Item
1A. Risk Factors
In
this Item 1A, unless the context otherwise requires, “we,” “us,” “our,” and the “Company”
refers to the combined company post-Merger – fuboTV Inc., or fuboTV, and its subsidiaries, including fuboTV Sub. “FaceBank
Pre-Merger” refers to FaceBank Group, Inc. and its subsidiaries prior to the Merger and “fuboTV Pre-Merger” refers
to fuboTV Inc., a Florida corporation and its subsidiaries prior to the Merger.
You
should carefully consider the risks and uncertainties described below, together with all of the other information in this Quarterly Report
on Form 10-Q, including our unaudited condensed consolidated financial statements and related notes and the section titled “Management’s
Discussion and Analysis of Financial Condition and Results of Operations.” Our business, financial condition, results of operations,
or prospects could also be harmed by risks and uncertainties not currently known to us or that we currently do not believe are material.
If any of the risks actually occur, our business, financial condition, results of operations, and prospects could be adversely affected.
In that event, the market price of our common stock could decline, and you could lose part or all of your investment.
This
Quarterly Report also contains forward-looking statements that involve risks and uncertainties. See “Forward-Looking Statements.”
Our actual results could differ materially and adversely from those anticipated in these forward-looking statements as a result of certain
factors, including those set forth below.
Risk
Factors Summary
Material
risks that may affect our business, operating results and financial condition include, but are not limited to, the following:
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Our
actual operating results may differ significantly from our guidance.
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We
may require additional capital to meet our financial obligations and support planned business growth, and this capital might not
be available on acceptable terms or at all.
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We
have incurred operating losses in the past, expect to incur operating losses in the future and may never achieve or maintain profitability.
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Our
revenue and gross profit are subject to seasonality, and if subscriber behavior during certain seasons falls below our expectations,
our business may be harmed.
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Our
operating results may fluctuate, which makes our results difficult to predict.
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If
our efforts to attract and retain subscribers are not successful, our business will be adversely affected. Our agreements with distribution
partners contain parity obligations which limit our ability to pursue unique partnerships.
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If
content providers refuse to license streaming content or other rights upon terms acceptable to us, our business could be adversely
affected.
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Our
content providers impose a number of restrictions on how we distribute and market our products and services, which can adversely
affect our business.
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We
rely upon Google Cloud Platform and Amazon Web Services to operate certain aspects of our service, and any disruption of or interference
with our use of Google Cloud Platform and/or Amazon Web Services would impact our operations and our business would be adversely
impacted.
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If
we fail to comply with the reporting obligations of the Exchange Act, our business, financial condition, and results of operations,
and investors’ confidence in us, could be materially and adversely affected.
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Our
key metrics and other estimates are subject to inherent challenges in measurement, and real or perceived inaccuracies in those metrics
may seriously harm and negatively affect our reputation and our business.
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TV
streaming is highly competitive and many companies, including large technology and entertainment companies, TV brands, and service
operators, are actively focusing on this industry. If we fail to differentiate ourselves and compete successfully with these companies,
it will be difficult for us to attract or retain subscribers and our business will be harmed.
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The
gaming industry is heavily regulated and our failure to obtain or maintain applicable licensure or approvals, or otherwise comply
with applicable requirements, could be disruptive to our business and could adversely affect our operations.
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Our
products and services related to sports betting will cause our business to become subject to a variety of related U.S. and foreign
laws, many of which are unsettled and still developing, and which could subject us to claims or otherwise harm our business. The
violation of any such laws, any adverse change in any such laws or their interpretation, or the regulatory climate applicable to
these contemplated products and services, or changes in tax rules and regulations or interpretation thereof related to these contemplated
products and services, could adversely impact our ability to operate our business as we seek to operate in the future, and could
have a material adverse effect on our financial condition and results of operations.
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Our
anticipated participation in the sports betting industry may expose us to risks to which we have not previously been exposed, including
risks related to trading, liability management, pricing risk, payment processing, palpable errors, and reliance on third-party sports
data providers for real-time and accurate data for sporting events, among others. We may experience lower than expected profitability
and potentially significant losses as a result of a failure to determine accurately the odds in relation to any particular event
and/or any failure of its sports risk management processes.
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If
the technology we use in operating our business fails, is unavailable, or does not operate to expectations, our business and results
of operation could be adversely impacted.
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Our
shareholders will be subject to extensive governmental oversight, and if a shareholder is found unsuitable by a gaming authority,
that shareholder may not be able to beneficially own, directly or indirectly, certain of our securities.
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If
government regulations relating to the Internet or other areas of our business change, we may need to alter the manner in which we
conduct our business and we may incur greater operating expenses.
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We
are subject to a number of legal requirements and other obligations regarding privacy, security, and data protection, and any actual
or perceived failure to comply with these requirements or obligations could have an adverse effect on our reputation, business, financial
condition and operating results. Any significant interruptions, delays or discontinuations in service or disruptions in or unauthorized
access to our computer systems or those of third parties that we utilize in our operations, including those relating to cybersecurity
or arising from cyber-attacks, could result in a loss or degradation of service, unauthorized disclosure of data, including subscriber
and corporate information, or theft of intellectual property, including digital content assets, which could adversely impact our
business.
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We
are subject to taxation-related risks in multiple jurisdictions.
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We
could be subject to claims or have liability based on defects with respect to certain historical corporate transactions that were
not properly authorized or documented.
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Legal
proceedings could cause us to incur unforeseen expenses and could occupy a significant amount of our management’s time and
attention.
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The
impact of worldwide economic conditions may adversely affect our business, operating results, and financial condition.
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Risks
Related to Our Financial Position and Capital Needs
We
have incurred operating losses in the past, expect to incur operating losses in the future and may never achieve or maintain profitability.
We
have incurred losses since inception. Our net loss for the three months ended June 30, 2021 was $94.9 million. If our revenue
and gross profit do not grow at a greater rate than our operating expenses, we will not be able to achieve and maintain profitability.
A number of our operating expenses, including expenses related to streaming content obligations, are fixed. If we are not able to either
reduce these fixed obligations or other expenses or maintain or grow our revenue, our near-term operating losses may increase. Additionally,
we may encounter unforeseen operating or legal expenses, difficulties, complications, delays and other factors that may result in losses
in future periods. If our expenses exceed our revenue, we may never achieve or maintain profitability and our business may be harmed.
We
may require additional capital to meet our financial obligations and support planned business growth, and this capital might not be available
on acceptable terms or at all.
We
intend to continue to make significant investments to support planned business growth and may require additional funds to respond to
business challenges, including the need to enhance our platform, improve our operating infrastructure or acquire complementary businesses,
personnel and technologies. Accordingly, we may need to secure additional funds. If we raise additional funds through future issuances
of equity or convertible debt securities, our then existing shareholders could suffer significant dilution, and any new equity securities
we issue could have rights, preferences and privileges superior to those of holders of our common stock. Any debt financing we secure
could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may
make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. If
we were to violate the restrictive covenants, we could incur penalties, increased expenses and an acceleration of the payment terms of
our outstanding debt, which could in turn harm our business.
We
may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or
financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and to respond to business
challenges could be significantly impaired, and our business may be harmed.
Our
revenue and gross profit are subject to seasonality, and if subscriber behavior during certain seasons falls below our expectations,
our business may be harmed.
Seasonal
variations in subscriber and marketing behavior significantly affect our business. We have previously experienced, and expect to continue
to experience, effects of seasonal trends in subscriber behavior due to the seasonal nature of sports. Additionally, increased internet
usage and sales of streaming service subscriptions during the fourth quarter of each calendar year affect our business. We also may experience
higher advertising sales during the fourth quarter of each calendar year due to greater advertiser demand during the holiday season,
but also incur greater marketing expenses as we attempt to attract new subscribers to our platform. In addition, expenditures by advertisers
tend to be cyclical and are often discretionary in nature, reflecting overall economic conditions, the economic prospects of specific
advertisers or industries, budgeting constraints and buying patterns, and a variety of other factors, many of which are outside our control.
Given
the seasonal nature of our subscriptions, accurate forecasting is critical to our operations. We anticipate that this seasonal impact
on revenue and gross profit is likely to continue, and any shortfall in expected revenue due to macroeconomic conditions, a decline in
the effectiveness of our promotional activities, actions by our competitors, or for any other reason, would cause our results of operations
to suffer significantly. A substantial portion of our expenses are personnel-related and include salaries, stock-based compensation and
benefits that are not seasonal in nature. Accordingly, in the event of a revenue shortfall, we would be unable to mitigate the negative
impact on margins, at least in the short term, and our business would be harmed.
We
might not be able to utilize a significant portion of our net operating loss carryforwards.
As
of December 31, 2019, fuboTV Pre-Merger had federal net operating loss carryforwards of approximately $375.8 million, a portion of which
will expire at various dates if not used prior to such dates. Under legislation enacted in 2017, informally titled the Tax Cuts and Jobs
Act, as modified by the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, federal net operating losses incurred
in 2018 and in future years may be carried forward indefinitely, but the deductibility of such federal net operating losses in tax years
beginning after December 31, 2020 is limited. Other limitations may apply for state tax purposes.
In
addition, under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), and corresponding provisions of
state law, if a corporation undergoes an “ownership change,” which is generally defined as a greater than 50% change, by
value, in its equity ownership over a three-year period, the corporation’s ability to use its pre-change net operating loss carryforwards
to offset its post-change income may be limited. We have experienced ownership changes in the past, and therefore a portion of our net
operating loss carryforwards are subject to an annual limitation under Section 382 of the Code. In addition, we may experience ownership
changes in the future as a result of subsequent changes in our stock ownership, including as a result of conversions of the 2026 Convertible
Notes, some of which may be outside of our control. A past or future ownership change that materially limits our ability to use our historical
net operating loss and tax credit carryforwards may harm our future operating results by effectively increasing our future tax obligations.
Our
financial condition and results of operations could be adversely affected if we do not effectively manage our current or future debt.
As
of June 30, 2021, we had $407.3 million of outstanding indebtedness on a consolidated basis which included approximately $402.5 million
of convertible notes and other notes outstanding with an aggregate principal of approximately $4.8 million.
Our obligations related to our outstanding indebtedness
could adversely affect our ability to take advantage of corporate opportunities, which could adversely affect our business, financial
condition, and results of operations.
For example:
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our
ability to obtain any necessary financing in the future for working capital, capital expenditures, debt service requirements, or
other purposes may be limited, or financing may be unavailable;
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a
substantial portion of our cash flows must be dedicated to the payment of principal and interest on our indebtedness and other obligations
and will not be available for use in our business;
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lack
of liquidity could limit our flexibility in planning for, or reacting to, changes in our business and the markets in which we operate;
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our
debt obligations will make us more vulnerable to changes in general economic conditions and/or a downturn in our business, thereby
making it more difficult for us to satisfy our obligations; and
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if
we fail to make required debt payments or to comply with other covenants in our debt agreements, we would be in default under the
terms of these agreements, which could permit our creditors to accelerate repayment of the debt and could cause cross-defaults under
other debt agreements.
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If
we incur any additional debt, the related risks that we and our subsidiaries face could intensify.
Finally,
we may in the future be in non-compliance with the terms of certain of our other debt instruments. To the extent we are in non-compliance
with the terms of such debt instruments, we may be required to make payments to the holders of such instruments, those holders may be
entitled to the issuance of stock by us, and the holders of such stock may be entitled to registration or other investor rights.
Servicing
our indebtedness will require a significant amount of cash, and we may not have sufficient cash flow from our business to pay our substantial
indebtedness.
Our
ability to make scheduled payments of the principal and interest when due, or to refinance our borrowings under our debt agreements,
will depend on our future performance and our ability to raise further equity financing, which is subject to economic, financial, competitive
and other factors beyond our control. Our business may not continue to generate cash flow from operations in the future sufficient to
both (i) satisfy our existing and future obligations to our creditors and (ii) allow us to make necessary capital expenditures. If we
are unable to generate such cash flow or raise further equity financing, we may be required to adopt one or more alternatives, such as
reducing or delaying investments or capital expenditures, selling assets, refinancing or obtaining additional equity capital on terms
that may be onerous or highly dilutive. We may need or desire to refinance our existing indebtedness, and there can be no assurance that
we will be able to refinance any of our indebtedness on commercially reasonable terms, if at all. Our ability to refinance the term loans
or existing or future indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to
engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our current or
future debt agreements.
Our
operating results may fluctuate, which makes our results difficult to predict.
Our
revenue and operating results could vary significantly from quarter-to-quarter and year-to-year because of a variety of factors, many
of which are outside of our control. As a result, comparing our operating results on a period-to-period basis may not be meaningful.
In addition to other risk factors discussed herein, factors that may contribute to the variability of our quarterly and annual results
include:
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our
ability to retain our current subscriber base and increase our number of subscribers;
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our
ability to enter into new content deals or negotiate renewals with our content providers on terms that are favorable to us, or at
all;
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our
ability to effectively manage our growth;
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our
ability to attract and retain existing advertisers;
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the
effects of increased competition in our business;
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our
ability to keep pace with changes in technology and our competitors;
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interruptions
in service, whether or not we are responsible for such interruptions, and any related impact on our reputation;
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our
ability to pursue and appropriately time our entry into new geographic or content markets and, if pursued, our management of this
expansion;
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costs
associated with defending any litigation, including intellectual property infringement litigation;
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the
impact of general economic conditions on our revenue and expenses; and
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changes
in regulations affecting our business.
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This
variability makes it difficult to forecast our future results with precision and to assess accurately whether increases or decreases
are likely to cause quarterly or annual results to exceed or fall short of previously issued guidance. While we assess our quarterly
and annual guidance and update such guidance when we think it is appropriate, unanticipated future volatility can cause actual results
to vary significantly from our guidance, even where that guidance reflects a range of possible results.
Risks
Related to Our Relationships with Content Providers, Customers and Other Third Parties
The
long-term nature of certain of our content commitments may limit our operating flexibility and could adversely affect our liquidity and
results of operations.
In
connection with licensing streaming content, we typically enter into multi-year agreements with content providers. These agreements have
sometimes required us to pay minimum license fees for content that are not tied to subscriber usage or the size of our subscriber base.
