good number. It would be very much appreciated. Thank you.

Thanks, Tom, and thanks for those questions. Let's see if we got them right. First of all, just to be clear, I mean, we have provided guidance for the first half, and we are not providing guidance for the second half, just so that is clear. That is clear. But then back to your question, Tom, ESS growth, the reason why ESS continues to grow versus then owned and operated, and if there are anything we could share there when it comes to reasons for that development. And then gaming and gaming growth, what to expect going into the second quarter. I guess that should we start with you, Jørgen, and then Maria can build on that.

But obviously, when you look at the ESS part, as we also mentioned on the call in the beginning, we have managed to conclude quite interesting deals with Supercell, with Tencent, and so forth. So that has, and also Activision, which is also on StarQuest and Walkman. So we have managed to make a range of partnerships in our operators, also then ESS. And we also... which you can see as well, we also have communicated for some time as well that those partnerships should also be with some strategic partners, which you definitely can argue that Tencent and Supercell would be. So we are building big global franchises with that, and that has helped our Q1 results, and also we see more ESS coming into Q2 as well, and as you know, the business model there is to a large extent where we are creating the events, we are building the events for the publisher, And then we are getting a fee for that. And sometimes also you do actually have partnerships as well where we sell advertising on media space and so forth, which would be the case with PUBG. So we are very happy about that development. We always have said that we would like that to continue, the ESS, but with the right partners. So that is one reason. And then on the gaming part and whether we would have been happy. I think in all fairness, when you look at the games and look at Also, we discussed in Q4 that also we see more mobile engagement with the product. Then we are happy, but there's no doubt that the COVID impact is very clear, that it is the middle of March. It is when you see countries are closing down, where we see high engagement. Again, on the positive side, let's hope that will continue, but we see more people who used to be with the game going back in. So they are familiar with what we have right now when it comes to force of empire. And we have a lot of new content there, so of course we do hope that it will be long lasting. That goes without saying.

Tom, would you like to comment on that?

No, no, that's fine, that's fine. That's very clear for now. Thank you very much.

Thank you very much, Tom. Operator, can we have the next question, please?

Thank you. Are we clean? Home from...

Yes, can you hear me?

Yes, we can hear you, Erik, so fire away.

Yeah, great, great. Hi, guys. Yeah, so first question on the deal with Twitch. Having signed this, which areas do you now see the most potential in signing additional media rights deals?

Thanks for the question, Erik. It's around Twitch and what other on top of Twitch that we could potentially see when it comes to media deals. Jørgen, that's your...

That is actually broad, to be fair. That is, we have a range of products. And also, as you can see with the golf now, we have added a range of new partners on board, like Sky Sports and others. So it is local deals. It is regional deals. It is deals where we know also that the partner will make an effort. in making sure that we promote the product. That is quite important for us as well. So we have a range of ongoing discussions and also a range of cases which, of course, is helping also for media partners, linear or online, to understand the impact and return that this fantastic sport has. Now we have the opportunity to showcase it even more, obviously. That is good news for us, at least, because many of the sports, as I said earlier, is paused. That means that we are out there being live. and we are live more or less every day now in the second quarter. So that is a good showcase window for us as well. So there's no specific, you know, priorities or such. The market where we have big impact, China, we have partnerships already in place. Huya is buying the content as it is right now, and then we have big partnerships as well in other parts of the world. So that is ongoing. We want partnerships for all our different parts.

Thanks, Juergen. Eric, would you like to follow up?

Yeah, sure. Can you talk a bit about what you're seeing with regards to the COVID-19 impact on sponsorship revenues thus far, and how do you see this impacting H2 revenues in esports, and what are your sponsors saying right now?

Yeah, sponsorship is, of course, something that Jörgen knows all about, so please, Jörgen.

Yeah, but they are, in all fairness, suffering a bit, if you can use that language. Of course, their businesses have been impacted by COVID-19 as well. So some sponsors where you have an agreement to promote a product which they can't even sell in the stores because they have been closed down, big magazines or whatever, obviously, you know, it's a difficult situation for them. So we do see a slimmer pipeline coming from brand partners, and that will go throughout 20, I think, to be fair. So we see our existing sponsors being, of course, hit by the effects of the COVID-19, and also obviously future partners with whom we discussed opportunities are also being affected. I think that goes for all media, to be fair. Luckily, then, we are live. So we can deliver ratings. Still, we can deliver shares. We can deliver audiences. So that's, of course, a good discussion to have and not to ask them to pause everything. So we do hope that we can show that we as a sport are extremely relevant, and that is what we're showcasing here now as well, of course. But you will see an impact on sponsors in the rest of 2020.

Thank you, Jorgen. Erik, any other questions that you would like to raise?

Yeah, sure. A final one, if I may. On Kongregate, you said that you saw an impact on lower ad spend. Can you say anything on how big this negative impact is?

