Creator Economy: Doomsday or Here to Stay?

6 min readSep 25, 2023

It’s not 2021, a refrain investors, operators, and other VC industry participants have heard many times this year. Valuations for venture-growth companies plummeted[i], and exit activity has come to a crawl, with M&A deal volumes 42% below their peak in Q4’21[ii] and over 200 companies stuck in the IPO pipeline[iii].

After a record (and, in retrospect, clearly overheated) 2021, the Creator Economy is facing a “reckoning,” with Q2’23 funding down over 90% vs. with the same period in 2021[iv].

US Fundraising for Creator Economy Startups ($B)

Despite the steep drop-off in venture funding, the Creator Economy isn’t dead… On the contrary, independent creators’ meteoric rise continues to profoundly affect our everyday lives and the Media, Entertainment, and Gaming (“MEG”) industries.

Alignment Growth has been closely following the Creator Economy sector with two primary thoughts in mind:

(1) Creators are Competitors to Traditional MEG Businesses: The fight for consumer time and wallet share has never been fiercer. Today, in the US alone, over 300 MEG platforms compete for our eyeballs[v]. Although creators are typically “just” individuals, they compete alongside media conglomerates, game publishers, and platforms for our attention. A recent study found that user-created content accounts for 39% of weekly media hours consumed by Americans[vi]. As time spent with traditional MEG mediums, such as traditional TV, shifted to digital platforms, creators are carving out an increasingly larger portion of our MEG consumption.

(2) Creators are Producers of Next-Generation IP: As their name implies, creators must create something (e.g., a video on TikTok or a game within Roblox) to engage with their audiences. Although the types and quality of their creations vary vastly and typically differ from the “traditional” MEG content, creators are producers of content, some of whom manage to aggregate audiences that rival those of mainstream TV. MrBeast averages 7.5M viewers per video[vii], neck in neck with The Voice, broadcast TV’s highest ranked unscripted show, which averaged 7.3M viewers on NBC in its last season[viii].

The Creator Economy’s relevance to MEG cannot be understated. Our team at Alignment Growth has been studying the nitty-gritty of the space and has aggregated the following preliminary take-aways:

Winner-Take-Most Market

Though we set out to explore the Creator Economy as a “new” space for Alignment Growth, we found that it’s not dissimilar to other MEG industries we know well. Like most content businesses, creators and their content are also hit-driven. Some are very successful, but most are not. And with low barriers to create content, naturally, there is much more noise to break through on these platforms than on traditional, professional media platforms.

The result of this is a winner-take-most market, where a very small minority of creators manage to break through and capture the lion’s share of the value. Data suggests that success is significantly more concentrated than the Pareto Rule (i.e., 80% of outcomes result from 20% of all causes):

YouTube: 90% of subscribers come from less than 5% of YouTube channels[ix]

Twitch: 90% of revenue comes from less than 10% of Twitch accounts[x]

Patreon: 70% of revenue comes from 3% of Patreon accounts[xi]

Substack: 90% of revenue comes from less than 10% of Substack writers[xii]

Key Takeaways: Betting on the break-out success of a new content creator is incredibly uncertain. Extreme revenue/audience concentration is common even for businesses that work across portfolios of established creators (think MCNs or creator talent managers). Like Hollywood celebrities, “A-list” creators command significant leverage but pose concentration risk to businesses in their orbit.

There is No “Middle Class”

One of the Creator Economy’s most publicized headlines is the vast number of its participants. Recent reports have put the number of global creators as high as 200M+[xiii].

With its low barriers to entry and a large and growing “workforce,” on the surface, the Creator Economy seems like a promising end market for the “picks and shovels” businesses supporting this ecosystem… Wrong!

Because the creator economy is a winner-take-most market, most creators (i.e., more than 95% of creators) earn ~$1K or less per year. Anecdotally:

Patreon: Only 2% of creators made the federal minimum wage of $1,160 per month in 2017[xiv]

Spotify: Artists need 3.5 million streams per year to achieve the annual earnings for a full-time minimum-wage worker of $15,080[xv]; Based on data that Spotify has shared, we know that only 52.6K (of ~8.0M) earn more than $10.0K annually[xvi]

Roblox: Less than 0.5% of Roblox developers earn more than $1.0K annually; Most average $50 over the same time period[xvii]

In this context, even the cost of an annual subscription to Adobe Premiere Pro ($250 annually) or Artlist Max ($480 annually) is not insignificant.

As a result, most creators are not, in fact, equitable with SMBs and MMBs because the vast majority of creators do not earn enough from their activities to justify paying for premium tools and services (at least in a sustainable way). Said differently, the vast number of creators does not come close to a large TAM of potential paying users.

Key Takeaways: Building and scaling creator-focused “pick and shovels” businesses is challenging. High churn and increasing CAC are the name of the game. Your user base is likely to be highly price-sensitive and eager to explore a cheaper or free alternative when presented with such an option. Additionally, knowing what segment of the creator base you build for (e.g., top 1%, “middle class,” etc.) is almost as important as what you build.

Large Tailwinds in the Shift to Digital Ad Spend

Today, advertising industry executives will give you reasons not to be excited about the current ad market, many of which are rooted in the dramatic pullback in ad spending in late 2022. Going into 2023, digital advertising was expected to grow 8% YoY, the slowest growth rate since 2009[xviii]. That is the short-term prognosis.

Despite the somber outlook for the total ad wallet, we believe that the ongoing, long-term reallocation of ad spend away from the $61BN linear TV market will continue to provide a powerful tailwind for the Creator Economy[xix]. With a significant portion of Creator Economy represented by video, creator video content offers a natural vessel for the migration of the existing linear TV ad budgets. Further, the vast array of creator interest areas, demographics and genres offers nearly endless possibilities for targeting specific audiences on a regional and global basis.

Key Takeaways: We believe that businesses that enable creator audience aggregation and targeting serve a valuable place in the Creator Economy. They put more money in creators’ pockets while providing a valuable service for advertisers and marketers.

In our mind, success in this category will be concentrated in businesses that are:

Scaled: Enable access and sophisticated targeting capabilities across vast end-user audiences without an over-reliance of few A-list creators

Efficient: Largely automate the process of working with dozens, hundreds, and even thousands of individual creators for brand advertisers and marketers

Cross-platform: Provide advertisers and creators with reach across multiple platforms and not beholden to a single platform like YouTube

About Alignment Growth

Alignment Growth invests in growth-stage companies across media, entertainment, and gaming (“MEG”) on a global scale. Alignment Growth seeks to drive value creation in partnership with its portfolio companies by leveraging its team’s senior executive operating, strategic, and dealmaking experience at global Fortune 500 MEG companies.

Contact Information

We welcome comments and feedback on our analysis and observations. Please do not hesitate to contact our team at info@alignmentgrowth.com. Additional information can be found on our Website, LinkedIn, and Medium.

Alignment Growth

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New York, NY 10019

Disclaimer

This blog post is not financial, legal, tax, accounting, or investment advice, and Alignment Growth is not making any recommendation to buy, sell, or otherwise transact with any of the securities discussed. The valuations, projections and estimates included here are pulled from third party resources which we believe to be accurate, but we have not independently verified that data. Nothing contained in this post is, or shall be relied upon as, a promise or representation as to the past or future, or that any of the estimates or projections described will be achieved. None of the securities identified in this blog post are current holdings of Alignment Growth, and Alignment Growth has no present intention to buy, sell or hold any of these securities. Alignment Growth does not undertake to update this post as market conditions or our own investment intentions change.