The Creator Economy, the movement that empowered content creators to monetise their expertise/passion/art/commentary is going through a rough patch. In 2021, Creator Economy startups raised $5 billion dollars, As inflation rises, consumers tighten their wallets and reduce discretionary spend. Overall, we remain interested in the creator economy at Remagine Ventures, but startups targeting creators or building tools in this space, need to understand what changed and how to adjust to survive and thrive in the current market.
The good news: there’s never been a better time to be a creator
Social platforms cater to creators – Youtube, TikTok, Substack, Twitch, Instagram, Snap, Spotify etc, are ‘fighting’ over creators attention, and several platforms offer creator funds (like Snap’s recent music related example) and support plans for rising stars. Other “niche” platform like adult-content OnlyFans offer content creators immediate monetisation opportunities direct from their fans, even with little following. 15 creator platforms reached ‘unicorn’ status.
Tech advancements are making it easier than ever to create, edit, distribute content than ever before (more on this in my post on ‘the opportunities for creative automation’). And it’s not just AI… if previously a creator needed equipment, editing skills and an understanding of online marketing, now you can pretty much do it all with just a smart phone.
Consumer behaviour changed – As a society, we watch less TV, and consume more information on social media, podcasts etc. The explosion of new content created keeps us entertained and has changed consumer habits. You’re more likely to get your next holiday tips, recipes or relationship advice from a creator rather than a publishers. It’s also the case when it comes to news: Gen Z barely watch TV and TikTok is the fastest growing news source among adults in the UK, according a recent report by UK regulator Ofcom.
There’s a growing number of creators – 200 million people consider themselves creators (according to the 2022 creator report by Linktree). The number of creators can be misleading, as only small percentage are what we would define as professional full time creators.
The bad news: Wallets are tightening up and creators are feeling the pinch
Funding to creator economy startups dropped by 60% – Creator economy startups raised “only” $700 million in Q2 2022, a 60% drop compared to the equivalent period last year. To be fair, the declines in venture activity in Q2 2022 took place across the board, not just in this category.
Even funds that were synonymous with the creator economy like Li Jin’s Atelier Ventures and SignalFire, who published the first creator economy startup landscapes, have seemingly moved away from the category. In an email to a founder (shared with me confidentially) a partner in the fund said they’ve decided to deprioritise anything related to the creator economy for now to create more diversification in their portfolio. Li Jin and Atelier Ventures shifted to Variant Fund and focus on Web3 / Crypto.
Creator economy startups are laying off employees: the funding crunch, especially in growth stage companies, is forcing startups across the board (especially non-profitable ones) to extend runway. Cutting costs is one of the quickest ways to do that. And so, like many startups in other categories (see layoffs.fyi), creator economy companies have been laying off employees.
A very long tail for earning real money – the same problems that plagued the creator economy startups early on, like the lack of creator middle class, still remain. While the numbers are improving, it is still hard for most creators to go full time on content creation and make a living.
The Twitch hack exposed in Oct 2021, in which the original source code was stolen and creator payment data was leaked showed the grim reality of this:
- 50% of revenue was made by the top 1% of streamers
- 75% of accounts that are making money made less than 120 dollars this year
- 896,261 accounts made no money at all
- Only 0.06% received over the U.S. median household income of $67,521.
- A quarter of all revenue was earned by the top 1,000 accounts.
Other surveys and reports show a slightly better distribution of payments, but the long tail is very long:
- The Linktree report mentioned above, found that only 12% of full-time creators are making more than $50,000 per year with 46% of full-time creators making less than $1,000 annually
- A bit more optimistic was a survey of content 2,000 creators published in August 2nd 2022 by Influencer marketing hub, which showed that 1.7% of the creators surveyed (34 people) made $1M in a year. Around 21% of creators who participated in the survey (420 people) make a liveable wage above $50K in annual income doing content creation work.
I wrote about it on Forbes earlier this year: “To succeed in the creator economy startups should focus on creator needs“
The number of creators might be a vanity number.
The Linktree Creator Report puts the number of creators at 200 million. Are the semi-pro and recreational creators likely to spend money on creator economy tools? Unless you’re a platform (like the giant social media companies), you’re looking at a small total addressable market.
The real earning power is concentrated in the top 1% of creators. As Dan Runcie, founder of Trapital, shared in ‘The overlooked levels of the creator economy“:
Those that group all “creators” together risk missing out on the next phase of opportunities: particular tools that help breakout stars grow their business, improve the quality of their content, and offer bespoke resources to solve specific pain points. To help creators level up, tool builders will need to consider the levels of creators in a more nuanced way.
Consumers are tightening their wallets – as interest rates go up, so does inflation, affecting the prices of energy, food, travel, etc. With the rise in the cost of living, people tends to spend less on other stuff. A good example of this is gaming. According to research firm Ampere Analysis, Global video game sales are forecast to contract 1.2% to $188 billion in 2022. We’ll only know at the end of the year, but perception can become reality.
99% of creators get attention, not cash
One of the reasons that TikTok exploded in popularity, is that one could be ‘discovered’ and become a star overnight. The way the app works, is powered by personalised algorithms that direct users to videos that they are likely to watch. And so, a user uploading their first video on the platform, might get a million views overnight, even without having followers. The are 39,000 TikTok accounts with over a million followers. This is in contrast to Youtube or Instagram, which are more heavily weighted on followers/subscribers, which takes time and effort to build.
But even in the case of a hit video, it’s hard to convert the attention to cash. A video with a million views on TikTok will earn its creator between $20-$40. Not enough to quit their day job… Therefore, targeting creators are customers is a risky strategy for startups. And now, it’s getting more difficult to get to those one million followers, according to The Information.
This means startups selling to creators have a smaller real addressable market, consisting on the full time creators that are willing to spend money on tools /services. And even those creators, will prioritise tools that can directly impact their bottom line.
Evan Armstrong summarised his advice in his post on ‘how startups can survive the creator economy winter”, His advice: adopt revenue share as a model. Creators are likely to agree to share some of their revenue generated with outside tools, but are likely to be reluctant to sign up to subscriptions (or churn quickly).
The idea is simple:
Because 99% of creator revenue accumulates at the top .01% of creators, creator economy startups have to find a way to justify taking a % of revenue. This is not an easy task and only a select few will succeed in the coming bear market.
… To survive the creator economy winter a startup must scale their revenue with their customers such that they can properly serve the power creators. Otherwise, you are stuck being a micro-SMB SaaS, which just isn’t a good business model. But for those who do this right, revenue share can be used to build an incredible company while helping tens of thousands of people build their own digital media empire.
Evan Armstrong, Every
The Creator Economy is still relatively young. I’ve seen startups that were previously targeting creators (i.e. ‘solopreneurs’) shift their focus to SMBs or give startups/small businesses the tools they were offering to creators. Their goal: find a path to profitability and increase revenue. As funding to the sector contracts, focusing on this is a key step for survival. There are interesting areas of opportunity for creators around community building in Web3 and Metaverse that are still relatively un-exploited. I expect to see a lot more activity in that space in the coming months. The latest creator economy startup landscape below is a good sample.