So Kongregate and in gaming, Maria, could you elaborate on how specifically Kongregate was affected by the ongoing pandemic?

No, but Congregate do have the biggest part of the revenues being in-app purchases and ad revenues being the smaller part. But it still, it had a dip in ad-based revenues, and that's why we also felt it was worth mentioning so you understand the difference. But given also the positive performance we saw in in-game, it's quite important to highlight that we did see a different impact on our more casual idol genre games in Congregate. But the positive side on Kongate is that it's seeing improved underlying attraction when it comes to the usage level on the idle games, but on the revenue side, it is being lower monetized on the games that have an ad revenue component to it.

Thank you, Maria. And, Erik, anything else that you would like to ask?

No, thank you. That's fine for me. Thank you.

Thank you very much, Erik. Operator, could we have the next question, please?

Thank you. Your next question comes from the line of Oscar Erickson from Carnegie. Please ask your question.

Thank you. Good afternoon, guys. Two questions from me. First of all, regarding the Twitch deal follow-up there, can you elaborate a bit on the non-exclusivity with Twitch during 2020? Will this mean lower revenue this year than the coming two years? And could you also explain in more detail the difference from Twitch actually buying the content, which I guess would be the more regular approach? Thank you.

Yeah, you will see a ramp-up of revenue coming from Twitch in 21, 22, and smaller then in 20, due to the exclusivity exactly. When it comes to the partnership, it is a partnership where you get the opportunity to use eventually the Twitch product for our partners, our sponsors in a different way where you can activate, you can create products which today is eventually not even in the market. which we are discussing right now, activation of the players, sorry, of the viewers and so forth. So the commercial part is very interesting and something that the commercial team has been working a lot with Twitch on, to be fair. We do see the target groups. We understand that it is interesting for media buyers and agencies and partners, brand partners. We have seen that now. So now it is to make unique products for those partners as well to be competitive towards the other sports as well. What is it we can do for partners which cannot be done on other platforms where the partnerships is not as strategic as it is with Twitch right now? So there's a dimension of exclusivity as well since we will be building something together which both of us would like to capitalize on and hopefully continue after the years that we have signed off with them now. And it still allows us as well to go out and make relevant local deals and make relevant deals with linear takers as well and local speaking countries as well. So it is a very important deal for both parties. We spent quite some time on understanding how we could extend our partnership. But it is to a large extent on the commercial side where you should see changes the next couple of years to make more interesting product for partners. That is as specific as I can be right now.

Thank you. Oscar, would you like to follow up there?

Yes, follow up on that question as well. So does this mean that you will be able to perhaps replace lower media rights revenue with instead higher sponsorship revenue? And in this, is this what you were looking for or if this was which was one thing to go for? And how does this also compare to other discussions you've had with, for example, YouTube and Mixer, perhaps?

Thank you. Yeah, it's definitely not about replacing. On the contrary, hopefully, it is about adding. So the whole idea is, of course, that we drive those two very important revenue streams for us, the media part, for the content and also the brand partnership. So I don't want to replace anything. That is quite important. And the deal is a substantial deal for both parties. So there is definitely a commitment to make this work. So it doesn't prevent us, as I said, from doing deals with local partners, regional partners as well. When we have discussions with other global platforms, In all fairness, Twitch came out with very strong commercial ideas, which we immediately thought resonated well to what we are trying to achieve. We have a long-standing relationship with them as well. We have been with them for whatever, 11 years now. It is something which has built up. Instead of just doing a normal distribution deal, we really worked hard, or the team did, to make a commercial component online. So it should be one product plus one equals three, and not that we are substituting whatever media likes with brand products, whatever. That is not the case. We want more reach, even bigger reach for the sport, and that, of course, would benefit the commercial part as well.

Thank you, Juergen. Oskar, any follow-up on that one?

Yes, thank you. That's very helpful. A final question from me on InnoGames. Could you first discuss a bit more their upcoming release schedule for Q2 and the second half of this year?

Thank you. So we talk about the release schedule when it comes to InnoGames, but also talk about congregate in that case, I think. Maria, that's our gaming expert.

Yeah, if you look to the near term, what we have in in-game, so we have two games going into retention test now in Q2, which we're very excited about, and then you have two games further in development that will go into retention test in the second half of the year. And then in congregate, as Jorgen said, we have been able to accelerate the development and the finalization of three games, which we're actually going live now in Q2, and then the rest games will come in the second half in congregate. So it is an interesting prime time that we're having in the quarter to come.

Thank you, Maria. Oscar, any follow-up on that?

Thank you. That's it for me.

Thank you, Oscar. I appreciate the questions. Operator, do we have any further questions?

Yes, we do have one question. It comes from the line of Stefan Doming from Kepler. Please ask your question.

