For entrepreneurs and aspiring investors, the entertainment industry is a land of opportunity. From film production and music management to digital content creation and even iGaming, the industry offers many avenues for business-minded individuals.
From a consumer perspective, the industry is a way to escape the outside world: listening to Spotify during your commute, spending an hour browsing Netflix, and searching for the online casino with the best payout percentage to satisfy your need for cheap entertainment are how many of us deal with our daily lives.
The constant demand for new and compelling content is fueling the growth of this industry, which makes it the perfect fit for entrepreneurs who want to capture the zeitgeist, give the masses what they crave, and make a profit at the same time.
Why Entertainment is the Best
Instead of waxing poetic about consumption trends and the psychology behind entertainment, let’s look at the numbers and facts: Namely, the global entertainment and media market will be valued at a staggering $2.4 trillion in 2023, and is predicted to reach almost $3 trillion by 2025.
Streaming services are at the forefront of this evolution, with Netflix boasting over 230 million subscribers worldwide and generating $31.6 billion in revenue for the platform. Another major player, Disney+, has hit 150 million subscribers just three years after launch.
Social media platforms are not far behind: YouTube and TikTok have billions of monthly active users and derive most of their revenue from advertising.
It’s no wonder that thousands of entrepreneurs and investment firms are eyeing the industry’s potential.
Great profit opportunities in the entertainment industry
One of the main attractions for entrepreneurs is the diversity of income streams: in the film industry, for example, you can profit from box office sales, streaming rights, merchandise, and international distribution.
Putting numbers into this statement shows that the global box office alone will reach approximately $42 billion in 2023, with streaming services generating an additional $72 billion.
In the music industry, entrepreneurs can earn income through album sales, streaming royalties, live band performances, and sponsorship deals. The global music market is expected to be valued at $57 billion in 2022, with 65% of that coming from streaming services.
The power of digital platforms
Digital platforms have democratized the entertainment industry, allowing independent creators to reach global audiences without the need for traditional gatekeepers. YouTube creators monetize their content through advertising revenue, sponsorships, and direct fan support via platforms like Patreon and Kofi.
YouTube’s advertising revenue in 2023 is estimated to be around $29 billion, which speaks to the platform’s lucrative potential.
Keep in mind that the majority of this revenue goes into the pockets of the top 10% of creators, and newcomers must endure financial hardship until they achieve a comparable level of success.
Licensing and Merchandising
Licensing has big profit margins; a popular franchise can generate significant revenue from products such as toys, clothing, video games, food, and even theme park attractions. As many parents around the world can attest, Disney’s Frozen franchise remains hugely popular to this day, generating over $10 billion in retail sales worldwide from merchandise alone (costumes, wigs, comic books, games, etc.).
The risks of investing in entertainment
The reality is that the entertainment industry thrives on selling perfect footage, but each coin has a different side to it, and potential investors need to understand the risks involved.
High initial investment
Despite the opportunities, the entertainment industry is notorious for its high upfront investment costs. Film production, for example, requires a lot of money for equipment, locations, talent, and post-production. The average cost of producing a film for a major studio in 2023 will be around $100 million, not including marketing costs, which are often double that amount. The worst part is that this figure continues to grow every year.
The consensus among film experts is that most films must gross twice their budget to recoup their losses, although of course this varies from project to project.
Starting a music career is similar, often requiring a large investment in recording, marketing, and touring. Independent artists can expect to spend between $10,000 and $50,000 on their debut album and first tour.
Market volatility and oversaturation
The entertainment industry is highly volatile, with consumer tastes changing rapidly. Movies and albums that were expected to be hits can flop, resulting in huge financial losses. In 2022, about 60% of films released in theaters did not break even, a global phenomenon in the post-COVID era.
And while the barriers to entry are getting lower, paradoxically, it’s getting harder to break into the industry every year. If Hollywood in the 1950s was a closed VIP club, it’s now easier than ever for independent filmmakers to get loans, secure outside financing and release their films.
Whereas decades ago they had to compete with two or three flagship films, now it’s an all-out war between studios wanting the most lucrative release spots.
We’ve mentioned streaming platforms like Netflix and Disney+ before, but the flip side is that consumers are growing tired of having to subscribe to multiple streaming sites, and even the biggest companies are still struggling to stay cash flow positive in this environment.
Intellectual Property Issues
Protecting creative works from piracy and unauthorized use is a persistent challenge. This applies not only to movies and music, but also to high-level sporting events. For example, the recent boxing match between Usyk and Fury was reportedly illegally streamed by more than 20 million people around the world, costing organizers tens of millions of dollars in lost revenue.
Digital piracy is estimated to cost the global economy $29.2 billion per year. Additionally, securing the rights to existing IP for a remake or adaptation is complex and costly, often requiring lengthy legal negotiations.
Strategies for success
Putting data and analytics to work
Successful entrepreneurs leverage data to make informed decisions. Audience preferences, viewing patterns, and social media engagement are all important factors to consider when customizing content to meet market demand and optimize your marketing strategy.
Take Netflix, for example, which invests heavily in data analytics and spends over $1.5 billion annually on content recommendation and personalization algorithms, helping the streaming platform king ensure high audience retention and satisfaction.
Building a strong network
Networking is a key component of any entrepreneurial endeavor, not just in the entertainment industry. Building relationships with key people like producers, agents, distributors, and influencers can open the door to opportunities and collaborations that you might not have access to otherwise.
About 70% of Hollywood jobs are filled through personal connections, or in some cases, outright nepotism.
Diversifying the portfolio
Any savvy investor will tell you that diversification is a smart strategy to reduce risk. Entrepreneurs who invest in multiple projects across different segments of an industry buffer themselves against the failure of any single venture. For example, a film producer might also invest in digital content creation and live event production.