Given the multiple-year duration and sometimes fixed cost nature of content commitments, if subscriber acquisition and retention do not
meet our expectations, our margins may be adversely impacted, and we may not be in a position to make the minimum guarantee payments
required under certain content licenses. We have already failed to make minimum guarantee payments to certain key programmers and may
not be in a position to make similar payments in the future. If we do not make these payments, then we may lose access to such content,
which in turn may further depress subscriber acquisition or retention, cause other programmers to exercise termination rights due to
the content mix available through our service, or impact our ability to obtain content from other programmers.
Payment
terms for certain content commitments, such as content we directly produce, will typically require more up-front cash payments than other
content licenses or arrangements whereby we do not fund the production of such content.
To
the extent subscriber and/or revenue growth do not meet our expectations, our liquidity and results of operations could be adversely
affected as a result of content commitments and payment requirements of certain agreements. In addition, the long-term and fixed cost
nature of certain of our commitments may limit our flexibility in planning for or reacting to changes in our business and the
market segments in which we operate. If we license and/or produce content that is not favorably received by consumers in a territory,
or is unable to be shown in a territory, acquisition and retention may be adversely impacted and given the long-term and fixed cost nature
of certain of our content commitments, we may not be able to adjust our content offering quickly and our results of operations may be
adversely impacted.
If
we fail to obtain or maintain popular content, we may fail to retain existing subscribers and attract new subscribers.
We
have invested a significant amount of time to cultivate relationships with our content providers; however, such relationships may not
continue to grow or yield further financial results. We must continuously maintain existing relationships and identify and establish
new relationships with content providers to provide popular content. In order to remain competitive, we must consistently meet user demand
for popular streaming channels and content. If we are not successful in maintaining channels on our platform that attract and retain
a significant number of subscribers, or if we are not able to do so in a cost-effective manner, our business will be harmed.
If
our efforts to attract and retain subscribers are not successful, our business will be adversely affected.
We
have experienced significant subscriber growth over the past several years. Our ability to continue to attract subscribers will depend
in part on our ability to consistently provide our subscribers with compelling content choices and effectively market our platform. Furthermore,
the relative service levels, content offerings, pricing and related features of our competitors may adversely impact our ability to attract
and retain subscribers. In addition, many of our subscribers re-join our platform or originate from word-of-mouth referrals from existing
subscribers. If our efforts to satisfy our existing subscribers are not successful, we may not be able to attract subscribers, and as
a result, our ability to maintain and/or grow our business will be adversely affected. If consumers perceive a reduction in the value
of our platform because, for example, we introduce new or adjust existing features, adjust pricing or platform offerings, or change the
mix of content in a manner that is not favorably received by them, we may not be able to attract and retain subscribers. Subscribers
cancel their subscription for many reasons, including due to a perception that they do not use the platform sufficiently, the need to
cut household expenses, availability of content is unsatisfactory, competitive services provide a better value or experience and customer
service issues are not satisfactorily resolved. We must continually add new subscriptions both to replace cancelled subscriptions and
to grow our business beyond our current subscription base. While we permit multiple subscribers within the same household to share a
single account for non-commercial purposes, if account sharing is abused, our ability to add new subscribers may be hindered and our
results of operations may be adversely impacted. If we do not grow as expected, given, in particular, that our content costs are largely
fixed in nature and contracted over several years, we may not be able to adjust our expenditures or increase our (per subscriber) revenues
commensurate with the lowered growth rate such that our margins, liquidity and results of operations may be adversely impacted. If we
are unable to successfully compete with current and new competitors in both retaining our existing subscribers and attracting new subscribers,
our business will be adversely affected. Further, if excessive numbers of subscribers cancel our service, we may be required to incur
significantly higher marketing expenditures than we currently anticipate replacing these subscribers with new subscribers.
Our
agreements with distribution partners contain parity obligations which limit our ability to pursue unique partnerships.
Our
agreements with certain distribution partners contain obligations which require us to offer them the same technical features, content,
pricing and packages that we make available to our other distribution partners and also require us to provide parity in the marketing
of the availability of our application across our distribution partners. These parity obligations may limit our ability to pursue technological
innovation or partnerships with individual distribution partners and may limit our capacity to negotiate favorable transactions with
different partners or otherwise provide improved products and services. As our technical feature developments progress at varying speeds
and at different times with different distribution partners, we currently offer some enhanced technical features on distribution platforms
that we do not make available on other distribution platforms, which limits the quality and uniformity of our offering to all consumers
across our distribution platforms. In addition, delays in technical developments across our distribution partners puts us at risk of
breaching our parity obligations with such distribution platforms, which threatens the certainty of our agreements with distribution
partners.
If
we are unable to maintain an adequate supply of ad inventory on our platform, our business may be harmed.
We
may fail to attract content providers that generate sufficient ad content hours on our platform and continue to grow our video ad inventory.
Our business model depends on our ability to grow video ad inventory on our platform and sell it to advertisers. We grow ad inventory
by adding and retaining content providers on our platform with ad-supported channels that we can monetize. If we are unable to grow and
maintain a sufficient supply of quality video advertising inventory at reasonable costs to keep up with demand, our business may be harmed.
We
operate in a highly competitive industry, and we compete for advertising revenue with other internet streaming platforms and services,
as well as traditional media, such as radio, broadcast, cable and satellite TV and satellite and Internet radio. We may not be successful
in maintaining or improving our fill-rates or cost per thousand (“CPMs”).
Our
competitors offer content and other advertising mediums that may be more attractive to advertisers than our TV streaming platform. These
competitors are often very large and have more advertising experience and financial resources than we do, which may adversely affect
our ability to compete for advertisers and may result in lower revenue and gross profit from advertising. If we are unable to increase
our advertising revenue by, among other things, continuing to improve our platform’s data capabilities to further optimize and
measure advertisers’ campaigns, increase our advertising inventory and expand our advertising sales team and programmatic capabilities,
our business and our growth prospects may be harmed. We may not be able to compete effectively or adapt to any such changes or trends,
which would harm our ability to grow our advertising revenue and harm our business.
If
content providers refuse to license streaming content or other rights upon terms acceptable to us, our business could be adversely affected.
Our
ability to provide our subscribers with content they can watch depends on content providers and other rights holders licensing rights,
including distribution rights, to such content and certain related elements thereof, such as the public performance of music contained
within the content we distribute. The license periods and the terms and conditions of such licenses vary, and we may be operating outside
the terms of some of our current licenses. As content providers develop their own streaming services, they may be unwilling to provide
us with access to certain content, including popular series or movies. If the content providers and other rights holders are not or are
no longer willing or able to license us content upon terms acceptable to us, our ability to stream content to our subscribers may be
adversely affected and/or our costs could increase. Because of these provisions as well as other actions we may take, content available
through our service can be withdrawn on short notice. As competition increases, we see the cost of certain programming increase.
Further,
if we do not maintain a compelling mix of content, our subscriber acquisition and retention may be adversely affected.
Our
content providers impose a number of restrictions on how we distribute and market our products and services, which can adversely affect
our business.
A
number of our major content partners impose significant restrictions on how we can distribute and market our products and services. For
example, our content partners may prevent us from partnering with third party distributors and manufacturers to exploit new market opportunities
or prevent us from bundling or reselling our products with third party products and services, or otherwise restrict how we might brand
or market our products and services. Our content partners also impose restrictions on the content and composition of the packages we
can make available to our customers and restrictions on how we might make some or all of our content available to customers (such as
on a standalone basis, length of free trials or access modified or shorter form content). These restrictions may prevent us from responding
dynamically to changing customer expectations or market demands or exploiting lucrative partnership opportunities. Content providers
may also restrict the advertising that may be made available in connection with their content, including restrictions on the content
and timing of such advertising, and restrictions on how advertising may be sold (such as a limit to sale on an aggregated, non-content
specific basis only), which limits our opportunity to exploit potentially lucrative revenue streams.
Content
providers may also only provide their content on a service that includes a minimum number of channels from other providers or
require that we only provide their content in specific service tiers that include a specific mix of programming. Certain provisions
in these agreements could become a challenge to comply with if we were to lose rights under agreements with key
programmers.
In
addition, our content partners generally impose requirements on us to treat them at least as favorably as other major providers in various
ways, such as equal treatment with respect to content recommendations, displays on user interfaces, the marketing and promotion of content
and streaming quality standards. This may materially restrict the functionality and performance of our technology, particularly our proprietary
recommendation engine. This may also prevent us from offering commercial benefits to certain content providers, limiting our capacity
to negotiate favorable transactions and overall limiting our ability to provide improved products and services.
Our
agreements with content providers are complex, with various rights restrictions and favorability obligations which impose onerous compliance
obligations.
The
content rights granted to us are complex and multi-layered and differ substantially across different content and content providers. We
may be able to make certain content available on a video-on-demand basis or on certain devices but may be restricted from doing the same
with other content, sometimes even with the same content provider. We are often not able to make certain content available at certain
times or in certain geographical regions. In addition, our obligations to provide equality in the treatment between certain content providers
require us to continuously monitor and assess treatment of content providers and content across our products and services.
These
complex restrictions and requirements impose a significant compliance burden which is costly and challenging to maintain. A failure to
maintain these obligations places us at risk of breaching our agreements with content providers, which could lead to loss of content
and damages claims, which would have a negative impact on our products and service and our financial position.
If
our efforts to build a strong brand and to maintain customer satisfaction and loyalty are not successful, we may not be able to attract
or retain subscribers, and our business may be harmed.
Building
and maintaining a strong brand is important to our ability to attract and retain subscribers, as potential subscribers have a number
of TV streaming choices. Successfully building a brand is a time-consuming and comprehensive endeavor and can be positively and negatively
impacted by any number of factors. Some of these factors, such as the quality or pricing of our platform or our customer service, are
within our control. Other factors, such as the quality of the content that our content publishers provide, may be out of our control,
yet subscribers may nonetheless attribute those factors to us. Our competitors may be able to achieve and maintain brand awareness and
market share more quickly and effectively than we can. Many of our competitors are larger companies and promote their brands through
traditional forms of advertising, such as print media and TV commercials, and have substantial resources to devote to such efforts. Our
competitors may also have greater resources to utilize Internet advertising or website product placement more effectively than we can.
If we are unable to execute on building a strong brand, it may be difficult to differentiate our business and platform from our competitors
in the marketplace; therefore, our ability to attract and retain subscribers may be adversely affected and our business may be harmed.
We
rely upon a number of partners to make our service available on their devices.
We
currently offer subscribers the ability to receive streaming content through a host of Internet-connected screens, including TVs, digital
video players, television set-top boxes and mobile devices. Some of our agreements with key distribution partners give distribution partners
the ability to terminate their carriage of our service at any time. If we are not successful in maintaining existing and creating new
relationships, or if we encounter technological, content licensing, regulatory, business or other impediments to delivering our streaming
content to our subscribers via these devices, our ability to retain subscribers and grow our business could be adversely impacted.
Our
business could be adversely affected if a number of our partners do not continue to provide access to our service or are unwilling to
do so on terms acceptable to us, which terms may include the degree of accessibility and prominence of our service. Furthermore, devices
are manufactured and sold by entities other than fuboTV, and while these entities should be responsible for the devices’ performance,
the connection between these devices and fuboTV may nonetheless result in consumer dissatisfaction toward fuboTV and such dissatisfaction
could result in claims against us or otherwise adversely impact our business. In addition, technology changes to our streaming functionality
may require that partners update their devices or may lead us to stop supporting the delivery of our service on certain legacy devices.
If partners do not update or otherwise modify their devices, or if we discontinue support for certain devices, our service and our subscribers’
use and enjoyment could be negatively impacted.
We
rely upon Google Cloud Platform and Amazon Web Services to operate certain aspects of our service, and any disruption of or interference
with our use of Google Cloud Platform and/or Amazon Web Services would impact our operations and our business would be adversely impacted.
Each
of Google Cloud Platform, or GCP, and Amazon Web Services, or AWS, provides a distributed computing infrastructure platform for business
operations, or what is commonly referred to as a “cloud” computing service. We have architected our software and computer
systems so as to utilize data processing, storage capabilities and other services provided by both GCP and AWS. Currently, we run the
vast majority of our computing on GCP with some key components running on AWS. Given this, along with the fact that we cannot easily
switch what is specifically running now on GCP and/or AWS to another cloud provider, any disruption of or interference with our use of
GCP and/or AWS would impact our operations, and our business would be adversely impacted. Google (through YouTube TV) and, to a lesser
extent, Amazon (through Amazon Prime) compete with us and, if Google or Amazon were to use GCP or AWS, respectively, in such a manner
as to gain competitive advantage against our service, it could harm our business.
Risks
Related to Our Financial Reporting and Disclosure
We
identified material weaknesses in our internal control over financial reporting in 2019 and 2020 and while we continue to take steps
to address the internal control deficiencies that contributed to the material weaknesses, a material weakness in our internal control
over financial reporting still exists as it relates to non-routine transactions. We may identify material weaknesses in the future or
otherwise fail to maintain an effective system of internal controls, which could lead investors to lose confidence in the accuracy and
completeness of our financial reports.
As
a public company, we are required to maintain internal control over financial reporting and to report any material weaknesses in such
internal control. Section 404 of the Sarbanes-Oxley Act of 2002 requires that we evaluate and determine the effectiveness of our internal
control over financial reporting. This assessment includes disclosure of any material weaknesses identified by our management in our
internal control over financial reporting. Our independent registered public accounting firm will not be required to attest to the effectiveness
of our internal control over financial reporting until our first annual report required to be filed with the SEC following the later
of the date we are deemed to be an “accelerated filer” or a “large accelerated filer,” each as defined in the
Exchange Act. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such
that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented
or detected on a timely basis.
During
2020, we identified the following material weaknesses in our internal control over financial reporting with respect to the accounting
for business combinations:
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We
did not have appropriately designed internal controls in place at the time the Merger was consummated on April 1, 2020 with respect
to the accounting for the business combination and the allocation of consideration to the acquired assets and assumed liabilities,
including deferred income taxes; and
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Our
internal controls over the review of accounting considerations for non-routine transactions and events were not appropriately designed
with respect to the timing and consistency of performance.
