The end of peak TV has investors looking beyond Hollywood for their next bets as private-equity and venture-capital firms plow into areas like sports and AI.
Venture funding in media, entertainment, and gaming fell 62% in 2023, when it represented its lowest share of deal volume in at least five years, according to a new report by investor Alignment Growth. That was a far steeper decline than the overall venture funding market, which declined 38% in 2023, the report said. (The report was based on data from Crunchbase, which Alignment Growth is an investor in.)
This situation isn’t any better in private equity.
In past years, private-equity players bet big on filmed entertainment, seeking to capitalize on the streamers’ appetite for movies and shows. But they have increasingly soured on the sector as media giants from Disney to Warner Bros. Discovery have cut spending in a bottom-line focus. S&P Global found that private equity and venture capital investment in movies and entertainment fell 73.5% in 2023, its lowest level in at least six years.
“With the changing distribution landscape as streaming becomes more dominant and other lines of revenue such as TV licensing decrease, it’s becoming more and more difficult for smaller films to turn a profit,” Wade Holden, senior research analyst at S&P Global Market Intelligence, wrote of declining investment in independent films.
Institutional investors like Blackstone and Bain Capital Real Estate also previously poured billions of dollars into production studios, whose growth now looks like it could level off in the coming years, Deloitte and others have predicted.
Anthony Jasenski, who leads CBRE’s film studio practice for the Americas, said sound-stage investors and their lenders have been doing more due diligence amid higher interest rates.
“Before the interest rate environment increased, things were more easily financed,” he said. “There’s a lot more questions being asked.”
Industry experts said the supply of sound stages hasn’t yet met the anticipated long-term demand. But Jasenski said in the short term, stages still haven’t gotten back to full capacity since the strikes ended, and they face the threat of another labor stoppage as the Teamsters and IATSE prepare for their own negotiations with Hollywood.
“Where we are in a few months will be telling,” Jasenski said. “If they’re not full by summer, that’d be an issue.”
Where investors are going now
So, who is getting funded?
Investors have been flocking to AI, live entertainment, and sports.
AI companies like Runway, which is looking to disrupt content creation, snapped up 13.6% of media, entertainment, and gaming venture funding in 2023, up from 2.6% in 2020, per Alignment Growth’s report.
Funding is also flowing to companies that support live experiences, which remain popular after pandemic lockdowns. Such companies — like Dice, an events discovery and ticketing platform — grew their share of late-stage venture funding to 14% in 2023 from 11% in 2020, the report said.
Live sports’ staying power has also attracted early and late-stage investors. Sports M&A nearly tripled in three years to $27.9 billion in 2023, driven by deals for team franchises, the Alignment Growth report showed. Investors are also pouring money into startups focused on areas like sports tech and sports betting, such as gambling company Betr, which just announced $15 million in new financing.
Each of these areas carries specific risks
These new hot areas of investment carry their own distinct risks.
The entertainment industry’s labor agreements that ended their historic 2023 strikes came with protections against AI’s incursion that could limit Hollywood’s adoption of the tech.
Alex Iosilevich, one of Alignment Growth’s founders, said AI startups could also find it hard to compete with the entrenched tech giants, given the computing power, input data, and engineering staff required to push generative AI’s boundaries.
“There were quite a few smaller startups trying to innovate in photorealistic 3D video creation, and then comes Sora from OpenAI (which already raised $10b+) and makes many others look irrelevant,” he said.
High ticket prices for live entertainment could dampen attendance, especially if consumer confidence takes a hit.
Investors are also crowding into the space. That’s why Vania Schlogel, the founder of media-and-entertainment-centric PE firm Atwater Capital, is eyeing companies aimed at specific demographics or communities, like portfolio company 88rising, which hosts a popular Asian-focused music festival.
“‘We’re very interested in those kinds of companies for live events where there’s some kind of curatorial value ascribed to the event,” Schlogel said.
And while international sports teams can present a big opportunity to buy undervalued assets, investors may encounter different cultures and profitability struggles that could be challenging, said Craig Thompson, the founder of sports-tech investor Mindspring Capital.