✘ Culture is mispriced - where is the opportunity?
Before the pandemic the cultural and creative sector generated 4.4 percent of the European Union’s GDP, a bigger economy than telecommunications and one that employs more than eight times as many people. Yet, it feels like money doesn’t behave around the creative industries as if it’s that impactful. It can feel like most capital walks past culture, perhaps because it refuses to fit the kind of B2B SaaS playbook most investors like to see. This is a large slice of the economy that gets treated as background noise, or as a category too soft and too strange to price properly. Most money treats the creative industries as a rounding error. This is a mispricing that Gareth and I tackled in our latest podcast. We found that this rounding error issue could be a more interesting problem than the technology conversation that usually finds itself sitting on top of it.Our guests each have a thesis built on that mispricing, approaching it from opposite ends of the same value chain. Severin Zugmayer runs New Renaissance Ventures and writes first checks into early stage creative tech, backing the founder, tools, and companies. Victoria Fäh is investment manager at IPR.VC and set up its research arm, the IPR LAB, backing the IP and the audience wrapped around it. Two very different approaches for the same problem.The money was already thereSeverin started from a position of scepticism and tried to prove his own hunch wrong. Creative industries felt underinvested, so he went looking for the number, and he couldn’t find one. “It’s not like in fintech or health tech where you have very clear reports and know exactly the numbers,” he told us. So he used the big generalist funds as a proxy, went through the portfolios of the likes of Sequoia and a16z, and counted how much of them actually sat in music, gaming, film, design, and the tools around them. He expected 3% or 4%, a few lucky shots. He found 8% to 10%. “Of every ten companies, basically one company is in creative industries, which is quite a lot, if you consider there’s tons of other categories as well.”The problem was not that the money wasn’t being invested missing. It was that there was no strategy around the money that was already flowing. The capital shows up scattered across portfolios that would never describe themselves as investing in culture. Naming a thing is the first step to funding it deliberately.What IP actually isVictoria came at this from the content side. At IPR.VC the question around the value of IP has been shifting away from whether a book or a film or a song has value in the abstract and instead is moving to where that value accrues, and to whom. Her answer is pretty direct. “The IP value really goes to the ones who can reach their customers,” she said, “so it’s often in the distribution and the monetisation stage later on.” Which means the audience relationship belongs inside the asset itself. The people who will keep coming back are as much the IP as the work that draws them, and a piece of IP is really a book plus its readers, the band plus its fans, the film plus its viewers, held over years.Her New Content Economy paper sharpens this into a claim about risk. In the old model, risk sat right at the front: you spent the money making the film, then hoped it found distribution and, after that, an audience. The order has now flipped. Attention and engagement tend to come first, distribution follows, and the IP value, in the paper’s own rather dry phrase, “might not materialise” at the end at all. Value has migrated toward whoever holds the audience, and the old upfront bet on a finished object looks increasingly exposed.Severin arrived at a similar blur from the tech side. “When I set up the fund I was struggling with that question, where do I make this delineation between tech tool and IP investment,” he said. “I told all the LPs I’m not doing IP, because I have no clue about IP. I might have taste, but I don’t have the means to evaluate what is a good IP.” Then his own portfolio filled up with companies throwing off IP as a by-product: transmedia assets, user generated content, tools that mint characters and catalogues. A tech investor and an IP investor can now sit on the same cap table and both be right.Where scarcity goes to hideVictoria’s paper tells the history of her industry as a story about where scarcity lives, and how it keeps moving. In the analogue era it sat in physical infrastructure, the presses and the pipes. With streaming it moved to platform ownership and premium content. As the cost of making things collapses, it is on the move again, toward brand, trust, and the ownership of an audience. The paper puts it in six words: “Technology lowers friction. Scarcity shifts elsewhere.”When creation gets cheap, the cheap thing stops being where the money is, and the game becomes a chase to find whatever has gone scarce in its place. Abundance never abolishes scarcity. It relocates it. Follow that notion into music and the questions get sharper, because music sits at the very bottom of the value pyramid, and Victoria took us right to it.The pyramid, and where the value hidesThe IPR LAB took McKinsey data and worked out how much a single hour of human attention is worth depending on the medium, and it sorts into a pyramid. The total media average is about $0.36 an hour. Audio sits at the very floor, worth as little as $0.05 an hour. Social video is a little above it, streaming video above that, and live experiences sit at the summit at more than $32 an hour, with theatrical a pretty distant second. The floor is where scale lives. Streaming and social and music, the cheap and almost infinite layers, is where discovery and fandom get manufactured for global audiences. Eventually, the money gets captured at the top, in the concert ticket and the merch you can hold in your hands.Scale accumulates at the bottom of the pyramid, value gets captured at the top, and the whole game is building something that spans the full height of it. It also reframes the “everything, everywhere, all at once” idea Victoria spoke to. Projects used to be discrete: a film, an album, a slate. The businesses she finds most interesting now build ecosystems from the start, “a whole universe of IP that can live as a piece of music, as a game, as content, as merchandise, and everything all at once.” One piece of content feeds the next, the way a MrBeast or a GoodGood operation works, and the tidy labels of early, mid, and late stage stop meaning much because the cycle never really stops. “Even this podcast,” she noted, “you can’t just do it once.” Point taken.The paper estimates this new content economy already accounts for around 14% of the global media market while driving roughly a quarter of its growth, and projects it toward a quarter of the whole by 2030. The scale of the thing is not insignificant.Don’t (always) take the moneyBoth guests offered a piece of advice. Do not raise venture capital unless your business genuinely has to hyperscale. Severin pointed to Neural Frames, bootstrapped to five million in annual revenue by a founder coding alone in his bedroom, “growing profitable from day one,” before he took a cent from anyone. “I’m telling founders very often, don’t take VC money if you don’t have to, because you have all the flexibility and freedom.” Under all of it sits the power law, the one law no financing model escapes according to Severin. “It’s always only a few assets which make the return,” as he put it, a handful of songs and a handful of films carrying everything else. You are always betting on the asymmetric outcome, whatever instrument you use.Victoria’s addition was gentler and, perhaps, more immediately actionable. A lot of this is an education gap wearing the costume of a financing one. Many creatives simply do not know the options that already exist, from gap financing to tax credits, “and for some creative communities it can be a bit of a scary thing to think about finance and mone… This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit musicx.substack.com