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In
February 2021, the Company consummated the acquisition of a sports betting and interactive gaming company. Management took steps to address
the internal control deficiencies that contributed to the foregoing material weaknesses, including:
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Extensive
financial and legal due diligence performed by various members of the Company and outside legal counsel. Board of Directors reviewed
the strategic business case and formally approved the transaction;
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Key
model assumptions were supported by detailed documentation of the reasonableness of the assumptions used;
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Evaluated
the competency of the valuation specialist engaged to determine the fair value of specific accounts on the opening balance sheet;
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Existence
and completeness of assets acquired, and liabilities assumed as of the closing date were determined through specific procedures;
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Comprehensive
technical accounting memo was prepared that documents the applicable accounting for business combinations; and
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The
income tax impact of the acquisition was assessed and documented
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In
addition, during 2019, we identified additional material weaknesses in our internal control over financial reporting relating to the
inappropriate application of U.S. GAAP and are undertaking remediation efforts with respect to these material weaknesses. While we believe
that these efforts will improve our internal control over financial reporting, the implementation of these measures is ongoing and will
require validation and testing of the design and operating effectiveness of internal controls over a sustained period of financial reporting
cycles. We cannot assure you that the measures we have taken to date, and are continuing to implement, will be sufficient to remediate
the material weaknesses we have identified or avoid potential future material weaknesses. If the steps we take do not correct the material
weaknesses in a timely manner, we will be unable to conclude that we maintain effective internal controls over financial reporting. Accordingly,
there could continue to be a reasonable possibility that these deficiencies or others could result in a misstatement of our accounts
or disclosures that would result in a material misstatement of our financial statements that would not be prevented or detected on a
timely basis.
The
process of designing and implementing internal control over financial reporting required to comply with Section 404 of the Sarbanes-Oxley
Act is time consuming, costly, and complicated. If during the evaluation and testing process we identify one or more other material weaknesses
in our internal control over financial reporting or determine that existing material weaknesses have not been remediated, our management
will be unable to assert that our internal control over financial reporting is effective. Even if our management concludes that our internal
control over financial reporting is effective, our independent registered public accounting firm may conclude that there are material
weaknesses with respect to our internal controls or the level at which our internal controls are documented, designed, implemented, or
reviewed. If we are unable to assert that our internal control over financial reporting is effective, or when required in the future,
if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control
over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of
our common stock could be adversely affected and we could become subject to litigation or investigations by the stock exchange on which
our securities are listed, the SEC or other regulatory authorities, which could require additional financial and management resources.
Our
actual operating results may differ significantly from our guidance.
From
time to time, we may release guidance regarding our future performance. Such guidance is based upon a number of assumptions and estimates
that, although presented with numerical specificity, are inherently subject to business, economic and competitive uncertainties and contingencies,
many of which are beyond our control and are based upon specific assumptions with respect to future business decisions, some of which
will change. The principal reason that we release this data is to provide a basis for our management to discuss our business outlook
with analysts and investors. We do not accept any responsibility for any projections or reports published by any third parties.
Guidance
is necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the guidance furnished by
us will not materialize or will vary significantly from actual results. Accordingly, our guidance is only an estimate of what management
believes is realizable as of the date of this prospectus. Any failure to successfully implement our operating strategy or the occurrence
of any of the risks or uncertainties set forth in this prospectus could result in actual results being different than the guidance, and
such differences may be adverse and material. In light of the foregoing, investors are urged to put the guidance in context and not to
place undue reliance on it.
If
we fail to comply with the reporting obligations of the Exchange Act, our business, financial condition, and results of operations, and
investors’ confidence in us, could be materially and adversely affected.
As
a public company, we are required to comply with the periodic reporting obligations of the Exchange Act, including preparing annual reports,
quarterly reports, and current reports. In the past, we have failed to prepare and disclose this information in a timely manner. Our
failure to prepare and disclose this information in a timely manner and meet our reporting obligations in their entirety could subject
us to penalties under federal securities laws and regulations of the exchange we are listed on, expose us to lawsuits, and restrict our
ability to access financing on favorable terms, or at all.
Prior
to the Merger, fuboTV Pre-Merger was not a public company and FaceBank Pre-Merger had limited resources. Our management has faced significant
challenges in consolidating the functions of fuboTV Pre-Merger and FaceBank Pre-Merger and their subsidiaries, including integrating
their technologies, organizations, procedures, policies and operations. In connection with the Merger, we have been working to integrate
certain operations of fuboTV Pre-Merger and FaceBank Pre-Merger, including, among other things, back-office operations, information technology
and regulatory compliance.
We
expect to experience significant growth in the number of our employees and the scope of our operations. Prior to such expansion, as a
result of previously maintaining a limited staff, we may later determine that certain related party transactions were not properly identified,
reviewed and approved prior to us entering into them with such related parties.
As
we seek to increase staffing levels to manage our anticipated future growth, we must continue to implement and improve our managerial,
operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Due to our
limited financial resources and our limited experience in managing such anticipated growth, we may not be able to effectively manage
the expansion of our operations or recruit and train additional qualified personnel. The expansion of our operations may lead to significant
costs and may divert or stretch our management and business development resources in a way that we may not anticipate. Any inability
to manage growth could delay the execution of our business plans or disrupt our operations.
Additionally,
for certain of our recent Exchange Act filings, we have relied on an order (the “Order”) issued by the SEC pursuant to Section
36 of the Exchange Act (Release No. 34-88465), permitting filing extensions to certain public companies based on the COVID-19 pandemic.
We relied upon this permissible extension in good faith after analyzing, among other things, the fact that our books and records were
not easily accessible, which resulted in delays in preparation and completion of our financial statements, and that the various governmental
mandatory closures of businesses have precluded our personnel, particularly our senior accounting staff, from obtaining access to our
subsidiaries’ books and records necessary to prepare our financial statements. Following this analysis, we believe that we satisfied
all eligibility criteria to take advantage of these extensions. If it is later determined that we were ineligible to rely upon the Order
for such extensions, our filings could be deemed to be late, which could have a material adverse effect on our ability to raise capital,
which could have a material adverse effect on our business, results of operations, and financial condition.
We
will need to improve our operational and financial systems to support our expected growth, increasingly complex business arrangements,
and rules governing revenue and expense recognition, and any inability to do so could adversely affect our billing services and financial
reporting.
We
have increasingly complex business arrangements with our content publishers and licensees, and the rules that govern revenue and expense
recognition in our business are increasingly complex. To manage the expected growth of our operations and increasing complexity, we will
need to improve our operational and financial systems, procedures and controls and continue to increase systems automation to reduce
reliance on manual operations. Any inability to do so will negatively affect our billing services and financial reporting. Our current
and planned systems, procedures and controls may not be adequate to support our complex arrangements and the rules governing revenue
and expense recognition for our future operations and expected growth. Delays or problems associated with any improvement or expansion
of our operational and financial systems and controls could adversely affect our relationships with our subscribers, content publishers
or licensees; cause harm to our reputation and brand; and could also result in errors in our financial and other reporting.
Our
key metrics and other estimates are subject to inherent challenges in measurement, and real or perceived inaccuracies in those metrics
may seriously harm and negatively affect our reputation and our business.
We
regularly review key metrics related to the operation of our business, including, but not limited to Content Hours, Monthly Active Users
(“MAU”), Monthly Content Hours Watched per MAU, ARPU, and number of subscribers, to evaluate growth trends, measure our performance,
and make strategic decisions. These metrics are calculated using internal company data and have not been validated by an independent
third party. While these numbers are based on what we believe to be reasonable estimates of our subscriber base for the applicable period
of measurement, there are inherent challenges in measuring how our platform is used across large populations.
Errors
or inaccuracies in our metrics or data could result in incorrect business decisions and inefficiencies. For instance, if a significant
understatement or overstatement of MAUs were to occur, we may expend resources to implement unnecessary business measures or fail to
take required actions to attract a sufficient number of subscribers to satisfy our growth strategies.
In
addition, advertisers generally rely on third-party measurement services to calculate our metrics, and these third-party measurement
services may not reflect our true audience. If advertisers, partners, or investors do not perceive our subscriber, geographic, or other
demographic metrics to be accurate representations of our subscriber base, or if we discover material inaccuracies in our subscriber,
geographic, or other demographic metrics, our reputation may be seriously harmed, and our business and operating results could be materially
and adversely affected.
Preparing
and forecasting our financial results requires us to make judgments and estimates which may differ materially from actual results, and
if our operating and financial performance does not meet the guidance that we provide to the public, the market price of our common stock
may decline.
The
preparation of consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities
at the date of the financial statements, and the reported amounts of revenues and expenses during the reported periods. We base such
estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, but actual
results may differ from these estimates. Using such estimates has the potential to negatively impact the results we report which could
negatively impact our stock price.
In
addition, we may, but are not obligated to, provide public guidance on our expected operating and financial results for future periods.
Any such guidance will be comprised of forward-looking statements subject to the risks and uncertainties described in this prospectus
and in our other public filings and public statements. Our actual results may not always be in line with or exceed any guidance we have
provided, especially in times of economic uncertainty. If, in the future, our operating or financial results for a particular period
do not meet any guidance we provide or the expectations of investment analysts, or if we reduce our guidance for future periods, the
market price of our common stock may decline.
Risks
Related to Our Products and Technologies
TV
streaming is highly competitive and many companies, including large technology and entertainment companies, TV brands, and service operators,
are actively focusing on this industry. If we fail to differentiate ourselves and compete successfully with these companies, it will
be difficult for us to attract or retain subscribers and our business will be harmed.
TV
streaming is increasingly competitive and global. Our success depends in part on attracting and retaining subscribers on, and effective
monetization of, our platform. To attract and retain subscribers, we need to be able to respond efficiently to changes in consumer tastes
and preferences and continue to increase the type and number of content offerings. Effective monetization requires us to continue to
update the features and functionality of our streaming platform for subscribers and advertisers.
Companies
such as AT&T, Comcast, Cablevision, Cox and Altice, along with vMVPDs, such as YouTube TV, Hulu Live and Sling TV offer TV streaming
products that compete with our platform. In many cases, these competitors have the financial resources to subsidize the cost of their
streaming devices in order to promote their other products and services making it harder for us to acquire new subscribers and increase
hours streamed. Similarly, some service operators, such as Comcast and Cablevision, offer TV streaming applications as part of their
cable service plans and can leverage their existing consumer bases, installation networks, broadband delivery networks and name recognition
to gain traction in the TV streaming market. Some of these companies also promote their brands through traditional forms of advertising,
such as TV commercials, as well as Internet advertising or website product placement, and have greater resources than us to devote to
such efforts.
In
addition, many TV brands, such as LG, Samsung Electronics Co., Ltd. and VIZIO, Inc., offer their own TV streaming solutions within their
TVs. Other devices, such as Microsoft’s Xbox and Sony’s PlayStation game consoles and many DVD and Blu-ray players, also
incorporate TV streaming functionality.
We
expect competition in TV streaming from the large technology companies and service operators described above, as well as new and growing
companies, to increase in the future. This increased competition could result in pricing pressure, lower revenue and gross profit or
the failure of our platform to gain or maintain broad market acceptance. To remain competitive, we need to continuously invest in product
development and marketing. We may not have sufficient resources to continue to make the investments needed to maintain our competitive
position. In addition, many of our competitors have longer operating histories, greater name recognition, larger customer bases and significantly
greater financial, technical, sales, marketing and other resources than us, which provide them with advantages in developing, marketing
or servicing new products and offerings. As a result, they may be able to respond more quickly to market demand, devote greater resources
to the development, promotion and sales of their products or the distribution of their content, and influence market acceptance of their
products better than we can. These competitors may also be able to adapt more quickly to new or emerging technologies or standards and
may be able to deliver products and services at a lower cost. New entrants may enter the TV streaming market with unique service offerings
or approaches to providing video. In addition, our competitors may enter into business combinations or alliances that strengthen their
competitive positions. Increased competition could reduce our market share, revenue and operating margins, increase our operating costs,
harm our competitive position and otherwise harm our business.
If
the advertisements on our platform are not relevant or not engaging to our subscribers, our growth in active accounts and hours streamed
may be adversely impacted.
We
have made, and are continuing to make, investments to enable advertisers to deliver relevant advertising content to subscribers on our
platform. Existing and prospective advertisers may not be successful in serving ads that lead to and maintain user engagement. Those
ads may seem irrelevant, repetitive or overly targeted and intrusive. We are continuously seeking to balance the objectives of our subscribers
and advertisers with our desire to provide an optimal user experience, but we may not be successful in achieving a balance that continues
to attract and retain subscribers and advertisers. If we do not introduce relevant advertisements or such advertisements are overly intrusive
and impede the use of our TV streaming platform, our subscribers may stop using our platform which will harm our business.
We
may not be successful at expanding our content to areas outside our current content offering and even if we are able to expand into other
content areas and sustain such expansion, we may not be successful in overcoming our reputation as primarily a live sports streaming
service.
We
currently have a reputation as primarily a live sports streaming service. We are making efforts to expand our content offerings outside
live sports streaming, and currently offer a wide selection of news and entertainment content. However, we may not be successful at expanding
our content to areas outside our current content offering, or maintaining content from our current content offering, and even if we are
able to expand into other content areas and sustain such expansion, we may not be successful in overcoming our reputation as primarily
a live sports streaming service.
If
TV streaming develops more slowly than we expect, our operating results and growth prospects could be harmed. In addition, our future
growth depends in part on the growth of TV streaming advertising.
TV
streaming is a relatively new and rapidly evolving industry, making our business and prospects difficult to evaluate. The growth and
profitability of this industry and the level of demand and market acceptance for our platform are subject to a high degree of uncertainty.
We
believe that the continued growth of streaming as an entertainment alternative will depend on the availability and growth of cost-effective
broadband Internet service, the quality of broadband content delivery, the quality and reliability of new devices and technology, the
cost for subscribers relative to other sources of content, as well as the quality and breadth of content that is delivered across streaming
platforms. These technologies, products and content offerings continue to emerge and evolve. Subscribers, content publishers or advertisers
may find TV streaming platforms to be less attractive than traditional TV, which would harm our business. In addition, many advertisers
continue to devote a substantial portion of their advertising budgets to traditional advertising, such as TV, radio and print. The future
growth of our business depends in part on the growth of TV streaming advertising, and on advertisers increasing spend on such advertising.
We cannot be certain that they will do so. If advertisers do not perceive meaningful benefits of TV streaming advertising, then this
market may develop more slowly than we expect, which could adversely impact our operating results and our ability to grow our business.
Changes
in competitive offerings for entertainment video, including the potential rapid adoption of piracy-based video offerings, could adversely
impact our business.
