The creator economy is growing but challenges abound
The original story was posted on VC Cafe
“A creator, such as an artist, musician, photographer, craftsperson, performer, animator, designer, videomaker, or author — in other words, anyone producing works of art — needs to acquire only 1,000 True Fans to make a living”
Kevin Kelly, 1,000 True Fans
At the heart of the creator economy (also dubbed the “Passion Economy” or “Hustle Economy”) is the ability of a creator to monetise attention and fandom. As described by Tim Ferriss in Tools of Titans, to be a successful creator you don’t need millions of dollars, customers, or fans. To make a living (defined as $100K a year), former Wired editor Kevin Kelly suggests, you only need 1,000 true fans that will each buy products from you for $100 a year.
1000 Superfans or 100 True fans?
A “true” fan (or “Superfan”) is defined as one who would buy anything you produce — drive a long distance to see you perform, subscribe to your paid newsletter and set up a Google Alert with your name. True fans are assets as they are both s source of direct income and provide word of mouth (that attracts ‘regular’ fans). For Superfans to effectively work, this means creating a relationship between the creator and the fans, and now the stars have aligned to make these relationships easier than ever to form and scale.
While some say that its 1,000 true fans needed, others say its much less. In the A16Z blog, Li Jin, one of the most prominent writers on the creator economy, said that creators can make a living with only 100 true fans, by segmenting their audience and offering tailored products and services at varying price points. I highly recommend signing up to her excellent newsletter for interesting takes on the creator economy.
In this post, I wanted to deconstruct the various pieces of the flywheel that drives the Creator Economy, as well as the challenges, and opportunities for startups in this space.
The new Creators
According to Li Jin, we’re in the process of the ‘unbundling of work‘ in which many are moving from companies to independent sole proprietor businesses.
Caitlin Dewey, a reporter at The Buffalo News, called it the Hustle Economy, “an online labor market in which platform-dependent workers create and monetize their own digital products”.
Eric Feng, a former Kleiner Perkins partner, describes the new wave of creators as “DNVCs”, or Digitally Native Vertical Creators (an adaption of DNVBs, also known as direct to consumer brands or DTC):
“A new class of content creators has emerged that is writing, recording, filming, and producing incredibly unique and compelling media and then connecting directly to audiences to showcase and sell their creative products.”
In the past, if you wanted to learn from the best thinkers in Economics, you’d have to buy a subscription to the Economist or the FT. Today, those thinkers can create content directly (and in some cases exclusively) for their (paying) fans. Creators decouple their non-standardised skills from the aggregator and hope to become themselves a brand.
Gen Z and the 1% rule
In my days as a product manager, the conventional rule for user generated content was the 1% rule. 90% of users are passive readers, 9% might engage in rating/commenting and 1% of users generate content. The 1% rule is now changing with Gen Z. As the first generation born into an established Internet, with a smartphone at hand from a young age, Gen Z’ers place a high value on self expression.
A report by JWT Intelligence stated that 56% of respondents use social apps to express themselves creatively :
“Most Gen Zers have a penchant for traditional artistic hobbies such as painting, film, or playing an instrument — but online, these talents take on new forms. Taking cues from a world of online personalities and content, gen Zers are manipulating and altering creative works to generate memes, photo collages, filters, and more. What’s more, they’re harnessing social apps and digital creative tools to visually enhance the way they communicate, whether it’s a casual note to their friends or a message of activism to their broader online community”
Creator Economy vs. the Gig Economy
In the 2010s, companies like Uber, Postmates and Taskrabbit helped popularise the Gig Economy, giving a monetisation platform for ‘standardised skills’ — the gig economy companies aggregated user demand, standardised the offering and took a (significant) cut from the person performing the services.
Creators Platform Dependency
The passion economy is different in the sense that the Creators make the product (normally a digital asset — text, video, images, podcasts, music, game stream), generate their own demand by bringing the audience built over time, and monetises it by leveraging (and relaying on) a number of enabling platforms, some of which you can see in the graphic below. These platforms include tools for composition/authoring, hosting/ delivery, sharing/collaborating and transaction/monetisation. The number of enabling platforms for creators has grown to all media types including music, social, gaming, education, publishing, adult video and so on.
Covid-19, the great accelerant of industries
In the wake of Covid-19, many of the enabling platforms for the creator economy have seen an inflection point at almost exactly the same time. Partly this is because Covid-19 increased media consumption across the board and a lot of the digital products made by creators consist of media products.
On one hand, it’s never been easier to reach a global audience, but on the other, it’s extremely hard to cut through the noise. Take Twitch for example. To be on the top 8% of streamers, you only need to have 5 concurrent viewers. Another way to look at it, is that 92% of streamers had less than 5 viewers over the past 30 days. That’s a huge long tail…
There are still many challenges for creators
- Attention spans are getting shorter — not every person that starts a newsletter is Ben Thompson, and not every Twitch streamer is Ninja. Few people have been able to build full “hustle economy” careers. According to Graphtreon, a site visualising Patreon analytics, there are 176,000 creators on Patreon with at least one patron and approximately 9 million individual pledges a month paying out approximately $20 million a month. If you do the quick math, you’d come up with approximately $113 per month per person, which is far from the 1,000 true fans. While the number of creators and pledgers is on the rise, it’s unclear how many creators ‘make a living’ off of Patreon beyond the top 1,000.
2. Subscription fatigue — Creators, especially those in the ‘media’ space, are competing on the consumer dollars with aggregators (like Spotfiy for music or WSJ for financial news) who amass a huge catalog and charge a low monthly fee, as well as with publishers, who leverage their brand and use personalisation and segmentation tech to attract and monetise their audience.
Trend to watch: an equivalent to MCNs (Multi Channel Networks) on the early days of YouTube where creators band together to generate economies of scale (and share revenue).
3. It’s not exactly ‘direct’ to consumer — every platform takes its cut from the creator transactions (as they should). There’s always going to be a tension between the creator and the platform. For example: Epic Games’ battle with Apple on sharing 30% of every in app purchase on iOS, or the backlash of musicians like Taylor Swift against Spotify royalties, or vloggers against Youtube.
Trend to watch: free or lower fee creator tools. To get $1 in the bank, creators have to generate $2 (taking into account platform costs, creation costs, promotion, taxes, etc). They might flock to new, open source solution, to reduce platform fees and increase their share.
4. Copyright, or the lack thereof — it’s hard for creators to prevent illegal distribution of their IP. Anyone can download a Tiktok video or copy it, forward a newsletter or share ‘exclusive’ images with friends on Whatsapp. In music for example, the labels would go to great lengths to collect royalties for music in YouTube videos (how much of it actually goes to the artist is a different story), but creators have to fend for themselves.
Trend to watch: digital rights management solutions for creators.
5. Content discovery for the creation economy is still poor — today, the main way to discover new creators remains word of mouth. That’s why every now and then you’d see people asking for podcast or newsletter recommendations. As the creators bulk of high quality content is locked behind a paywall, it’s hard for new fans to stumble upon it.
Trend to watch: Better discovery tools for emerging creators. A Producthunt for newsletters perhaps?
Overall, I’m excited about the rise of the creator economy. As a consumer, I am in awe of the creativity and talent of emerging creators. As a VC, this is an area we’re actively look at Remagine Ventures — If you’re building one of these at the pre-seed stage, I’d love to get in touch. The challenges mentioned above illustrate just how much remains to be done in the creator economy space. From new platforms supporting the creation process, to discovery tools that help creators reach wider audiences, this is an area to watch.