Creator Economy: Where Can the Future Opportunities Be?

Creator Economy: Where Can the Future Opportunities Be?

By Christophe Rainville and Simon Levine

In recent years, a lot has been said about the creator economy. Some paint a rosy picture: Millions of self-employed individuals gaining the power to follow their passions—and that means a vast, horizontal market opportunity for companies that develop tools and services for these creators.

Younger media consumers - who will have the greatest spending power in the coming decades - have different habits than previous generations. In 2022, 89% of British children are used to consuming content on video platforms such as YouTube and Douyin, while less than 50% of children are used to watching live TV. Remember, in 2012, kids spent more time on TV than any other content medium. But in an emerging market, separating signal from noise can be tricky business. Where exactly is the power in the creator economy value chain? Which are the most attractive market segments? As investors, where can we find venture-scale opportunities (including in software and tools)?

Our take on the creator economy is as follows:

• Creators are not created equal. There is a "power law" in the distribution of attention and income, and the top 0.5% of creators have obtained a highly concentrated stickiness. It is difficult to achieve risk-scale results if the focus is only on the long tail of creators, with revenue concentrated in the "head" of distribution.
• Premium creators have grown into full-fledged media companies, and opportunities for automation are emerging. Premium creators are best understood as established media companies, backed by in-house teams and established service industries. We're starting to see more automation: software is augmenting traditionally manual workflows such as content repurposing/syndication, internationalization, brand partnerships and audience analysis.
• Creators' sources of income depend on their primary distribution platform. In turn, this also means that their tool needs will be different. For creators focused on longer videos (e.g. Youtube, Twitch), in-platform advertising is a key revenue driver - and therefore the item most in need of optimization. Instead, for companies that focus on feed-based platforms (Instagram, TikTok, etc.), the holy grail is monetizing users directly through marketing, paid subscriptions, paid content, and merchandise.
• Web3 is changing the narrative from direct monetization to ownership. NFTs enable digital scarcity and thus offer viewers the opportunity to “own” an external token of their fans—often with a high willingness to pay. Communities can be deepened through personalized fan engagement, access to content and community through token ownership. These monetization methods are still in the early stages of adoption.

‍Creator economy is highly concentrated

The distribution of a creator's audience (and revenue) follows a power law. Most views and traction go to a small group of professional creators. To illustrate this, we took a look at a snapshot of YouTube subscriber numbers in 2020 (via Socialblade). Only a small percentage (<1%) of channels attract more than 100,000 subscribers. In comparison, the top 1% of Twitch streamers earn more than 50% of their revenue on the platform. These distributions are similar on OnlyFans, Substack, and other platforms. We believe only about 1% of creators (i.e. hundreds of thousands) are large enough to be recurring high-value buyers of creator tools. A few million more people could be on the edge of this threshold (e.g. using the Youtube data below as a proxy with current subscriptions of 10k or more).

​ Source: Socialblade(2020)‍

The implications for software vendors are obvious. For a startup building tools for creators, finding accounts with more than 100,000 subscribers (or the equivalent) is critical — because those customers enjoy the lion's share of revenue, audience engagement, and paying power. Micro/amateur creators only get a fraction of the revenue, and if they don't succeed in breaking into a big market, there's a lot to lose. To serve the latter, CAC and cost of goods sold must be minimized.

"Super creators" refer to media companies

At the high end, the creator business is virtually indistinguishable from traditional media companies. Back-office work and administration is usually outsourced to a wide range of service providers: talent agencies, accountants, specialist lenders, PR firms, etc. Many creators hire full-time staff to handle these things in-house: YouTuber MrBeast has more than 60 people working for his organization. Meanwhile, Mythical Entertainment (the content company that grew out of the Good Mythical Morning channel) is a 120-person organization. Successful creators only specialize if they can. The high end of the market is no longer new territory for companies building "one business" solutions, and is already well served by internal staff and institutions. The most immediately reachable customers are the least attractive: the long tail with the smallest OPEX budgets. We see a lot of startups offering business management software to creators, which begs the question: how do you serve the long-tail market in a low-touch way with low cost acquisition? For high-end creators, the software can automate some tedious manual workflows. Machine learning may yield new efficiencies in editorial, localization, and content syndication (as Jellysmack is doing today with semi-automated methods). Brand partnerships are another area that can effectively change the net income of high-end creators: Agencies often take a commission of up to 40% on brand deals and may build a marketplace or aggregator in this space. No matter the category: in order to serve the biggest creators, software needs to have a clear ROI case.