The
market for entertainment video is intensely competitive and subject to rapid change. Through new and existing distribution channels,
consumers have increasing options to access entertainment video. The various economic models underlying these channels include subscription,
transactional, ad-supported, and piracy-based models. All of these have the potential to capture meaningful segments of the entertainment
video market. Piracy in particular, threatens to damage our business, as its fundamental proposition to consumers is so compelling and
difficult to compete against: virtually all content for free. Furthermore, in light of the compelling consumer proposition, piracy services
are subject to rapid global growth. Traditional providers of entertainment video, including broadcasters and cable network operators,
as well as Internet based e-commerce or entertainment video providers are increasing their streaming video offerings.
Several
of these competitors have long operating histories, large customer bases, strong brand recognition, exclusive rights to certain content
and significant financial, marketing and other resources. They may secure better terms from suppliers, adopt more aggressive pricing
and devote more resources to product development, technology, infrastructure, content acquisitions and marketing. New entrants may enter
the market or existing providers may adjust their services with unique offerings or approaches to providing entertainment video. Companies
also may enter into business combinations or alliances that strengthen their competitive positions. If we are unable to successfully
compete with current and new competitors, our business will be adversely affected, and we may not be able to increase or maintain market
share or revenues.
Our
products and services related to sports betting will cause our business to become subject to a variety of related U.S. and foreign laws,
many of which are unsettled and still developing, and which could subject us to claims or otherwise harm our business. The violation
of any such laws, any adverse change in any such laws or their interpretation, or the regulatory climate applicable to these contemplated
products and services, or changes in tax rules and regulations or interpretation thereof related to these contemplated products and services,
could adversely impact our ability to operate our business as we seek to operate in the future, and could have a material adverse effect
on our financial condition and results of operations.
The
intended expansion of our business into sports betting will generally subject us to the laws and regulations of the jurisdictions
in which we will conduct our business or in some circumstances, of those jurisdictions in which our services are offered or are available,
as well as the general laws and regulations that apply to all e-commerce businesses, such as those related to privacy and personal information,
tax and consumer protection. These laws and regulations vary from one jurisdiction to another and future legislative and regulatory action,
court decisions or other governmental action, which may be affected by, among other things, political pressures, attitudes and climates,
as well as personal biases, may (along with existing laws and regulations) have a material adverse impact on our operations and financial
results, or may prevent us from expanding into such businesses entirely. In particular, some jurisdictions have introduced regulations
attempting to restrict or prohibit online gaming, while others have taken the position that online gaming should be licensed and regulated
and have adopted or are in the process of considering legislation and regulations to enable that to happen. There is also risk that the
federal government of the U.S. will enact new legislation relating to gaming, online gaming or sports wagering, or alter its interpretation
of existing federal law as related to gaming, online gaming or sports wagering, which would have the effect of the limiting, delaying
or halting the expansion of online gaming or sports wagering throughout the U.S.
Our
growth prospects may also depend on the legal status of real-money gaming in various jurisdictions, predominantly within the U.S., which
is an initial area of focus, and legalization may not occur in as many states as we expect or may occur at a slower pace than we anticipate.
Additionally, even if jurisdictions legalize real money gaming, this may be accompanied by legislative or regulatory restrictions and/or
taxes that make it impracticable or less attractive to operate in those jurisdictions, or the process of implementing regulations or
securing the necessary licenses to operate in a particular jurisdiction may take longer than we anticipate, which could adversely affect
our future results of operations and make it more difficult to meet our expectations for financial performance.
In
connection with the foregoing, future legislative and regulatory action, and court decisions or other governmental action, may have a
material adverse impact on our operations and financial results. Governmental authorities could view us as having violated applicable
laws, despite efforts to obtain all applicable licenses or approvals and otherwise comply with such laws. There is also a risk that civil
and criminal proceedings, including class actions brought by or on behalf of prosecutors or public entities or incumbent monopoly providers,
or private individuals, could be initiated against us, Internet service providers, credit card and other payment processors, advertisers
and others involved in the sports betting industry who partner with, service or work with or for us. Such potential proceedings could
involve substantial litigation expense, penalties, fines, seizure of assets, injunctions or other restrictions being imposed upon us
or our licensees or other business partners, while diverting the attention of key executives. Such proceedings could have a material
adverse effect on our business, financial condition, results of operations, and prospects, as well as impact our reputation.
Furthermore,
there can be no assurance that legally enforceable legislation will not be proposed and passed in jurisdictions relevant or potentially
relevant to our business to prohibit, legislate or regulate various aspects of the sports betting industry (or that existing laws in
those jurisdictions will not be interpreted negatively). Compliance with any such legislation may have a material adverse effect on our
business, financial condition and results of operations, either as a result of our determination not to offer products or services in
a jurisdiction or to cease doing so, or because a local license or approval may be costly for us or our business partners to obtain and/or
such licenses or approvals may contain other commercially undesirable conditions.
Our
anticipated participation in the sports betting industry may expose us to risks to which we have not previously been exposed, including
risks related to trading, liability management, pricing risk, payment processing, palpable errors, and reliance on third-party sports
data providers for real-time and accurate data for sporting events, among others. We may experience lower than expected profitability
and potentially significant losses as a result of a failure to determine accurately the odds in relation to any particular event and/or
any failure of its sports risk management processes.
Participation
in the sports, sports betting industry will expose our business to new risks that we have limited experience in handling. The nature
and extent of such risks may be difficult to anticipate at this time, and therefore we may be relatively unprepared to manage these risks
or may obtain inadequate insurance to cover potential claims resulting from these risks.
Examples
of these risks include:
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There
can be significant variation in gross win percentage event-by-event and day-by-day, and odds compilers and risk managers are capable
of human error; thus even allowing for the fact that a number of betting products are subject to capped pay-outs, significant volatility
can occur. In addition, it is possible that there may be such a high volume of trading during any particular period that even automated
systems would be unable to address and eradicate all risks.
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some cases, the odds offered on a website constitute an obvious error, such as inverted lines between teams, or odds that are significantly
different from the true odds of the outcome in a way that all reasonable persons would agree is an error. It is commonplace virtually
worldwide for operators to void bets associated with such palpable errors, and in most mature jurisdictions these bets can be voided
without regulatory approval at operator discretion, but in the U.S., it is unclear long term if state regulators will consistently
approve voids or re-setting odds to correct odds on such bets, and in some cases, we may require regulatory approval to void palpable
errors ahead of time. If regulators were to not allow voiding of bets associated with large obvious errors in odds making, we could
be subject to covering significant liabilities.
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We
may need to rely on other third-party sports data providers for real-time and accurate data for sporting events, and if such third
parties do not perform adequately or terminate their relationships with us, our costs may increase and our business, financial condition
and results of operations could be adversely affected.
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Our
ability to offer products and services related to sports wagering will be dependent on the occurrence of a wide-variety of professional,
collegiate and potentially amateur sporting events upon which wagers may be offered, subject to the laws and regulations of
the jurisdictions in which we operate. The cancellation or postponement of such sporting events due to pandemic, government action
or labor dispute could consequently limit our ability to offer our sports wagering products or services.
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Any
of the foregoing risks, or other risks we fail to anticipate as we expand our business into the sports betting industry, could expose
us to significant liability or have a material adverse effect on our business, financial condition and results of operations.
Our
future sports betting business depends on our ability to gain market access in states as such states legalize sports wagering activities,
the inability to gain such market access could have negative impacts on our future growth.
The
prevailing trend in the U.S. is for states to require sports wagering to be conducted by or through an existing licensed casino or racetrack
or otherwise through a relationship with a professional sports team/venue. In such states where mobile or internet-based sports
wagering is legal, each casino, racetrack or professional sports team/venue often is permitted to offer sports
wagering through a limited number of branded websites, known as skins. The number of skins each casino, racetrack or
professional sports team/venue is permitted to offer varies by state and is dictated by law, regulation, or policy.
Casinos, racetracks and professional sports teams/venues have, accordingly, begun to enter into agreements to allow
third-party sports wagering operators to operate skins through the casino’s or racetrack’s license or otherwise
through a license or approval issued to a professional sports team/venue. Further, certain of these agreements provide for a
sports wagering operator to obtain “second skin” or “third skin” access, meaning that another operator has
the right to operate the first, and potentially the second, skin of a casino, racetrack or professional sports team/venue to
the extent permitted by law. Consequently, if a state does not permit casinos, racetracks or professional sports
teams/venues to have more than one skin (or more than two skins as the case may be), an operator’s right to utilize a
second (or third skin as the case may be) is rendered meaningless in such state. We may enter into agreements allowing us market
access via the right to operate specific skins. Certain of these agreements may contemplate us receiving second or third skins.
Accordingly, should states not permit our future casino, racetrack or professional sports team/venue partners to offer sports
wagering through an adequate number of skins, we would not have access to such markets (unless we enter into additional agreements
for market access). Our inability to gain access to offer mobile and internet sports wagering in states as such states legalize
sports wagering could have a material adverse effect on our business.
Our
business depends on the ongoing support of payment processors, the quality and cost of which may be variable in certain jurisdictions.
Our
sports wagering business will depend on payment processing providers to facilitate the movement of funds between our sportsbook and our
customer base. Anything that could interfere with or otherwise harm the relationships with payment service providers could have a material
adverse effect on our businesses. Our ability to accept payments from our customers or facilitate withdrawals by them may be restricted
by any introduction of legislation or regulations restricting financial transactions with online or mobile sports wagering operators
or prohibiting the use of credit cards and other banking instruments for online or mobile sports wagering transactions, or by any other
increase in the stringency of regulation of financial transactions, whether in general or in relation to the gambling industry in particular.
Stricter
money laundering regulations may also affect the quickness and accessibility of payment processing systems, resulting in added inconvenience
to customers. Card issuers and acquirers may dictate how transactions and products need to be coded and treated which could also make
an impact on acceptance rates. Card issuers, acquirers, payment processors and banks may also cease to process transactions relating
to the online or mobile sports wagering industry as a whole or as to certain operators. This would be due to reputational and/or regulatory
reasons or in light of increased compliance standards of such third parties that seek to limit their business relationships with certain
industry sectors considered as “high risk” sectors. It may also result in customers being dissuaded from accessing our product
offerings if they cannot use a preferred payment option or the quality or the speed of the supply is not suitable or accessible. Any
such developments may have a material and adverse effect on our future financial position.
Our
sports betting business may experience significant losses with respect to individual events or betting outcomes.
Our
sports betting fixed-odds betting products will involve betting where winnings are paid on the basis of the stake placed and the odds
quoted. Odds are determined with the objective of providing an average return to the bookmaker over a large number of events and therefore,
over the long term. In contrast, there can be significant variation in gross win percentage event-by-event and day-by-day. We will have
systems and controls seeking to reduce the risk of daily losses occurring on a gross-win basis, but there can be no assurance that these
will be effective in reducing their exposure, and consequently, our exposure to this potential risk in the future. As a result, in the
short term, there is less certainty of generating a positive gross win, and we may experience significant losses with regard to individual
events or betting outcomes, specifically if large, individual bets are placed on an event or betting outcome or series of events or betting
outcomes. Odds compilers and risk managers are capable of human error, thus even noting that a number of betting products are subject
to capped pay-outs, significant volatility can occur. Furthermore, there may be such a volume of trading during any particular period
that even automated systems would be unable to address and eradicate all risks. Any significant losses on a gross-win basis could have
a material adverse effect on our business and its cash flows. This can result in a material adverse effect on its business, financial
condition, and results of operations.
Our
betting operations can fluctuate due to seasonal trends and other factors. Our operations (and thus their financial performance) are
also dependent on the seasonal variations dictated by various sports calendars, which will have an effect on our financial performance
of such operations.
Although
we will implement systems and controls to monitor and manage such risk stated above, there can be no assurance that these systems and
controls will be effective in reducing the exposure to this risk. The effect of future fluctuations and single event losses could have
a material adverse effect on our cash flows. This would create material adverse effect on our business, results of operations, financial
condition and prospects.
The
online and mobile sports wagering industries are intensely competitive and our potential inability to compete successfully could have
a significant adverse impact.
There
is heightened competition among online and mobile sports wagering providers. The online and mobile sports wagering industries are shaped
by increasing consumer demand and technological advances in the industry. These advances create greater and stronger competition for
us. A number of established, well-financed companies producing online and mobile sports wagering products and services compete with our
proposed product and service offerings. These competitors may spend more money and time on developing and testing products and services,
undertake more extensive marketing campaigns, adopt more aggressive pricing or promotional policies, or otherwise develop more commercially
successful products or services than us, which could negatively impact our business.
We
must continually introduce and successfully market new and innovative technologies, product offerings and product enhancements to remain
competitive and effectively procure customer demand, acceptance, and engagement as a result of the intense industry competition, along
with other factors. The process of developing new product offerings and systems is unclear and complex, and new product offerings may
not be well received by customers. Although we intend to continue investing in research and development, there can be no assurance that
such investments will lead to successful new technologies or timely new product offerings or enhanced existing product offerings with
product life cycles long enough to be successful. We may not recover the often-substantial up-front costs of developing and marketing
new technologies and product offerings or recover the opportunity cost of diverting management and financial resources away from
other technologies and product offerings.
If
the technology we use in operating our business fails, is unavailable, or does not operate to expectations, our business and results
of operation could be adversely impacted.
We
utilize a combination of proprietary and third-party technology to operate our business. This includes the technology that we have developed
to recommend and merchandise content to our consumers as well as enable fast and efficient delivery of content to our subscribers and
their various consumer electronic devices. For example, as part of the content delivery systems, we use third-party CDNs. To the extent
Internet Service Providers (“ISPs”) do not interconnect with our CDN or charge us to access their networks, or if we experience
difficulties in our CDN’s operation, our ability to efficiently and effectively deliver our streaming content to our subscribers
could be adversely impacted and our business and results of operation could be adversely affected.
Likewise,
our system for predicting subscriber content preferences is based on advanced data analytics systems and our proprietary algorithms.
We have invested, and will continue to invest, significant resources in refining these technologies; however, we cannot assure you that
such investments will yield an attractive return or that such refinements will be effective. The effectiveness of our ability to predict
subscriber content preferences depends in part on our ability to gather and effectively analyze large amounts of subscriber data. Our
ability to predict content that our subscribers enjoy is critical to the perceived value of our platform among subscribers and failure
to make accurate predictions could materially adversely affect our ability to adequately attract and retain subscribers and sell advertising
to meet investor expectations for growth or to generate revenue. We also utilize third-party technology to help market our service, process
payments, and otherwise manage the daily operations of our business. If our technology or that of third parties we utilize in
our operations fails or otherwise operates improperly, including as a result of “bugs” in our development and deployment
of software, our ability to operate our service, retain existing subscribers and add new subscribers may be impaired. Any harm to our
subscribers’ personal computers or other devices caused by software used in our operations could have an adverse effect on our
business, results of operations and financial condition.
