With a focus on mobile and online applications, venture capitalists
expect to increase their investment in content creation for the digital
entertainment sector over the next two years, and see increased M&A
activity in the coming year, according to a recent survey by KPMG LLP,
the U.S. audit, tax and advisory firm.
In polling 300 venture capitalists, corporate executives, and
investment bankers, KPMG found that 52 percent of respondents say
venture capital investment in digital content creation will increase
over the next two years. In fact, 25 percent of the respondents
indicated that they believe investment will increase by more than 20
percent. Asked whether that investment would support user-generated
content or professional content providers, respondents were evenly
split, with each option receiving 50 percent of the responses.
Beyond investment, 59 percent of respondents indicated that they
expect increased M&A activity, including 18 percent that expect an
increase of more than 20 percent.
"Digital entertainment is such a vast and constantly evolving
sector, and has had a tremendous impact on consumer habits," said Packy
Kelly, KPMG partner based in Silicon Valley and co-leader of its
venture capital practice. "Investors will continue to seek
opportunities to invest in those companies that are at the cutting edge
of the disruptive technologies that are driving the evolution in how
people communicate and access the information and content they are
interested in."
While overall investment in digital entertainment will increase,
venture capitalists see certain sub sectors as the leading
opportunities. Asked which sub sectors would receive the most
significant portions of those increased investment dollars, 31 percent
say mobile applications, 26 percent said technology enablers and 20
percent indicated social media services.
With a focus on mobile entertainment, venture capitalist opinions
vary when asked about which mobile entertainment applications would
dominate market revenue in 2009, though social networks was the
favorite with 31 percent of the responses. Rounding out the top five
applications were gaming (20 percent), video (14 percent), music
downloads (20 percent) and user-generated applications (10 percent).
Additionally, 90 percent of VC respondents believe mass adoption of
mobile video consumption will take off in the next five years, and 60
percent expect it will happen within the next three years.
"Activity in the market clearly indicates that the mobile space has
become a significant area of opportunity for venture capitalists," said
Brian Hughes, KPMG partner based inPhiladelphia and co-leader of its
venture capital practice. "The population of consumers who prefer to
receive content via their mobile devices is a rapidly growing segment
of the market, and VCs have shown keen interest. We've seen new funds
created specifically for the mobile sector, and social media also
continues to gain traction."
When asked who they saw taking the lead in leveraging social media,
respondents were mixed. Forty-four percent say the social media sites
themselves, but 22 percent think content owners, 20 percent brand
advertisers and 14 percent wireless operators. In addition, many of the
respondents (48 percent) believe advertising will monetize social
media, while 19 percent believe, much like texting, it is the
transport. While perspectives on what is going to truly monetize social
media differ, 93 percent believe that the networks will significantly
monetize their online viewership in five years or less.