Much has been written in recent years on the creator economy. There are progressive accounts painting a rosy picture of millions of self-employed individuals, newly empowered to pursue their passions – which would imply a broad, horizontal market opportunity for companies building tools and services to support these creators.
Young media consumers – who will hold greatest spending power in the coming decades – have different habits from previous generations. In 2022, 89% of UK children habitually consume content on video platforms like YouTube and Tiktok, while fewer than 50% habitually watch live TV. By contrast, back in 2012, children spent more time consuming television than any other content medium. But it can be tricky to separate the signal from the noise in an emergent market. Where does power really lie in the creator economy value chain, and which are the most attractive market segments? With our investor hat on, where might we find venture-scale opportunities, including in software and tooling? Our view of the creator economy is as follows:
The distribution of creators’ audiences (and incomes) follows a power law. Most views and eyeballs accrue to a relatively small set of professional creators. To illustrate this, we looked at a snapshot of Youtube subscriber numbers from 2020 (via Socialblade). A tiny fraction (<1%) of channels attract more than 100k subscribers. Comparably, the top 1% of Twitch streamers capture more than 50% of revenue on the platform. These distributions are similar on OnlyFans, Substack, and other platforms. We believe only ~1% of creators (i.e. a few hundred thousand) are large enough to be recurrent high-value buyers of creator tools. A further few million may be on the cusp of that threshold (i.e. currently 10K subs or more, using the Youtube data below as a proxy).
Source: Socialblade (2020)
The implication for software vendors is evident. For a startup building tools for creators, it’s crucial to go after accounts with more than 100k subscribers (or equivalent) – because these customers enjoy the lion’s share of revenue, audience engagement and ability to pay. Micro- / amateur creators make a small fraction of revenue and if they don’t succeed in breaking into the big time, there is a lot of churn. To serve this latter segment, CAC and COGS must be de minimis.
At the top end of the market, creator businesses are almost indistinguishable from traditional media companies. Back-office tasks and admin are usually outsourced to an army of service providers: talent agents, accountants, specialised lenders, PR firms, etc. Many creators hire full-time staff to handle these matters in-house: the Youtuber MrBeast has over 60 people working for his organisation. Meanwhile, Mythical Entertainment (the content house which grew from the Good Mythical Morning channel) is an organisation of 120. Successful creators professionalize when they have the means to do so. For companies building “business in a box” solutions, the top end of the market is no longer greenfield, being already well served by in-house staff and agencies. The most immediately addressable customers are the least attractive ones: the long tail with the smallest opex budgets. We see many startups offering business management software to creators, which begs the question: is this a wedge to eventually serve the top end of the market (or else: how can you serve the long tail in a low-touch way with low-cost acquisition)? For high-end creators, there’s an opportunity for software that automates some cumbersome manual workflows. Machine learning might yield new efficiency in editing, localisation, and syndication of content (as Jellysmack does today with a semi-automated approach). Brand partnerships are another area that can meaningfully shift the net revenue of a high-end creator: agencies often charge up to a 40% take rate on brand deals, and there may be a marketplace or aggregator built in this space. Regardless of the category: to serve the very largest creators, the software needs to have a clear ROI case versus the default practice, which is to hire staff.
We believe creators can be segmented according to the size of their following, the way they manage their business and how content discovery impacts a creator’s revenue mix (i.e. direct or ad-based). Opportunities for startups vary based on which customer segments they are serving within this framework. Creator businesses built on Instagram and TikTok, or any other feed-based platforms see their user engagement regulated by the platform’s discovery algorithm. Attribution of a creator’s impact on ad impressions isn’t something feed-based platforms are currently doing, for now. The platform’s own advertising is often mixed in to the feed and is integrated seamlessly like just another piece of content. In contrast, on platforms that support subscriptions and ad overlays, content and impressions are attributable to a single unit of user-generated content (“UGC”). Creators building on feed-based platforms leverage the algorithm to grow their audience but then need to monetise using "direct to audience" (or just "direct") monetisation levers like merchandise (e.g. apparel, cosmetics, affiliate partnerships), off-platform subscriptions (e.g. Patreon, OnlyFans, etc), or fan experiences (tours, promotional events, etc), to name a few. In contrast, creators building their audience on platforms like Youtube, Twitch, Facebook Video and increasingly Snapchat can attribute advertising impact directly to their content and are paid a share of advertising revenue, often upwards of 50%. For this set of creators, advertising revenue is often their largest source of income and their sole focus is maximising engagement and user retention within the platform.
Could the economics of the creator economy be fundamentally changed by Web3? NFTs are an opportunity for creators to create rich experiences for fans who subscribe by buying into the network. Cryptonetworks enable both an additional direct monetisation opportunity, and potentially a decentralised content platform where the economics are more advantageous for creators. Several tokens are currently being used for “token gating“, granting holders exclusive privileges or access, with one of the most widely circulated being the controversial Socios fan tokens used by football teams. It’s not yet clear if creator tokens will gain widespread adoption, even as crypto enters the mainstream through recent celebrity endorsements. If creators offer NFTs, when are they financial instruments, and can they be safely marketed to minors - who are large consumers of UGC today? Will dapps reach performance parity with web 2.0 to realise their potential to disintermediate content platforms? We saw a number of projects being funded in this space but many are seeing slowing momentum in the current crypto liquidity environment. Will this recent development push out the timeline for adoption of web3 for direct monetization? The jury is still out, but it’s a space we’re tracking closely along with the other potential applications of web3.
Startup opportunities in the creator economy have been mapped in detail. Our view is that this market is not a straightforward ‘gold rush’. Several of the opportunities are well served by incumbents, and the ability to pay (let alone the willingness) is concentrated at the top of the creator distribution. Broadly speaking, technology can help creators:
The blueprint for building the next billion-dollar company in this space is not completely clear – but it’s important to acknowledge that we remain in the early stages of the creator economy. User-generated content is fast becoming one of the most popular types of content, and the ways to monetise it are only widening. Over half of a typical American teenager’s media time is spent viewing UGC, versus less than a quarter for Americans over 50. As this trend plays out, some tricky market segments could yet become attractive. More eyeballs and more creators will lead to more opportunities for creator economy tooling companies in the future.Are you building a company in the creator tools market that resonates with the ideas above? If so, we’d love to hear from you.
*A special thank you to Doron Nir, Hugo Ansellem, Chandar Lal, and Robert Latsky.