Risks
Related to Regulation
The
gaming industry is heavily regulated and our failure to obtain or maintain applicable licensure or approvals, or otherwise comply with
applicable requirements, could be disruptive to our business and could adversely affect our operations.
We
and our officers, directors, major shareholders, key employees, and business partners will generally be subject to the laws and regulations
relating to sports wagering of the jurisdictions in which we will conduct such business.
The
jurisdictions where we will operate have, or will have, their own regulatory framework, more often than not these frameworks will require
us to receive a license. Each jurisdiction will normally require us to make detailed and extensive disclosures as to their beneficial
ownership, their source of funds, the suitability and integrity of certain persons associated with the applicant, the applicant’s
management competence, structure, and business plans, the applicant’s proposed geographical territories of operation, and the applicant’s
ability to operate a gaming business in a socially responsible manner in compliance with regulation. Such jurisdictions will also impose
ongoing reporting and disclosure obligations, both on a periodic and ad hoc basis in response to material issues affecting the business.
Our
gaming-related technology will also be subject to testing and certification, generally designed to confirm matters such as the fairness
of the gaming products offered by the business, their ability to accurately generate settlement instructions, and recover from outages.
Any
gaming license may be revoked, suspended, or conditioned at any time. The loss of a gaming license in one jurisdiction, or failure to
comply with regulatory requirements in a particular jurisdiction, could prompt the loss of a gaming license or affect our eligibility
for such a license in another jurisdiction, could impact our ability to comply with licensing and regulatory requirements in other jurisdictions,
or could cause the rejection of license applications or cancelation of existing licenses in other jurisdictions, or could cause payment
processors or other third parties to stop providing services to us which we may rely upon to deliver or promote our services. These potential
losses could cause us to cease offering some or all of its product offerings in the impacted jurisdictions. We may be unable to obtain
or maintain all necessary registrations, licenses, permits or approvals, and could incur fines or experience delays related to the licensing
process, which could adversely affect its operations. The process of determining suitability may be expensive and time-consuming. Our
delay or failure to obtain gaming licenses in any jurisdiction may prevent us from offering its products in such jurisdiction, increasing
our customer base and/or generating revenues. A gaming regulatory body may refuse to issue or renew a gaming license if we, or one of
its directors, officers, employees, major shareholders or business partners: (i) is considered to be a detriment to the integrity or
lawful conduct or management of gaming, (ii) no longer meets a licensing or registration requirement, (iii) has breached or is in breach
of a condition of licensure or registration or an operational agreement with a regulatory authority, (iv) has made a material misrepresentation,
omission or misstatement in an application for licensure or registration or in reply to an inquiry by a person conducting an audit, investigation
or inspection for a gaming regulatory authority, (v) has been refused a similar gaming license in another jurisdiction, (vi) has held
a similar gaming license in that state or another jurisdiction which has been suspended, revoked or cancelled, or (vii) has been convicted
of an offence, inside or outside of the U.S. that calls into question the honesty or integrity of us or any of our directors, officers,
employees or associates.
Furthermore,
our product offerings must be approved in most regulated jurisdictions in which they are offered; this process cannot be assured or guaranteed.
It is a prolonged, potentially costly process to obtain these approvals. A developer and provider of online or mobile sports wagering
products may pursue corporate regulatory approval with regulators of a particular jurisdiction while it pursues technical regulatory
approval for its product offerings by that same jurisdiction. It is also possible that after incurring significant expenses and dedicating
substantial time and effort towards such regulatory approvals, we may not obtain either of them. In the event we fail to obtain the necessary
gaming license in a given jurisdiction, we would likely be prohibited from operating in that particular jurisdiction altogether. If we
fail to seek, do not receive, or receive a suspension or revocation of a license in a particular jurisdiction for our product offerings
(including any related technology and software), then we cannot operate in that jurisdiction and our gaming licenses in other jurisdictions
may be impacted. We may not be able to obtain all necessary gaming licenses in a timely manner, or at all. These delays in regulatory
approvals or failure to obtain such approvals may also serve as a barrier to entry to the market for our product offerings. Our operations
and future prospects will be affected if we are unable to overcome these barriers to entry.
To
the extent new sports wagering jurisdictions are established or expanded, we cannot guarantee we will be successful in penetrating such
new jurisdictions or expanding our business or customer base in line with the growth of existing jurisdictions. As we directly or indirectly
enter into new markets, we may encounter legal, regulatory, and political challenges that are difficult or impossible to foresee and
which could result in an unforeseen adverse impact on planned revenues or costs associated with the new market opportunity. In the event
we are unable to effectively develop and operate directly or indirectly within these new markets or if our competitors are able to successfully
penetrate geographic markets that we cannot access or where we face other restrictions, then our business, operating results, and financial
condition could be impaired. Our failure to obtain or maintain the necessary regulatory approvals in jurisdictions, whether individually
or collectively, would have a material adverse effect on our business. We may need to be licensed, obtain approvals of our products and/or
seek licensure of our officers, directors, major shareholders, key employees or business partners to expand into new jurisdictions. This
is a costly and time-consuming process. Any delays in obtaining or difficulty in maintaining regulatory approvals needed for expansion
within existing markets or into new jurisdictions can negatively affect our opportunities for growth. This includes the growth of our
customer base, or delay in our ability to recognize revenue from our product offerings in any such jurisdictions.
Future
legislative and regulatory action, and court decisions or other governmental action, may have a material impact on our operations and
financial results. There can be no assurance that legally enforceable and prohibiting legislation will not be proposed and passed in
jurisdictions relevant or potentially relevant to our business to prohibit, legislate, or regulate various aspects of the Internet, e-commerce,
payment processing, or the online and mobile wagering and interactive entertainment industries (or that existing laws in those jurisdictions
will not be interpreted negatively). Moreover, legislation may require us to pay certain fees in order to operate a sports wagering-related
business. Such fees include integrity fees paid to sports leagues and/or fees required to obtain official sports-wagering related data.
Compliance with any such legislation may have a material adverse effect on our business, financial condition and results of operations.
We will strive to comply with all applicable laws and regulations relating to our business, However, it is possible that any requirements
may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules. We
plan to tailor our product offerings to comply with requirements of each state. Non-compliance with any such law or regulations could
expose us to claims, proceedings, litigation and investigations by private parties and regulatory authorities, as well as substantial
fines and negative publicity, each of which may have a material adverse effect on our business, financial condition, and results of operations.
We
will be subject to regulatory investigations, which could cause us to incur substantial costs or require us to change our business practices
in a materially adverse manner.
We
expect to receive formal and informal inquiries from government authorities and regulators from time to time, including securities authorities,
tax authorities and gaming regulators, regarding its compliance with laws and other matters. We expect to continue to be the subject
of investigations and audits in the future as we continue to grow and expand our operations. Violation of existing or future regulatory
orders or consent decrees could subject us to substantial monetary fines and other penalties providing a negative effect on our financial
condition and results of operations. In addition, there is a possibility that future orders issued by, or inquiries or enforcement actions
initiated by, government or regulatory authorities may cause us to incur substantial costs, expose us to unanticipated civil and criminal
liability or penalties, or require us to change our business practices that may have materially adverse effects to our business.
We
may not be able to capitalize on the expansion of sports wagering, including due to laws and regulations governing this industry.
We
intend to capitalize on the expansion of legalized sports wagering throughout the U.S. The success of online and mobile sports wagering
and our product offerings may be affected by future developments in social networks, mobile platforms, regulatory developments, payment
processing laws, data and information privacy laws, and other factors that we are unable to predict and are beyond our control. Following
these unpredictable issues, our future operating results relating to our sports wagering products are difficult to anticipate, and we
cannot provide assurance that our product offerings will grow as expected or with success in the long term.
Additionally,
our ability to successfully pursue our sports wagering strategy depends on the laws and regulations relating to wagering through interactive
channels. There is considerable debate over online and interactive real-money gaming and opposition to it as well. There can be no assurance
that this opposition will not succeed in preventing the legalization of online and mobile sports wagering in jurisdictions where it is
presently prohibited, prohibiting, or limiting the expansion of such activities where it is currently permitted or causing the repeal
of legalized online or mobile sports wagering in any jurisdiction. Any successful effort to limit the expansion of or prohibit legalized
online or mobile sports wagering could have an adverse effect on our results of operations, cash flows and financial condition. Combatting
such efforts to curtail expansion of, or limit or prohibit, legalized online and mobile sports wagering can again be time-consuming and
can be extremely costly.
If
we fail to comply with any existing or future laws or requirements, regulators may take action against us. This action could include
fines, the conditioning, suspension or revocation of approvals, registrations, permits or licenses, and other disciplinary action. If
we fail to adequately adjust to any such potential changes, its business, results of operations or financial condition could also be
harmed.
Our
shareholders will be subject to extensive governmental oversight, and if a shareholder is found unsuitable by a gaming authority, that
shareholder may not be able to beneficially own, directly or indirectly, certain of our securities.
A
number of jurisdictions’ gaming laws may require any of our shareholders to file an application, be investigated, and qualify or
have his, her, or its suitability determined by gaming authorities. Gaming authorities have very broad discretion when ruling on whether
an applicant should be deemed suitable or not. Subject to certain administrative proceeding requirements, the gaming authorities have
the authority to deny any application or limit, condition, revoke or suspend any gaming license, or fine any person licensed, registered
or found suitable or approved, for any cause deemed reasonable by the gaming authorities.
Any
person found unsuitable by a gaming authority may not hold directly or indirectly ownership of any voting security or the beneficial
or record ownership of any nonvoting security or any debt security of any company that is licensed with the relevant gaming authority
beyond the time prescribed by the relevant gaming authority. A finding of unsuitability by a particular gaming authority impacts that
person’s ability to associate or affiliate with gaming licensees in that specific jurisdiction and could impact the person’s
ability to associate or affiliate with gaming license holders in other jurisdictions.
Many
jurisdictions also require any person who obtains a beneficial ownership of more than a certain percentage, most normally 5%, of voting
securities of a publicly-traded gaming company or parent company thereof and, in some jurisdictions, non-voting securities to report
the acquisition to gaming authorities. Gaming authorities may require such holders to apply for qualification or a finding of suitability,
subject to limited exceptions for “institutional investors” that hold a company’s voting securities for investment
purposes only. Other jurisdictions may also limit the number of gaming licenses with which a person may be associated.
As
a result, we intend to seek shareholder approval to adopt certain amendments to our articles of incorporation to facilitate compliance
with applicable gaming regulations and to otherwise operate in a manner consistent with best industry practices. These amendments,
if approved, would provide us with the right, subject to certain conditions set forth in our articles of incorporation, to redeem shares
held by an unsuitable person. Such redemption may be made at the per share purchase price of the lesser of then fair market value and
the price at which the stockholder acquired the shares. Such redemption rights may negatively affect the trading price and/or liquidity
of our shares. The utilization of such redemption rights may also negatively impact our cash flows and financial condition.
If
government regulations relating to the Internet or other areas of our business change, we may need to alter the manner in which we conduct
our business and we may incur greater operating expenses.
We
are subject to general business regulations and laws, as well as regulations and laws specific to the Internet, which may include laws
and regulations related to user privacy, data protection, information security, consumer protection, payment processing, taxation, intellectual
property, electronic contracts, Internet access and content restrictions. We cannot guarantee that we have been or will be fully compliant
in every jurisdiction. Litigation and regulatory proceedings are inherently uncertain, and the laws and regulations governing issues
such as privacy, payment processing, taxation and consumer protection related to the Internet continue to develop.
For
example, laws relating to the liability of providers of online services for activities of their subscribers and other third parties have
been tested by a number of claims, including actions based on invasion of privacy and other torts, unfair competition, copyright and
trademark infringement, and other theories based on the nature and content of the materials searched, the advertisements posted,
or the content provided by subscribers. In some instances, we have certain protections against claims related to such subscriber generated
content, including or defamatory content. Specifically, Section 230 of the Communications Decency Act (the “CDA”) provides
immunity from liability for providers of an interactive computer service who publish defamatory information provided by users of the
service. Immunity under the CDA has been well-established through case law. On a regular basis, however, challenges to both laws seek
to limit immunity. For example, a recent executive order and a letter from several senators to the Federal Communications Commission
(the “FCC”) have renewed calls for the protections of Section 230 to be scaled back. Any such changes could affect our ability
to claim protection under the CDA.
Moreover,
as Internet commerce and advertising continues to evolve, increasing regulation by federal, state and foreign regulatory authorities
becomes more likely. For example, California’s Automatic Renewal Law requires companies to adhere to enhanced disclosure requirements
when entering into automatically renewing contracts with consumers. Other states have enacted similar laws in recent years. As a result,
a wave of consumer class action lawsuits has been brought against companies that offer online products and services on a subscription
or recurring basis, and we have received a letter alleging that we may have violated such a law. Any failure, or perceived failure, by
us to comply with any of these laws or regulations could result in damage to our reputation, lost business, and proceedings or actions
against us by governmental entities or others, which could impact our operating results. As we improve our TV streaming platform, we
may also be subject to new laws and regulations specific to such technologies.
We
are subject to payment processing risk.
Acceptance
and processing of payments are subject to certain rules and regulations, including additional authentication and security requirements
for certain payment methods, and require payment of interchange and other fees. To the extent there are increases in payment processing
fees, material changes in the payment ecosystem, such as large re-issuances of payment cards, delays in receiving payments from payment
processors, changes to rules or regulations concerning payments, loss of payment partners and/or disruptions or failures in the operations
or security of our payment processing systems, partner systems or payment products, including products we use to update payment information,
our revenue, operating expenses and results of operation could be adversely impacted.
We
may be subject to fines or other penalties imposed by the Internal Revenue Service and other tax authorities.
Certain
of our subsidiaries are currently delinquent in filing annual tax returns with the Internal Revenue Service and several states. We are
in the process of working with our subsidiaries to remedy this issue by filing these delinquent tax returns. We may be subject to penalties
and interest with the tax authorities because of the late tax returns. There can be no assurance that we will remedy our delinquent filings
sufficiently, and we may face penalties and fees which would adversely affect our operating results and investors’ confidence in
our internal operations.
