The Digital Media Renaissance: Part One
This is part one of a two-part series on the digital media sector. In part, one we’ll look at what has fuelled the rapid growth of the market. In part two, we’ll explore how we think the sector will change over the next three to five years and what that means for investors.
There’s a good chance that you’re reading this article on your mobile, maybe while streaming some music. Perhaps once you’ve finished the article you might decide to pull up the newest episode of your favorite tv show (we’re loving season 2 of Ted Lasso at the moment). And maybe you’re on your way home, where you’ll eventually sit down and play a console game for an hour. Millions of people will be doing something similar.
This wasn’t the case just ten years ago. Historically, traditional media distributors — such as broadcasters and publishers — dominated, constrained by limited offline space for content. They acted as distribution gatekeepers, enforcing high barriers of entry for independent and smaller-scale content creators.
Today things have changed. Digital media is all around us, from mobile to games console, and the sector is exploding. The global digital media market is currently worth USD 293 billion and this is expected to grow to USD 414 billion by 2025. At a CAGR of 9%, this will significantly outpace overall economic growth, which is expected to be around 4.3% through to the end of 2023.
At EQT Growth, we believe the explosion of digital content is at the heart of an emerging cultural renaissance. Let’s explore what’s fuelling this.
A tailored approach
Throughout the 21st century, advances in technology and service offerings have enabled people to move from linear programming to on-demand and tailored consumption. People are also increasingly consuming and producing content and experiences online, at home, and on the move. And the entire process has been democratized.
Let’s start with on-demand and personalized consumption. By a combination of design and circumstance, agile consumers are increasingly constructing their own bundles and content environments, paying directly for all-you-can-eat access to all manner of content previously consumed offline.
One such example is EQT Growth’s portfolio company Epidemic Sound. The Swedish music-tech firm has an innovative digital rights model that paves the way for creators — everyone from YouTubers to small businesses to the world’s largest brands — to use ‘restriction-free music’ in their videos, whilst simultaneously supporting the musicians it works with both financially and creatively.
The personal touch
While consumers embrace opportunities to tailor their media and entertainment packages, companies are also finding better ways to personalize customers’ experiences. By improving how they leverage data and usage patterns, platforms can pitch their products to billions of individuals, rather than audiences of billions. The benefits are clear: a recent McKinsey study found that companies that implemented personalization realized 5% to 15% increases in revenue and 10% to 30% improvements in marketing spend efficiency.
Life in sound and colour
The rise of mobile and video has empowered consumers to exert greater control over how and when they experience content. Companies, in turn, are tailoring their offerings and business models to revolve around the new services and formats that have emerged.
Take the use of TikTok during the most recent Olympics as an example. Within a few hours of winning gold, British swimmer Adam Peaty had shared the behind-the-scenes of his win on the social media platform for millions to watch for free, all by simply filming himself on his mobile phone. Compare this to Beijing in 2008, when a behind-the-scenes documentary would have required an entire film crew and would not have been broadcast for days or even weeks.
Production and consumption for the masses
TikTok, along with many other social media platforms and internet apps, clearly illustrates how the traditional barriers to entering the media industry have been broken down. Emerging artists, creators, and everyday people are benefiting from open, instant, and, in many cases, free access to a critical mass of users via online platforms.
At the same time, new digital platforms and easy-to-use online and mobile tools are making it much easier to produce, distribute and monetize audiences. Another example is Freepik. The Spanish company puts a creative universe at users' fingertips, giving access to high-quality icons, vectors, photos, videos, and presentations templates. It has transformed the visual content and online graphic design market thanks to its innovative freemium business model and unique content production model, making it, today, the largest freemium provider of digital visual content in the world.
Freepik’s CEO Joaquin Cuenca Abela spoke to us about this shift. “While brands and businesses have the channels & platforms to directly reach and engage with their audiences today, they still, oftentimes, lack the technical and creative expertise & tools to craft their messages in ways that will best resonate with their consumers. The proliferation of ready-to-use content and easy-to-use content creation tools & editing platforms is enabling a new wave of autonomous content creators (“prosumers”) and helping today’s brands and businesses cover this important last mile of the content creation process.”
A cultural renaissance
The advent of mobile, video, and social platforms has completely disrupted the media sector. Today, content can be consumed wherever you are and consumers expect to have much more control over the content they engage with.
At the same time, niche content creators have been empowered to convert their passions into careers. It is giving the average person the opportunity to distribute their own content, brands, and products across a range of dedicated platforms and channels, allowing them to reach and monetize larger audiences while building loyal communities.
This fundamental shift is what we describe as the cultural renaissance. But what does the next decade have in store for the digital media industry?
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