The Digital Media Renaissance: Part Two

This is part two of a two-part series on the digital media sector. In part one, which you can read in full here, we looked at what is fuelling the rapid growth of the market. Now we will look at how we think the sector is going to change over the coming years.

The Renaissance is described as a time of European cultural, artistic, political, and economic “rebirth” following the Middle Ages. Roughly covering the 14th to 17th centuries, the period saw a rediscovery of classical philosophy, literature, and art. As we said in the first of this series, we think a new cultural renaissance is emerging, with digital content at its heart.

If we’re now at the start of a Renaissance, then the end of the 20th century and the beginning of the 21st can be seen as the Middle Ages. Throughout the end of the 20th century, we saw global media conglomerates consolidate the market, dominating the entire process of production through to distribution. By the early 2000s, the scale of these companies made it near impossible for independent players to emerge in the media sector.

But as we explored in part one, this has now all changed. Digital media production and consumption have been personalised, disrupted, and democratized. And we believe this is only the start.

Taking control

First, we believe that the shift from passive to active content consumption is set to continue. People want to have control over what they consume and the evidence shows that personalised services contribute to an increase in revenue.

This trend has dovetailed with the rise of both mobile-first and user-generated content. As our attention spans have gotten shorter, so has our favourite content, which has led to the proliferation of short-form, easy-to-create video, audio, and written content. Today, more and more consumers are looking to their mobile devices for personalized media consumption, as is currently available on platforms such as Tik Tok, Triller, Likee, and Blinkist (amongst others).

A recent report showed that more than 75% of US adults spend up to two hours watching short-form digital video content each day and Tik Tok has been the major benefactor. Time spent on Tik Tok by users in the US has grown ~375%(!) year-over-year, making the short-form, video-sharing app number two in terms of daily average usage, behind Facebook.

On the opposite end of the spectrum, while we expect long-form content to maintain a relevant foothold in the space, we believe there will be a strong shift from more traditional linear and non-interactive media formats to more social, community-driven, and live forms of content.

We spoke with Oscar Höglund, Co-Founder and CEO of Epidemic Sound, about this trend. “In many ways, digital platforms have morphed into performance and entertainment spaces for content creators,” Oscar said. “These content creators are true storytellers and they employ the best music, video equipment, and graphics to create wonderfully immersive content. As a result, users are actively engaging in a way that we’ve never seen before. ”

Maturing business models

In recent years content and social platforms, together with individual content creators, have transitioned away from the classic advertising model. They have developed new, alternative, and sometimes even creative ways to monetize their audience, often moving to more direct transaction and subscription revenue models.

Premium and VIP subscriptions have gained a lot of traction. These either charge creators a monthly fee to allow them to use their platform, or they give creators the ability to create subscriptions and then take a cut of that fee. Online-based paid communities, which provide exclusive resources and community support for people with shared interests, are also becoming more popular.

Digital goods or in-app currencies are another prominent example: here users are charged for digital content such as virtual items, in-platform upgrades, or premium services. Finally, tipping, donations, and microtransactions allow viewers to reward creators — often livestreamers — with payments through a platform, which the platform then takes a cut from. Fortnite is a good example of how a well-developed microtransaction strategy can generate big money for developers of free games, with estimations saying that the game generated more than $9bn for Epic in 2018 and 2019.

On camera

We expect video, particularly in real-time, to continue powering the next generation of publishing, social content, events, and e-commerce startups. Video enables far more interactive and engaging content, improving the interactions between platforms / content creators and consumers / fans. Not only does this make the experience more immersive, but it also allows users to give direct and live feedback on the content they are consuming so that they can shape their experience in real-time.

We believe video will soon become the backbone of a whole new suite of vertical platforms. Whether it’s social content (Caffeine, Houseparty, Yubo), virtual conferences (Hopin, Zoom), fitness content (Zwift, Overtime, Mirror), educational platforms (Zipschool, Wyzant), or shopping experiences (Popshop Live, Shopshops, Hero), the video world is here to stay. One of the best illustrations of this is Hopin, the virtual events platform, which “officially” became the fastest-growing European startup ever in early 2021, taking just one year and nine months to reach a $5bn valuation, smashing the previous three-year record.

Coming out of COVID, many now realize that all these interactions we used to think had to happen face-to-face work just as well, if not sometimes better, in a video world. This should support the continued emergence of a whole category of tools and video-first / led content platforms.

The Enlightenment

The digital media sector is supported by dynamic, robust tailwinds and these aren’t going anywhere soon. At the same time, business models are maturing and profit pools are becoming more predictable in nature. As a result, we think numerous sizable and attractive assets will continue to emerge in the coming years, driving significant future fundraising and M&A in the space.

It’s an exciting time to be investing in the digital media sector. The Renaissance we mentioned earlier was followed by the Age of Enlightenment; we can’t think of a better word than Enlightenment to summarise our excitement for the future of the sector.

We would love to hear what you think. Comment below or join the conversation on our LinkedIn and Twitter.