We
could be required to collect additional sales and other similar taxes or be subject to other tax liabilities that may increase the costs
our customers would have to pay for our subscriptions and adversely affect our operating results.
Sales
and use, value-added, goods and services, and similar tax laws and rates are complicated and vary greatly by jurisdiction. There is significant
uncertainty as to what constitutes sufficient nexus for a state or local jurisdiction to levy taxes, fees, and surcharges for sales made
over the internet, as well as whether our subscriptions are subject to tax in various jurisdictions. The vast majority of states have
considered or adopted laws that impose collection obligations on out-of-state companies for such taxes. Additionally, the Supreme Court
of the U.S. ruled in South Dakota v. Wayfair, Inc. et. al. (Wayfair) that online sellers can be required to collect sales and use tax
despite not having a physical presence in the buyer’s state. In response to Wayfair, or otherwise, states or local governments
may enforce laws requiring us to calculate, collect, and remit taxes on sales in their jurisdictions. We have not always collected sales
and other similar taxes in all jurisdictions in which we are required to. We may be obligated to collect and remit sales tax in jurisdictions
in which we have not previously collected and remitted sales tax. A successful assertion by one or more states requiring us to collect
taxes where we historically have not or presently do not do so could result in substantial tax liabilities, including taxes on past sales,
as well as penalties and interest. The imposition by state governments or local governments of sales tax collection obligations on out-of-state
sellers could also create additional administrative burdens for us and decrease our future sales, which could adversely affect our business
and operating results.
We
are subject to taxation-related risks in multiple jurisdictions.
We
are a U.S.-based multinational company subject to tax in multiple U.S. and foreign tax jurisdictions. Judgment is required in determining
our global provision for income taxes, value added and other similar taxes, deferred tax assets or liabilities and in evaluating our
tax positions on a worldwide basis. It is possible that our tax positions may be challenged by jurisdictional tax authorities, which
may have a significant impact on our global provision for income taxes.
Tax
laws are being re-examined and evaluated globally. New laws and interpretations of the law are taken into account for financial statement
purposes in the quarter or year that they become applicable. Tax authorities are increasingly scrutinizing the tax positions of multinational
companies. If U.S. or other foreign tax authorities change applicable tax laws, our overall liability could increase, and our business,
financial condition or results of operations may be adversely impacted.
Social
responsibility concerns and public opinion can significantly influence the regulation of sports wagering and impact responsible gaming
requirements, each of which could impact our business and could adversely affect our operations.
Public
opinion can meaningfully affect sports wagering regulation. A negative shift in sports wagering perception by the public, by politicians
or by others could impact future legislation or regulation in different jurisdictions. Moreover, such a shift could cause jurisdictions
to abandon proposals to legalize sports wagering, thereby limiting the number of new jurisdictions into which we could expand. Negative
public perception also can lead to new, harsher restrictions on sports wagering. It also could promote prohibition of sports wagering
in jurisdictions where sports wagering is presently legal.
Concerns
with responsible betting and gaming could lead to negative publicity, resulting in increased regulatory attention, which may result in
restrictions on our operations. If we had to restrict our marketing or product offerings or incur increased compliance costs, a material
adverse effect on its business, results of operations, financial condition and prospects could result.
Risks
Related to Our Operations
The
COVID-19 pandemic and the global attempt to contain it may harm our industry, business, results of operations and ability to raise additional
capital.
The
global spread of COVID-19 and the various attempts to contain it created significant volatility, uncertainty and economic disruption.
In response to government mandates, health care advisories and employee concerns, we have altered certain aspects of our operations.
Travel has been curtailed, and numerous professional and college sports leagues have cancelled or altered seasons and events. As a result,
our broadcasting partners had and are having to substitute other content in the place of previously scheduled live sporting events. While
professional sports are returning in the United States, there is no guarantee that those seasons continue uninterrupted or at all. The
potential further delay or cancellation of professional and college sports may cause us to temporarily have less popular content available
on our platform, which could negatively impact consumer demand for and subscription retention to our platform and our number of paid
subscribers.
The
full extent to which the COVID-19 pandemic and the various responses to it impacts our business, operations and financial results will
depend on numerous evolving factors that we may not be able to accurately predict, including: the duration and scope of the pandemic;
governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic; the actions
of professional and college sports leagues; the availability and cost to access the capital markets; the effect on our subscribers and
subscriber demand for and ability to pay for our platform; disruptions or restrictions on our employees’ ability to work and travel;
and interruptions or restrictions related to the provision of streaming services over the internet, including impacts on content delivery
networks and streaming quality. During the COVID-19 pandemic, we may not be able to provide the same level of customer service that our
subscribers are used to, which could negatively impact their perception of our platform resulting in an increase in cancellations. There
can be no assurance that financing may be available on attractive terms, if at all. Our workforce has had to spend a significant amount
of time working from home, which may impact their productivity. Such limitations caused by the pandemic have also resulted in us seeking
extensions for our current and periodic filings with the SEC. We will continue to actively monitor the issues raised by the COVID-19
pandemic, including the spread of variants, and may take further actions that alter our business operations as may be required
by federal, state, local or foreign authorities, or that we determine are in the best interests of our employees, subscribers and shareholders.
It is not clear what the potential effects any such alterations or modifications may have on our business, including the effects on our
subscribers, or on our financial results.
We
could be subject to claims or have liability based on defects with respect to certain historical corporate transactions that were not
properly authorized or documented.
We
have determined that there have been defects with respect to certain historical corporate transactions, including transactions that were
not or may not have been properly approved by our board of directors, transactions that may have breached our organizational documents,
or transactions that may not have been adequately documented.
While
we have attempted to narrow potential future claims by taking certain remedial corporate actions, the scope of liability with respect
to such defects is uncertain and we cannot be sure that these actions will entirely remediate these defects or that we will not receive
claims in the future from other persons asserting rights to shares of our capital stock, to stock options, or to amounts owed under other
equity or debt instruments or investment contracts. To the extent any such claims are successful, the claims could result in dilution
to existing shareholders, payments by us to note holders or security holders, us having to comply with registration or other investor
rights, which could have a material adverse effect on our business, financial condition and results of operations.
Legal
proceedings could cause us to incur unforeseen expenses and could occupy a significant amount of our management’s time and attention.
From
time to time, we may be subject to litigation or claims that could negatively affect our business operations and financial position.
We may face allegations or litigation related to our acquisitions, securities issuances or business practices. For example, putative
class action lawsuits have been filed by certain of our shareholders against us and certain of our officers and directors alleging certain
violations of the federal securities laws in connection with certain statements we have made regarding our business and financial condition.
In addition, certain of our shareholders have filed related derivative lawsuits against certain of our officers and directors alleging
certain federal securities law violations and that the officers and directors breached their fiduciary duties and committed corporate
waste. Litigation disputes, including the disputes we are currently facing, could cause us to incur unforeseen expenses, result in content
unavailability, and otherwise occupy a significant amount of our management’s time and attention, any of which could negatively
affect our business operations and financial position. While the ultimate outcome of investigations, inquiries, information requests
and related legal proceedings is difficult to predict, such matters can be expensive, time-consuming and distracting, and adverse resolutions
or settlements of those matters may result in, among other things, modification of our business practices, reputational harm or costs
and significant payments, any of which could negatively affect our business operations and financial position.
The
quality of our customer support is important to our subscribers, and if we fail to provide adequate levels of customer support, we could
lose subscribers, which would harm our business.
Our
subscribers depend on our customer support organization to resolve any issues relating to our platform. A high level of support is critical
for the successful marketing of our platform. Providing high-level support is further challenging during the COVID-19 pandemic and resulting
remote work environment. If we do not effectively train, update and manage our customer support organization that assists our subscribers
in using our platform, and if that support organization does not succeed in helping them quickly resolve any issues or provide effective
ongoing support, it could adversely affect our ability to sell subscriptions to our platform and harm our reputation with potential new
subscribers.
We
could be subject to economic, political, regulatory and other risks arising from our international operations.
Operating
in international markets requires significant resources and management attention and subjects us to economic, political, regulatory and
other risks that may be different from or incremental to those in the U.S. In addition to the risks that we face in the U.S., our international
operations involve risks that could adversely affect our business, including:
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need to adapt our content and user interfaces for specific cultural and language differences;
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difficulties
and costs associated with staffing and managing foreign operations;
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political
or social unrest and economic instability;
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compliance
with laws such as the Foreign Corrupt Practices Act, UK Bribery Act and other anti-corruption laws, export controls and economic
sanctions, and local laws prohibiting corrupt payments to government officials;
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difficulties
in understanding and complying with local laws, regulations and customs in foreign jurisdictions, including local ownership requirements
for streaming content providers and laws and regulations relating to privacy, data protection and information security, and the risks
and costs of non-compliance with such laws, regulations and customs;
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regulatory
requirements or government action against our service, whether in response to enforcement of actual or purported legal and regulatory
requirements or otherwise, that results in disruption or non-availability of our service or particular content in the applicable
jurisdiction;
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adverse
tax consequences such as those related to changes in tax laws or tax rates or their interpretations, and the related application
of judgment in determining our global provision for income taxes, deferred tax assets or liabilities or other tax liabilities given
the ultimate tax determination is uncertain;
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fluctuations
in currency exchange rates;
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profit
repatriation and other restrictions on the transfer of funds;
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differing
payment processing systems;
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new
and different sources of competition; and
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different
and more stringent user protection, data protection, privacy and other laws, including data localization and/or restrictions on data
export, and local ownership requirements.
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Our
failure to manage any of these risks successfully could harm our international operations and our overall business and results of our
operations.
We
depend on highly skilled key personnel to operate our business, and if we are unable to attract, retain, and motivate qualified personnel,
our ability to develop and successfully grow our business could be harmed.
We
believe that our future success is highly dependent on the talents and contributions of Edgar Bronfman, our Executive Chairman, David
Gandler, our Co-Founder and Chief Executive Officer, other members of our executive team, and other key employees, such as engineering,
finance, legal, research and development, marketing, and sales personnel. Our future success depends on our continuing ability to attract,
develop, motivate, and retain highly qualified and skilled employees. All of our employees, including our senior management, are free
to terminate their employment relationship with us at any time, and their knowledge of our business and industry may be difficult to
replace. Qualified individuals are in high demand, particularly in the digital media industry, and we may incur significant costs to
attract them. We use equity awards to attract talented employees, but if the value of our common stock declines significantly and remains
depressed, that may prevent us from recruiting and retaining qualified employees. If we are unable to attract and retain our senior management
and key employees, we may not be able to achieve our strategic objectives, and our business could be harmed. In addition, we believe
that our key executives have developed highly successful and effective working relationships. We cannot ensure that we will be able to
retain the services of any members of our senior management or other key employees. If one or more of these individuals leave, we may
not be able to fully integrate new executives or replicate the current dynamic and working relationships that have developed among our
senior management and other key personnel, and our operations could suffer. For instance, we recently entered into a transition agreement
with our Chief Financial Officer, Simone Nardi, pursuant to which Mr. Nardi will continue to serve as our Chief Financial Officer until
the earliest of (i) December 31, 2021, (ii) the date on which Mr. Nardi’s employment ends for any reason, or (iii) the date on which
Mr. Nardi’s successor as Chief Financial Officer commences employment with the Company. We are currently in the process of searching
for a successor to Mr. Nardi. There can be no assurance that we will be able to identify a qualified successor by December 31, 2021 or
at all.
The
impact of worldwide economic conditions may adversely affect our business, operating results, and financial condition.
Our
financial performance is subject to worldwide economic conditions and their impact on levels of advertising spending. Expenditures by
advertisers generally tend to reflect overall economic conditions, and to the extent that the economy continues to stagnate, reductions
in spending by advertisers could have a material adverse impact on our business. Historically, economic downturns have resulted in overall
reductions in advertising spending. Economic conditions may adversely impact levels of consumer spending, which could adversely impact
our number of subscribers.
Consumer
purchases of discretionary items generally decline during recessionary periods and other periods in which disposable income is adversely
affected. To the extent that overall economic conditions reduce spending on discretionary activities, our ability to retain current and
obtain new subscribers could be hindered, which could reduce our subscription revenue and negatively impact our business.
Changes
in how we market our service could adversely affect our marketing expenses and subscription levels may be adversely affected.
We
utilize a broad mix of marketing and public relations programs, including social media sites, to promote our service and content to existing
and potential new subscribers. We may limit or discontinue use or support of certain marketing sources or activities if advertising rates
increase or if we become concerned that subscribers or potential subscribers deem certain marketing platforms or practices intrusive
or damaging to our brand. If the available marketing channels are curtailed, our ability to engage subscribers and attract new subscribers
may be adversely affected.
Companies
that promote our service may decide that we negatively impact their business or may make business decisions that in turn negatively impact
us. For example, if they decide that they want to compete more directly with us, enter a similar business or exclusively support our
competitors, we may no longer have access to their marketing channels. We also acquire a number of subscribers who re-join our service
having previously canceled their subscription. If we are unable to maintain or replace our sources of subscribers with similarly effective
sources, or if the cost of our existing sources increases, our subscription levels and marketing expenses may be adversely affected.
We
utilize marketing to promote our content, drive conversation about our content and service, and drive viewing by our subscribers. To
the extent we promote our content inefficiently or ineffectively, we may not obtain the expected acquisition and retention benefits and
our business may be adversely affected.
We
continue to pursue and may in the future engage in acquisitions, which involve a number of risks, and if we are unable to address and
resolve these risks successfully, such acquisitions could harm our business.
We
continue to pursue and may in the future acquire businesses, products or technologies to expand our offerings and capabilities, subscriber
base and business. The entities acquired in such acquisitions may not be profitable and may have significant liabilities. We have evaluated,
and expect to continue to evaluate, a wide array of potential strategic transactions. Any acquisition could be material to our financial
condition and results of operations. Also, any anticipated benefits from a given acquisition, including, but not limited to, the acquisition
of Vigtory, Inc. in February 2021, may never materialize. In addition, the process of integrating any businesses, products or technologies
acquired by us may create unforeseen operating difficulties and expenditures and we may have difficulties retaining key employees. Any
acquisitions in international markets would involve additional risks, including those related to integration of operations across different
cultures and languages, currency risks and the particular economic, political and regulatory risks associated with specific countries.
We may not be able to address these risks successfully, or at all, without incurring significant costs, delays or other operational problems,
and if we were unable to address such risks successfully, our business could be harmed.