Thank you, and hello, everyone. I have a few questions. One is if you could please share some early indications related to Nilsen's audience measurement and how your new ESL tournament structure on CSGO and other games have been received by media buyers. That's the first one. Secondly, I was wondering if you could give some more granularity on your ongoing strategic review on gaming. Third one is how you see the potential for the so far failed HUYA deal to materialize at some point. That's all. Thanks.

Thank you Stefan, that was a good set of questions there. We have Nielsen, any early indications on measurement, strategic review, progress, and then the last one, potential for us working with HUYA. I think Jorgen, that's your end.

Yes, we do have, we are measuring all the tournaments, so we do have initial indication and obviously They look very positive, just to be clear. And they do positive, of course, because we also have seen very strong viewing on our products from most of them being moved online, as we discussed as well. So it is very positive, and it gives us, of course, a buildup to a hopefully very strong set of Milton figures. after the first half so we can make a deeper analysis and make sure that we can articulate our propositions and relevance to brand partners and media partners and media buyers and you had a question on the media buyers as well and they are slowly coming on board and that goes both the online part and also of course the linear part as I said in the call as well we have made deals now in Russia we made deals now in Norway, we made deals with Telia, we made deals with Nend, we made deals with, to Denmark, and so forth. Media says the golf has been taken by Skysport and so forth. So we have touch points now with more and more publishers, sorry, more and more media partners. That is, of course, very important because then we also can offer them more and more of our products. So that is going in the right direction, but important to understand as well as we have said, it is reaching or revenue. So it's more important for us that we get a good reach so we can proper analyze the outcome of the property and then long-term make sure that we get a good deal for both parties. When it comes to the strategic review, we gave an update in March and that is ongoing. So not more to add there. I think the board was quite clear in their assessment that we believe that, or they believe as well, like management, that to have two Distinct equity stories will serve both companies or both verticals very well, just like we managed to do with NAND. So that is something that we are exploring when time is right, but it is an ongoing process that we have right now. HUYA, we are having commercial relationship with HUYA. They are buying our content. We are very happy about that. And obviously there is a dialogue between the two companies, and they see very strong traction on the content that we are right now producing and distributing in China. So that is a positive. Now, given everything which is happening in the world right now, it's not that we can fly out to them tomorrow and discuss, but it is a strategic, important part for us to continue to find the relevant partners in different parts of the world and China being one.

Thank you, Jörgen. Stefan, it might be that you would like to follow up there.

Well, maybe if you could outline perhaps other markets or regions than China that could be subject to similar potential deals. And also I came to think about one more question that's relating to your guidance increase on esports. Since this is related to e-sports services, how should one think about the impact on profitability, please?

Okay, so other markets that could be interesting for media deals, above and beyond China, that's for you, Jörgen, but then when it comes to the second quarter and more ESS coming in and what sort of impact that might mean for the margin for your esports, that's more you, Maria, but let's start with you, Juergen.

There are extremely interesting markets around the world. There are interesting regions, the whole Southeast Asia part, which we would like to do more. go more into different countries. You have Indonesia, you have Pakistan, India, whatever, which are very big countries where they also play games and watch esports. So of course, those markets, you're looking at LATAM, you're looking at the US, and so forth. So for us, it is important to find either local countries or in regions to find partners who can help us accelerate the products. Quite important. So strategic partners who can help us making sure that we become even more relevant with our products. That is the focus. And that is globally in all fairness. Now, China was a special case, obviously, because there we were very clear that in order to be successful in China, I think you need a very strong local partner to understand the dynamics in the market. And Huya was, at that time, a very good example of how those partnerships could look like. JV in the country and investment as well, which they wanted to make in two years' time. So it is a global phenomenon. It's something we're looking at not just in smaller countries, but it's global.

Thank you, Jorgen. Maria, anything we could share when it comes to ESS and impact on margins?

No, I think what we have discussed before on the ESS work, I mean, the first and the most important part is, of course, the partnership that we have with the different publishers that ESS comes with a margin contribution, which is, of course, positive to the GM1 and also then brings the positive contribution to the bottom line. So that should and improve the output for the second quarter as well when it comes to the bottom line possibility, which we, of course, are very happy about.

Thank you, Maria. Very clear. And, Stefan, would you like to follow up on that?

No. Thank you very much.

Thank you, Stefan. Operator, do we have any more questions?

There are no further questions at this time. Please continue.

Okay, thank you very much. That concludes the presentation for MTG's Q1 2020 interim report. We look forward to staying in touch until we release the next quarterly report. And with that said, Q2 2020, mark your diaries now, will be presented the 23rd of July. Also, a reminder that our capital markets day is now the 9th of October in New York City, so that's also equally important to notice. Have a great day. Stay healthy and continue to wash your hands. Take care. Bye-bye.