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Media-focused venture activity set for ramp-up

30 Nov 2011

Media and entertainment-focused venture capital is set to gain ground over the next five years, with industry revenue is expected to jump 8.5 per cent per year to $1.4bn by 2016, new research has found.

According to market analyst IBISWorld, as consumers shift toward digital media, venture investors look to the leading companies in the sector. More initial public offerings (IPO) will take place over the same period, prompting many industry players to pour more money into early stage companies.

Heightened stock market activity will also pave the way for more investment in the market, increasing the amount of funds available for industry players to invest and the management fees earned from doing so, it said. Following the wave of interest in new media during the past five years, more new firms will start up, providing new ways to consume media and entertainment.

While media and entertainment venture capital industry slightly declined over the past five years, with revenue expected to decrease 1.7 per cent per year to $962.7m by year-end 2011. The recession resulted in a significant drop in investor confidence and stock market activity, limiting the amount of money for industry firms to invest with.

The industry has bounced back in line with the economic recovery, though, as global stock markets increased and initial public offerings became more commonplace, resulting in a jump in industry revenue. Several high-profile IPOs and planned IPOs have bolstered the industry and increased interest in investing in start-up media companies. Industry revenue will increase 34.3% in 2011 as successful IPOs buoy the industry’s top line.

According to IBISWorld analyst, Justin Molavi, the shift from traditional media to digital media has created immense opportunities for new companies as they seek to capture demand from consumers. And whilst there are no major sector-specific players in the industry, some of the firms that operate in the media and entertainment venture capital space include big hitters such as Sequoia Capital and Accel Partners.

Consumers are increasingly using the internet and mobile devices to interact with media and share content with friends. As such, many companies have entered the space, vying for the industry’s investment dollars. Additionally, many new companies have been able to monetise their businesses at earlier stages, due to the existence of mobile payment platforms and internet advertising. This trend has lessened the risk of initial investment by industry firms because these companies already have some revenue on the books, according to Molavi

He said, “Stock market value growth will lead to higher company valuations, prompting many industry players to invest more in new media companies,” says Molavi. More IPOs will also take place and push industry revenue higher as more companies hit the public marketplace. Higher investor confidence will also result in heightened fund values, making more money available for investments over the next five years. Media and entertainment will continue to be hot space with new companies vying for consumer attention and developing innovative platforms to consume media.”

As a result of these trends, industry revenue in media venture capital is expected to increase 8.5 per cent per year to $1.4bn in the five years to 2016, he said.

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