Risks
Related to Privacy and Cybersecurity
We
are subject to a number of legal requirements and other obligations regarding privacy, security, and data protection, and any actual
or perceived failure to comply with these requirements or obligations could have an adverse effect on our reputation, business, financial
condition and operating results.
Various
international, federal, and state laws and regulations govern the processing of personal information, including the collection, use,
retention, transfer, sharing and security of the data we receive from and about our subscribers and other individuals. The regulatory
environment for the collection and processing of data relating to individuals, including subscriber and other consumer data, by online
service providers, content distributors, advertisers and publishers is unsettled in the U.S. and internationally. Privacy groups and
government bodies, including the Federal Trade Commission, increasingly have scrutinized issues relating to the use, collection, storage,
disclosure, and other processing of data, including data that is associated with personal identities or devices, and we expect such scrutiny
to continue to increase. Various federal, state and foreign government bodies and agencies have adopted or are considering adopting laws
and regulations limiting, or laws and regulations covering the processing, collection, distribution, use, disclosure, storage, transfer
and security of certain types of information. In addition to government regulation, self-regulatory standards and other industry standards
may legally or contractually apply to us, be argued to apply to us, or we may elect to comply with such standards or facilitate compliance
by content publishers, advertisers, or others with such standards.
For
example, the California Consumer Privacy Act, or CCPA, became operative on January 1, 2020. The CCPA requires covered businesses to provide
new disclosures to California consumers, and to afford such consumers the ability to access and delete their personal information, opt
out of certain personal information activities, and receive details about how their personal information is used. The CCPA provides for
civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation.
California voters also approved a modification of the CCPA, the California Privacy Rights Act, or CPRA, in the November 2020 election.
The CPRA significantly expands the rights under the CCPA. The CCPA and CPRA may increase our compliance costs and exposure to liability.
Similarly, Virginia recently adopted the Virginia Consumer Data Protection Act, or VCDPA, which will go into effect on January 1, 2023.
The VCDPA will grant Virginia residents certain rights with respect to their personal data, has notice obligations, requires consent
in some circumstances, among other things. While there is no private right of action, the VCDPA empowers the Attorney General to enforce
the law. As with the CCPA and the CPRA, the VCDPA may increase our compliance costs and exposure to liability. Other U.S. states are
considering adopting similar laws.
Additionally,
our use of subscriber data to deliver relevant advertising on our platform places us and our content publishers at risk for claims under
a number of other unsettled laws, including the Video Privacy Protection Act, or VPPA. Some content publishers have been engaged in litigation
over alleged violations of the VPPA relating to activities on online platforms in connection with advertising provided by unrelated third
parties. The Federal Trade Commission has also revised its rules implementing the Children’s Online Privacy Protection Act, or
COPPA Rules, broadening the applicability of the COPPA Rules, including by expanding the types of information that are subject to these
regulations. The COPPA Rules could effectively apply to limit the information that we and, our content publishers and advertisers collect
and use, the content of advertisements and certain channel partner content. We and our content publishers and advertisers could be at
risk for violation or alleged violation of these and other laws, regulations, and other standards and contractual obligations relating
to privacy, data protection, and information security.
In
the European Union, or EU, and its member states, there are laws and regulations that in some circumstances require informed consent
for the placement of cookies or other tracking technologies and the delivery of relevant advertisements. More generally, the EU General
Data Protection Regulation 2016/679, or the GDPR, which has been in effect since May 25, 2018, imposes stringent obligations relating
to data protection and security and authorizes fines up to 4% of global annual revenue or €20 million, whichever is greater, for
certain violations.
Further,
the departure of the United Kingdom, or UK, from the EU has created uncertainty with regard to data protection regulation in the UK.
In particular, while the UK has implemented the UK General Data Protection Regulation, and the UK Data Protection Act of 2018, which
implements and complements the UK GDPR are still in force, it is unclear whether the UK will receive an adequacy decision from the European
Commission that would allow the lawful transfer of data from the European Economic Area, or EEA, to the UK under that adequacy decision.
Should the UK not be deemed adequate, transfers of data between the UK and the EEA will need to be pursuant to a different transfer mechanism,
such as the entry of Standard Contractual Clauses approved by the European Commission. Failure to comply with these obligations could
subject us to liability. Additionally, we may incur expenses, costs, and other operational losses under the GDPR and the privacy laws
of applicable EU Member States and the UK in connection with any measures we take to comply with such laws.
Although
certain legal mechanisms have been designed to allow for the transfer of personal data from the UK, EEA and Switzerland to the U.S.,
uncertainty about compliance with such data protection laws remains and such mechanisms may not be available or applicable with respect
to the personal data processing activities necessary to research, develop and market our products. For example, legal challenges in Europe
to the mechanisms allowing companies to transfer personal data from the EEA to the U.S. have resulted in further limitations on the ability
to transfer personal data across borders. In particular, certain governments have been unable to reach agreement on or maintain existing
mechanisms designed to support cross-border data transfers, such as the EU-U.S. and Swiss-U.S. Privacy Shield Frameworks. Specifically,
on July 16, 2020, the Court of Justice of the European Union invalidated Decision 2016/1250 on the adequacy of the protection provided
by the EU-U.S. Privacy Shield Framework. To the extent that we have relied on the EU-U.S. Privacy Shield Framework in the past, we will
not be able to do so in the future, which could increase our costs and limit our ability to process personal data from the EEA. The same
decision also challenged the ability to use one of the primary alternatives to the Privacy Shield, namely, the European Commission’s
Standard Contractual Clauses, to lawfully transfer personal data from the EEA to the U.S. and most other countries without additional
measures or assurances.
Complying
with the GDPR, CCPA, VCDPA, and other laws, regulations, and other obligations relating to privacy, data protection, data localization
or security may cause us to incur substantial operational costs or require us to modify our data handling practices. We also expect that
there will continue to be new proposed laws and regulations concerning privacy, data protection and information security, and we cannot
yet determine the impact such future laws, regulations and standards, or amendments to, expansions of or re-interpretations of, existing
laws and regulations, industry standards, or other obligations may have on our business. New laws and regulations, amendments to, expansions
of or re-interpretations of existing laws and regulations, industry standards, and contractual and other obligations may require us to
incur additional costs and restrict our business operations.
Furthermore,
the interpretation and application of laws, regulations, standards, contractual obligations and other obligations relating to privacy,
data processing and protection, and information security are uncertain, and these laws, standards, and contractual and other obligations
(including, without limitation, the Payment Card Industry Data Security Standard) may be interpreted and applied in a manner that is,
or is alleged to be, inconsistent with our data management and processing practices, our policies or procedures, or the features of our
platform. We may face claims or allegations that we are in violation of these laws, regulations, standards, or contractual or other obligations.
We could be required to fundamentally change our business activities and practices or modify our platform or practices to address laws,
regulations, or other obligations relating to privacy, data protection, or information security, or claims or allegations that we have
failed to comply with any of the foregoing, which could have an adverse effect on our business. We may be unable to make such changes
and modifications in a commercially reasonable manner or at all, and our ability to develop new features could be limited.
Increased
regulation of data collection, use and distribution practices, including self-regulation and industry standards, changes in existing
laws and regulations, enactment of new laws and regulations, increased enforcement activity, and changes in interpretation of laws and
regulations, all could increase our cost of compliance and operation, limit our ability to grow our business or otherwise harm our business.
Additionally, the costs of compliance with, and other burdens imposed by, the laws, regulations, and policies that are applicable to
the businesses of content publishers and advertisers may limit their use and adoption of, and reduce the overall demand for, our platform
and advertising on our platform, and content publishers and advertisers may be at risk for violation or alleged violation of laws, regulations,
and other standards relating to privacy, data protection, and information security relating to their activities on our platform. More
generally, privacy, data protection, and information security concerns, whether or not valid, may inhibit market adoption of our platform,
particularly in certain countries.
Any
actual or perceived inability to adequately address privacy, data protection or security-related concerns, even if unfounded, or to successfully
negotiate privacy, data protection or security-related contractual terms with content publishers, card associations, advertisers, or
others, or to comply with applicable laws, regulations and other obligations relating to privacy, data protection, and security, could
result in additional cost and liability to us. We may face regulatory investigations and proceedings, claims and litigation by governmental
entities and private parties, damages for contract breach, damage to our reputation, restrictions on the use of our platform by advertisers
and sales of subscriptions to our platform, and additional liabilities as a result, all of which could harm our business, reputation,
financial condition, and results of operations.
Any
significant interruptions, delays or discontinuations in service or disruptions in or unauthorized access to our computer systems or
those of third parties that we utilize in our operations, including those relating to cybersecurity or arising from cyber-attacks, could
result in a loss or degradation of service, unauthorized disclosure of data, including subscriber and corporate information, or theft
of intellectual property, including digital content assets, which could adversely impact our business.
Our
reputation and ability to attract, retain and serve our subscribers is dependent upon the reliable performance and security of our computer
systems and those of third parties that we utilize in our operations. These systems may be subject to damage or interruption from, among
other things, earthquakes, adverse weather conditions, other natural disasters, terrorist attacks, rogue employees, employees who are
inattentive or careless and cause security vulnerabilities, power loss, telecommunications failures, and cybersecurity risks. Interruptions
in these systems, or with the Internet in general, could make our service unavailable or degraded or otherwise hinder our ability to
deliver our service. Service interruptions, errors in our software or the unavailability of computer systems used in our operations could
diminish the overall attractiveness of our subscription to existing and potential subscribers.
Our
computer systems and those of third parties we use in our operations are subject to cybersecurity threats, including cyber-attacks such
as computer viruses, denial of service attacks, physical or electronic break-ins and similar disruptions. These systems periodically
experience directed attacks intended to lead to interruptions and delays in our service and operations as well as loss, misuse or theft
of personal information and other data, content, confidential information, trade secrets or intellectual property. Additionally, outside
parties may attempt to induce employees or subscribers to disclose sensitive or confidential information in order to gain access to data.
Any attempt by hackers to obtain our data (including subscriber and corporate information) or intellectual property (including digital
content assets), disrupt our service, or otherwise access our systems, or those of third parties we use, if successful, could harm our
business, be expensive to remedy and damage our reputation.
We
use third-party cloud computing services in connection with our business operations. We also use third-party content delivery networks
to help us stream content to our subscribers over the Internet. Problems faced by us or our third-party cloud computing or other network
providers, including technological or business-related disruptions, as well as cybersecurity threats and regulatory interference, could
adversely impact the experience of our users.
We
have implemented certain systems and processes designed to thwart hackers and protect our data and systems, but the techniques used to
gain unauthorized access to data, systems, and software are constantly evolving, and we may be unable to anticipate or prevent unauthorized
access, and we may be delayed in detecting unauthorized access or other security breaches and other incidents. There is no assurance
that hackers may not have a material impact on our service or systems in the future or that security breaches or other incidents may
not occur due to these or other causes. Efforts and technologies to prevent disruptions to our service and unauthorized access to our
systems are expensive to develop, implement and maintain. These efforts require ongoing monitoring and updating as technologies change
and efforts to overcome security measures become more sophisticated and may limit the functionality of or otherwise negatively impact
our service offering and systems. Additionally, disruption to our service and data security breaches and other incidents may occur as
a result of employee or contractor error. Any significant disruption to our service or access to our systems or any data that we or those
who provide services for us maintain or otherwise process, or the perception that any of these have occurred, could result in a loss
of subscriptions, harm to our reputation, and adversely affect our business and results of operations. Further, a penetration of our
systems or a third-party’s systems on which we depend or any loss of or unauthorized access to, use, alteration, destruction, or
disclosure of personal information or other data could subject us to business, regulatory, contractual, litigation and reputation risk,
which could have a negative effect on our business, financial condition and results of operations. With the increase in remote work during
the current COVID-19 pandemic, we and the third parties we use in our operations face increased risks to the security of infrastructure
and data, and we cannot guarantee that our or their security measures will prevent security breaches. We also may face increased costs
relating to maintaining and securing our infrastructure and data that we maintain and otherwise process.
Additionally,
we cannot be certain that our insurance coverage will be adequate for data security liabilities actually incurred, will cover any indemnification
claims against us relating to any incident, that insurance will continue to be available to us on economically reasonable terms, or at
all, or that any insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against
us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the
imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, including our financial
condition, operating results, and reputation.
Risks
Related to Our Intellectual Property
We
could become subject to litigation regarding intellectual property rights that could be costly and harm our business.
Third
parties have previously asserted, and may in the future assert, that we have infringed, misappropriated, or otherwise violated their
intellectual property rights. Plaintiffs that have no relevant product revenue may not be deterred by our own issued patents and pending
patent applications in bringing intellectual property rights claims against us. The cost of patent litigation or other proceedings, even
if resolved in our favor, could be substantial. Some of our competitors may be better able to sustain the costs of such litigation or
proceedings because of their substantially greater financial resources. Patent litigation and other proceedings may also require significant
management time and divert management from our business. Uncertainties resulting from the initiation and continuation of patent litigation
or other proceedings could impair our ability to compete in the marketplace. The occurrence of any of the foregoing risks could harm
our business.
As
a result of intellectual property infringement claims, or to avoid potential claims, we have previously chosen to, and may in the future
choose or be required to, seek licenses from third parties. These licenses may not be available on commercially reasonable terms, or
at all. Even if we are able to obtain a license, the license would likely obligate us to pay license fees or royalties or both, and the
rights granted to us might be nonexclusive, with the potential for our competitors to gain access to the same intellectual property.
In addition, the rights that we secure under intellectual property licenses may not include rights to all of the intellectual property
owned or controlled by the licensor, and the scope of the licenses granted to us may not include rights covering all of the products
and services provided by us and our licensees. Furthermore, an adverse outcome of a dispute may require us to pay damages, potentially
including treble damages and attorneys’ fees, if we are found to have willfully infringed a party’s intellectual property;
cease making, licensing or using technologies that are alleged to infringe or misappropriate the intellectual property of others; expend
additional development resources to redesign our solutions; enter into potentially unfavorable royalty or license agreements in order
to obtain the right to use necessary technologies, content or materials; and to indemnify our partners and other third parties. In addition,
any lawsuits regarding intellectual property rights, regardless of their success, could be expensive to resolve and would divert the
time and attention of our management and technical personnel.