Different distribution platforms → different needs for creators

We believe creators can be segmented based on their follower count, how they manage their business, and the impact of content discovery on their revenue mix (i.e., direct or ad-based revenue mix). Opportunities for startups depend on the customer segments they serve within this framework. For a creator business built on Instagram and Douyin or any other feed-based platform, user engagement is governed by the platform’s discovery algorithm. As it stands, feed-based platforms don’t attribute creators’ influence on ad impressions. The platform's own ads are often mixed into the feed and integrated as seamlessly as another piece of content. In contrast, on platforms that support subscriptions and ad overlays, content and impressions are composed of a single piece of user-generated content (“UGC”). Creators built on feed-based platforms utilize algorithms to grow their audiences, but then need to use "direct to audience" (or just "direct") monetization leverage, such as merchandise (e.g. clothing, cosmetics), off-platform subscriptions (e.g. Patreon, OnlyFans, etc.), or fan experiences (tours, promotions, etc.), etc. By contrast, creators who have built audiences on platforms like Youtube, Twitch, Facebook Video and, increasingly, Snapchat can attribute ad influence directly to their content and earn a cut of the ad revenue, often as high as 50%. %. For these creators, advertising revenue is usually their biggest source of income, and their only concern is keeping users sticky and maximizing user retention in the platform.

Web3 has the potential to change the narrative: From direct monetization to ownership

Could Web3 Fundamentally Change the Creator Economy? NFTs are an opportunity for creators to create rich experiences for fans who purchase web subscriptions. Crypto networks offer both additional direct monetization opportunities and a potentially decentralized content platform that is more economically beneficial to creators. Several tokens are currently being used as "token gates" to grant holders exclusive privileges or access, the most widely circulated being the controversial Socios fan tokens used by football teams. It's unclear whether creator tokens will see widespread adoption, despite the cryptocurrency's recent entry into the mainstream through celebrity endorsements. If creators offer NFTs, at what point are they financial instruments? Can they be safely sold to minors (the major consumers of UGC today)? Can dapps achieve performance comparable to Web 2.0, enabling their The potential of disintermediating content platforms? We are seeing a number of projects in this space gaining funding, but in the current environment of crypto liquidity, the momentum of many projects is slowing down. Will recent developments push back the timeline for direct monetization of Web3? The jury is still out, but we are closely monitoring this area as well as other potential applications of Web3.

The dawn of the creator economy, an opportunity for startups

Entrepreneurial opportunities in the creator economy have been mapped out in detail. Our view is that this market is not a simple "gold rush". There are opportunities offered by incumbents, where the ability to pay (not to mention willingness) is concentrated at the top of the creator distribution. In general, technology can help creators:

• Create content. For any format (video, images, music, animation, podcasts/spoken), most creators can benefit from tools that lower the barrier to entry for creating content. The model we were looking for was a native collaborative, mobile-friendly alternative to Adobe products. Promising but underserved areas, including internationalization and syndication: These are invaluable opportunities as they help creators expand their fan base across cultures and platforms.
• post content. Most of the value is captured here on distribution platforms (YouTube, Instagram, Twitch, Twitter, and others). Optimizing for time, format and frequency are important considerations for content creators, but we believe that creating a standalone software business in this space is difficult.
• Attract and monetize users. Feed-based creators need to find ways to monetize off-platform. Small creators based on advertising platforms may seek additional sources of income. This is where the first opportunities for web3 lie. Direct monetization tools are now increasingly bundled with content creation/publishing tools. For example, our friends at StreamElements transitioned from providers of stream coverage, alerts, and moderation chatbots to offering goods and creator pay-as-a-service.
• manage their business. We haven’t seen a company successfully offer an “all-in-one business” solution to help creators manage their day-to-day expenses. Given the power law of creators, the penetration of service providers by large creators, and the high churn rate of small and medium creators, we see this as a challenging market.

The blueprint for building the next billion-dollar company in this space is not entirely clear, but it must be acknowledged that we are still 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 monetize it are expanding. The typical American teen spends more than half of their media time viewing UGC, compared to less than a quarter of Americans over 50. As this trend develops, some market segments may become attractive. More attention and more creators will bring more opportunities for future creator economy tool companies.

Source：https://medium.com/@Mosaic_VC/the-creator-economy-a-power-law-2e967302895a

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