Most of the strategy discussions and news coverage in the media and entertainment industry is concerned with the unfolding corporate mega-mergers and the political implications of social media platforms.
These are important conversations, but they’re largely a story of twentieth-century media (and broader society) finally responding to the dominance Web 2.0 companies have achieved.
To entrepreneurs and VCs, the more pressing focus is on what the next generation of companies to transform entertainment will look like. Like other sectors, the underlying force is advances in artificial intelligence and computing power.
In this context, that results in a merging of gaming and linear storytelling into new interactive media. To highlight the opportunities here, I asked nine top VCs to share where they are putting their money.
Here are the media investment theses of: Cyan Banister (Founders Fund), Alex Taussig (Lightspeed), Matt Hartman (betaworks), Stephanie Zhan (Sequoia), Jordan Fudge (Sinai), Christian Dorffer (Sweet Capital), Charles Hudson (Precursor), MG Siegler (GV), and Eric Hippeau (Lerer Hippeau).
Cyan Banister, Partner at Founders Fund
“In 2018 I was obsessed with the idea of how you can bring AI and entertainment together. Having made early investments in Brud, A.I. Foundation, Artie and Fable, it became clear that the missing piece behind most AR experiences was a lack of memory.
In order for virtual beings to finally take their place in our world, they’d need to remember our last interactions and develop meaningful relationships with us. For that to happen, we need to bridge the creative and technical worlds with tools as well as encourage AI engineers to work for entertainment companies.
I also became obsessed with live and interactive mobile-first entertainment, making investments in HQ Trivia, Drivetime, Bunch and Glamcam. When anyone says that consumer is over, I disagree. I believe we are on the cusp of a paradigm shift of how consumers behave and it’s the beginning of new social fabric and design that pushes devices in ways never before thought imaginable.”
Alex Taussig, Partner at Lightspeed Venture Partners
“2018 was the year esports went mainstream in the U.S. With our estimate of over 40 million monthly active enthusiasts, esports is now America’s second most watched sport, ahead of baseball and behind football. We invested in Epic Games, the makers of megahit Fortnite, and expect to invest in other companies riding the esports wave in 2019.
In addition, we are actively exploring the trend of digital celebrity. Characters have traditionally grown a fan base in offline media, but with interactive social platforms and quasi-realistic image/video rendering technology becoming widely available, we believe consumers will build relationships with a universe of new digitally defined characters.”
Matt Hartman, Partner at betaworks
“In media and gaming, 2018 was the year of Fortnite. Its success touched everything from business models to a marketing strategy which blurred the lines between real and virtual worlds. In 2019, I’m paying attention to Synthetic Media and the continued fluidity between what’s real and artificially generated inside of social media.
Synthetic celebrities will be complemented by synthesized voice as these content types go mainstream. The technology tools to create these characters will improve and we’ll also see technology built to detect malicious use of these new tools.”
Stephanie Zhan, Sequoia Capital
“At Sequoia, we see incredible potential for the world of gaming and entertainment. Among others, we are excited about:
- The next virtual third place where consumers are hanging out with friends. In the past, your local Starbucks or AIM would have been your go-to place to see and be seen. Today that is a group chat on Discord, or a gaming platform like Fortnite, Roblox or Against Gravity, maker of Rec Room where you can play paintball, act in charades or explore and create any world you want!
- The future of entertainment. As consumers spend more time on YouTube, Instagram, Twitch and Spotify, new entertainment companies will be born there, unfolding stories in new formats and pushing the boundaries of interactive storytelling. We’re thrilled to be partners with Brud, building a modern-day Marvel through computer-generated, character-driven worlds. Brud’s first character is internet sensation Miquela, with 1.5 million Instagram followers and even named one of TIME’s 25 Most Influential People on the internet.
- Esports. As esports become increasingly cool and mainstream, we believe new brands and communities will be built for this generation, like 100 Thieves — a gaming and esports brand led by gaming icon Nadeshot and co-owned by Drake and Scooter Braun.”
Jordan Fudge, Partner at Sinai Ventures
“We continue to seek out companies that are working on proprietary distribution channels, interactive media models and revolutionizing content creation and editing tools. Relying on ad-supported business models and third-party distribution channels has proved challenging over the past few years, as digital publishers and MCNs have demonstrated.
We believe that consumers are willing to pay for high-quality content in any format, which drove our investment in Luminary Media, a company changing the podcasting business model by delivering premium, ad-free podcasts to subscribers.
Similarly, mainstream adoption of smart speakers and improvements in NLP have created an opportunity for a new type of audio content, as Drivetime Media is demonstrating with its pioneering interactive media platform built for the captive audience of commuters.
In the gaming and esports world, publishers, game engines and distribution platforms are capturing a majority of the value, but casual and competitive gamers alike are joining new digital casinos, betting real money against one another on matchmaking platforms like Players’ Lounge.
One area we’re particularly excited about this year is AI and algorithmic media, which has made scalable “transmedia” content creation possible, an undertaking that Brud is pursuing starting with virtual influencers such as @lilmiquela.”
Christian Dorffer, Founder/Partner at Sweet Capital
“Last year we felt particularly bullish about products that enable self-expression while improving privacy as younger people find most existing platforms irrelevant.
We backed Highrise, a social network based on avatars, we backed Chroma Labs, a platform that makes it easier to create richer narratives and we backed nēdl, a platform that lets users discover and create live radio broadcasts that are searchable by keywords.
We expect this trend to continue in 2019, combined with spawning entirely new ways for consumers to connect in more meaningful ways.
All this is happening in the context of major media deals and distribution platforms’ push into original content.”
MG Siegler, Partner at GV
“In 2018, it was hard to go a day without some news about an entity creating/selling premium video content to Netflix/Apple/Google/Facebook/etc.
For startups doing this, it feels like great potential exposure and access to seemingly unlimited capital for such projects. But there’s obviously a risk here as well, as we’ve seen with other forms of content living or dying at the whims of the platforms.
I suspect we’ll continue to see these deals well into 2019 as the battle rages on between the aforementioned players trying to grab land share. But at some point, this will stop. And I wouldn’t be shocked if it also started to slow down quite a bit towards the back half of 2019.
So I’d advise companies to both get while the getting’s good (assuming the platforms are paying for it) and take free exposure and learnings. But also be well aware that this won’t last forever and certainly don’t bet the company on it — remember, nothing is actually free.”
Charles Hudson, Founder/Partner at Precursor
“I am very interested in new media and community models that eschew advertising and rely on subscription or membership models to fund the business. I think it just builds better alignment between the organization and its customers.
We are starting to see that model work in a number of verticals for companies such as The Athletic (I am an investor there), TheSkimm and Chairman Mom (where I am also an investor).
I am also very interested in voice-driven games and entertainment experiences for consumers. I think some of these voice-driven experiences like the ones that Volley and Drivetime are building (I’m an investor there) are taking advantage of the unique nature of voice as an input and output mechanism to make experiences that are unique to those platforms.”
Eric Hippeau, Founder/Partner at Lerer Hippeau Ventures
“The future is crystal clear. Digital media is the future and becoming more and more ubiquitous every day. To date, revenues for most digital media companies has not kept pace with traffic. But they will.
One reason is that Google and Facebook are taking the lion’s share of revenue. My prediction is that we will start to see that change in 2019 and 2020 and end up with a much more democratic landscape for digital media.”
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