Historically,
we have acquired certain intellectual property from third parties pursuant to asset purchase agreements or similar agreements in connection
with corporate acquisitions and bankruptcy proceedings. We also generally enter into confidentiality and invention assignment agreements
with our employees and consultants and enter into confidentiality agreements with the parties with whom we have strategic relationships
and business alliances. However, these agreements may not have been properly entered into on every occasion with the applicable counterparty,
and such agreements may not always have been effective when entered into in granting ownership of, controlling access to and distribution
of our proprietary information. Further, these agreements do not prevent our competitors or partners from independently developing technologies
that are substantially equivalent or superior to our platform.
An
inability to obtain music licenses could be costly and harm our business.
The
Company relies on its content suppliers to secure the rights of public performance or communication to the public for musical works and
sound recordings embodied in any programming provided to or through the Company’s platform. If our content suppliers have not secured
public performance or communication to the public licenses on a through to the viewer basis, then the Company could have liability to
copyright owners or their agents for such performances or communications. If our content suppliers are unable to secure such rights from
copyright owners, then the Company may have to secure public performance and communication to the public licenses in its own name. The
Company may not be able to obtain such licenses on favorable economic terms, and music licensors may assert that we have infringed their
intellectual property rights in the absence of a license. The occurrence of any of the foregoing risks could harm our business.
If
our technology, trademarks and other proprietary rights are not adequately protected to prevent use or appropriation by our competitors,
the value of our brand and other intangible assets may be diminished, and our business may be adversely affected.
We
rely and expect to continue to rely on a combination of confidentiality and license agreements with our employees, consultants and third
parties with whom we have relationships, as well as trademark, copyright, patent and trade secret protection laws, to protect our technology
and proprietary rights. We may also seek to enforce our proprietary rights through court proceedings or other legal actions. We have
filed and we expect to file from time to time for trademark and patent applications. Nevertheless, these applications may not be approved,
third parties may challenge any copyrights, patents or trademarks issued to or held by us, third parties may knowingly or unknowingly
infringe our intellectual property rights, and we may not be able to prevent infringement or misappropriation without substantial expense
to us. If the protection of our intellectual property rights is inadequate to prevent use or misappropriation by third parties, the value
of our brand, content, and other intangible assets may be diminished.
Failure
to protect our domain names could also adversely affect our reputation and brand and make it more difficult for subscribers to find our
website and our service. We may be unable, without significant cost or at all, to prevent third parties from acquiring domain names that
are similar to, infringe upon or otherwise decrease the value of our trademarks and other proprietary rights.
Our
use of open-source software could impose limitations on our ability to commercialize our platform.
We
incorporate open-source software in our platform. From time to time, companies that incorporate open-source software into
their products have faced claims challenging the ownership of open-source software and/or compliance with open-source license
terms. Therefore, we could be subject to suits by parties claiming ownership of what we believe to be open-source software or
non-compliance with open-source licensing terms. Although we monitor our use of open-source software, the terms of many
open-source software licenses have not been interpreted by U.S. courts, and there is a risk that such licenses could be construed
in a manner that could impose unanticipated conditions or restrictions on our ability to sell subscriptions to our platform. In such
event, we could be required to make our proprietary software generally available to third parties, including competitors, at no cost,
to seek licenses from third parties in order to continue offering our platform, to re-engineer our platform or to discontinue our platform
in the event re-engineering cannot be accomplished on a timely basis or at all, any of which could harm our business.
If
we are unable to obtain necessary or desirable third-party technology licenses, our ability to develop platform enhancements may be impaired.
We
utilize commercially available off-the-shelf technology in the development of our platform. As we continue to introduce new features
or improvements to our platform, we may be required to license additional technologies from third parties. These third-party licenses
may be unavailable to us on commercially reasonable terms, if at all. If we are unable to obtain necessary third-party licenses, we may
be required to obtain substitute technologies with lower quality or performance standards, or at a greater cost, any of which could harm
the competitiveness of our platform and our business.
Risks
Related to the 2026 Convertible Notes
We
may not have the ability to raise the funds necessary to settle conversions of the 2026 Convertible Notes in cash or to repurchase the
2026 Convertible Notes upon a fundamental change, and our future debt may contain limitations on our ability to pay cash upon conversion
or repurchase of the 2026 Convertible Notes.
Holders
of the 2026 Convertible Notes will have the right to require us to repurchase all or a portion of the 2026 Convertible Notes upon the
occurrence of a fundamental change before the maturity date at a repurchase price equal to 100% of the principal amount of the 2026 Convertible
Notes to be repurchased, plus accrued and unpaid interest, if any. In addition, upon conversion of the 2026 Convertible Notes, unless
we elect to deliver solely shares of our common stock to settle such conversion (other than paying cash in lieu of delivering any fractional
share), we will be required to make cash payments in respect of the notes being converted. Moreover, we will be required to repay the
2026 Convertible Notes in cash at their maturity unless earlier converted, redeemed, or repurchased. However, we may not have enough
available cash or be able to obtain financing at the time we are required to make repurchases of all or a portion of the 2026 Convertible
Notes surrendered therefor or pay cash with respect to notes being converted or at their maturity.
In
addition, our ability to repurchase the 2026 Convertible Notes or to pay cash upon conversions of all or a portion of the 2026 Convertible
Notes or at their maturity may be limited by law, regulatory authority or agreements governing our future indebtedness. Our failure to
repurchase all or a portion of the 2026 Convertible Notes at a time when the repurchase is required by the indenture or to pay cash upon
conversions of all or a portion of the 2026 Convertible Notes or at their maturity as required by the indenture would constitute a default
under the indenture. A default under the indenture or the fundamental change itself could also lead to a default under agreements governing
our future indebtedness. Moreover, the occurrence of a fundamental change under the indenture could constitute an event of default under
any such agreement. A default under the indenture or the fundamental change itself could also lead to a default under agreements governing
our existing or future indebtedness. If the payment of the related indebtedness were to be accelerated after any applicable notice or
grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the notes or make cash payments upon conversions
thereof.
The
conditional conversion feature of all or a portion of the 2026 Convertible Notes, if triggered, may adversely affect our financial condition
and operating results.
In
the event the conditional conversion feature of any or all of the 2026 Convertible Notes is triggered, holders of the 2026 Convertible
Notes will be entitled to convert their 2026 Convertible Notes at any time during specified periods at their option. If one or more holders
elect to convert 2026 Convertible Notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our common
stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion
obligation in cash, which could adversely affect our liquidity. In addition, even if holders of the 2026 Convertible Notes do not elect
to convert their 2026 Convertible Notes, we could be required under applicable accounting rules to reclassify all or a portion of the
outstanding principal of the 2026 Convertible Notes as a current rather than long-term liability, which would result in a material reduction
of our net working capital.
The
accounting method for convertible debt securities that may be settled in cash, such as the 2026 Convertible Notes, could have a material
effect on our reported financial results.
Under
Accounting Standards Codification 470-20, Debt with Conversion and Other Options (“ASC 470-20”), an entity must separately
account for the liability and equity components of convertible debt instruments (such as the 2026 Convertible Notes) that may be settled
entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost. The effect of ASC
470-20 on the accounting for the 2026 Convertible Notes is that the equity component is required to be included in the additional paid-in
capital section of stockholders’ equity on our consolidated balance sheet at the issuance date and the value of the equity component
would be treated as debt discount for purposes of accounting for the liability component of the 2026 Convertible Notes. As a result,
we will be required to record a greater amount of non-cash interest expense as a result of the accretion to the carrying value of the
2026 Convertible Notes to their face amount over the term of the 2026 Convertible Notes. We will report larger net losses (or lower net
income) in our financial results because ASC 470-20 will require interest to include both the amortization of the debt discount and the
instrument’s nonconvertible coupon interest rate, which could adversely affect our reported or future financial results, the trading
price of our common stock and the trading price of the 2026 Convertible Notes.
In
addition, under certain circumstances, convertible debt instruments (such as the 2026 Convertible Notes) that may be settled entirely
or partly in cash may be accounted for utilizing the treasury stock method, the effect of which is that the shares issuable upon conversion
of such notes are not included in the calculation of diluted earnings per share except to the extent that the conversion value of such
notes exceeds their principal amount. Under the treasury stock method, for diluted earnings per share purposes, the transaction is accounted
for as if the number of shares of common stock that would be necessary to settle such excess, if we elected to settle such excess in
shares, are issued. If we are unable or otherwise elect not to use the treasury stock method in accounting for the shares issuable upon
conversion of the 2026 Convertible Notes, then our diluted earnings per share could be adversely affected.
In
August 2020, the FASB published an Accounting Standards Update (“ASU”) 2020-06, which amends these accounting standards by
reducing the number of accounting models for convertible instruments and limiting instances of separate accounting for the debt and equity
or a derivative component of the convertible debt instruments. ASU 2020-06 also will no longer allow the use of the treasury stock method
for convertible instruments and instead require application of the “if-converted” method. Under that method, diluted earnings
per share will generally be calculated assuming that all the 2026 Convertible Notes were converted solely into shares of common stock
at the beginning of the reporting period, unless the result would be anti-dilutive, which could adversely affect our diluted earnings
per share. These amendments will be effective for public companies for fiscal years beginning after December 15, 2021, with early adoption
permitted, but no earlier than fiscal years beginning after December 15, 2020.
Provisions
in the indenture for the 2026 Convertible Notes may deter or prevent a business combination that may be favorable to you.
If
a fundamental change occurs prior to the maturity date of the 2026 Convertible Notes, holders of the 2026 Convertible Notes will have
the right, at their option, to require us to repurchase all or a portion of their 2026 Convertible Notes. In addition, if a make-whole
fundamental change occurs prior the maturity date, we will in some cases be required to increase the conversion rate for a holder that
elects to convert all or a portion of their 2026 Convertible Notes in connection with such make-whole fundamental change. Furthermore,
the indenture for the 2026 Convertible Notes will prohibit us from engaging in certain mergers or acquisitions unless, among other things,
the surviving entity assumes our obligations under the 2026 Convertible Notes. These and other provisions in the indenture could deter
or prevent a third party from acquiring us even when the acquisition may be favorable to you.
Risks
Related to Ownership of our Common Stock
Our
stock price is volatile.
The
market price of our common stock is subject to wide price fluctuations in response to various factors, many of which are beyond our control.
The factors include:
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the
impact on global and regional economies as a result of the COVID-19 pandemic;
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variations
in our operating results;
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variations
between our actual operating results and the expectations of securities analysts, investors and the financial community;
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announcements
of developments affecting our business, systems or expansion plans by us or others;
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technical
factors in the public trading market for our stock that may produce price movements that may or may not comport with macro, industry
or company-specific fundamentals, including, without limitation, the sentiment of retail investors (including as it may be expressed
on financial trading and other social media sites), the amount and status of short interest in our securities, access to margin debt,
trading in options and other derivatives on our common stock, fractional share trading, and other technical trading factors or strategies;
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competition,
including the introduction of new competitors, their pricing strategies and services;
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announcements
regarding stock repurchases and sales of our equity and debt securities;
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market
volatility in general;
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the
level of demand for our stock, including the amount of short interest in our stock; and
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the
operating results of our competitors.
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addition, the stock market in general, and the market for technology companies in particular, has experienced extreme price and volume
fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Broad market and industry
factors may seriously affect the market price of companies’ stock, including ours, regardless of actual operating performance.
In addition, in the past, following periods of volatility in the overall market and the market price of a particular company’s
securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against
us, could result in substantial costs and a diversion of our management’s attention and resources.
If
a substantial number of shares become available for sale and are sold in a short period of time, the market price of our common stock
could decline.
If
our existing shareholders sell substantial amounts of our common stock in the public market, the market price of our common stock could
decrease significantly. The perception in the public market that our existing shareholders might sell shares of common stock could also
depress our market price. Our executive officers and directors and certain of our shareholders were in the past subject to certain lock-up
agreements and the Rule 144 holding period requirements that have since expired. Now that these lock-up periods have expired and the
holding periods have elapsed, additional shares are eligible for sale in the public market. The market price of shares of our common
stock may drop significantly if our existing holders sell substantial amounts of our common stock in the public market. A decline in
the price of shares of our common stock might impede our ability to raise capital through the issuance of additional shares of our common
stock or other equity securities.
We
also filed a registration statement to register shares reserved for future issuance under our equity compensation plans. As a result,
subject to the satisfaction of applicable exercise periods, the shares issued upon exercise of outstanding stock options will be available
for immediate resale in the U.S. in the open market.
Additionally,
certain of our employees, executive officers, and directors have already entered into, or may in the future enter into Rule 10b5-1 trading
plans providing for sales of shares of our common stock from time to time. Under a Rule 10b5-1 trading plan, a broker executes trades
pursuant to parameters established by the employee, director, or officer when entering into the plan, without further direction from
the employee, officer, or director. A Rule 10b5-1 trading plan may be amended or terminated in some circumstances. Our employees, executive
officers, and directors also may buy or sell additional shares outside of a Rule 10b5-1 trading plan when they are not in possession
of material, nonpublic information, subject to the expiration of the lock-up agreements and Rule 144 requirements referred to above.
General
Risk Factors
We
have no plans to declare any cash dividends on our common stock in the foreseeable future.
We
do not anticipate declaring any cash dividends to holders of our common stock in the foreseeable future. Consequently, investors may
need to rely on sales of their common stock after price appreciation, which may never occur to realize future gains on their investment.
Future
sales and issuances of our capital stock could reduce our stock price and any additional capital raised by us through the sale of equity
or convertible securities may dilute your ownership in us.
We
may issue additional shares of capital stock in the future, including shares issuable pursuant to securities that are convertible into
or exchangeable for, or that represent a right to receive, capital stock. We may sell common stock, convertible securities and other
equity securities in one or more transactions at prices and in a manner as we may determine from time to time, which could result in
substantial dilution to our existing shareholders. New investors in such future transactions could gain rights, preferences and privileges
senior to those of holders of our common stock.
If
few securities or industry analysts publish research or reports, or if they publish adverse or misleading research or reports, regarding
us, our business or our market, our stock price and trading volume could decline.
The
trading market for our common stock will be influenced by the research and reports that securities or industry analysts publish about
us, our business or our market. If few securities or industry analysts commence coverage of us, the stock price would be negatively impacted.
Additionally, if any of the analysts who currently cover us or initiate coverage on us in the future issue adverse or misleading research
or reports regarding us, our business model, our intellectual property, our stock performance or our market, or if our operating results
fail to meet the expectations of analysts, our stock price would likely decline. If one or more of these analysts cease coverage of us
or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price
or trading volume to decline.