Digital entertainment is clearly one of the growth industries right now, but what about the key details that will determine which parts grow and which contract? Post-pandemic, there seem to be stories everywhere you look of businesses that are collapsing as a result of changes in user behaviour. The moment you start to believe it is all doom and gloom, you hear a report of another company that has ridden out the post-pandemic slump and gotten even stronger. It’s time we took a closer look so that we can understand what’s really going on here.
Taking the industry and its associated markets as a whole, things are generally heading in an upward direction. Digital media is predicted to reach a total market value in excess of $3.5 trillion by the time we get to 2029, with some analysts predicting it will go even higher. Despite the fact that some businesses may have fallen away — Peloton being a prime example — the return to normality that began in early 2022 has seen the world’s appetite for content grow at pace. However, there is an important caveat that we need to put on this last point.
During the pandemic, brands like Zoom became household names in the blink of an eye, fuelled as they were by the unusual position we found ourselves in. This type of explosive growth is no longer occurring in the industry, but the lower rates of growth that are being seen right now appear relatively robust. This is good news for investors who are looking at digital entertainment as more of a long-term position.
The digital entertainment industry is reported to have a total revenue of $2.9 trillion in 2024 and is predicted to carry a CAGR of 3.7%. While never a certainty, the CAGR, in this case at least, has plenty of economic factors and drivers to back it up:
It’s the combination of these factors, rather than the presence of any one factor in particular, that lends credence to the CAGR figure quoted above. We will now look at several of the key drivers of the industry in more detail.
Digital entertainment is perfectly positioned for the placement of highly personalised ads at scale, and the vast majority of brands now focus significant portions of their quarterly spend on such channels. It is no longer the case that conventional, legacy-based ads can be positioned so that they outperform digital ads, and businesses are waking up to this new reality.
Every streaming service and social media platform will display ads to its users in some form or another. The result is a total ad revenue figure that is expected to break through the $1 trillion barrier by the end of 2025. Certain platforms are also figuring out ways to effectively make money whether an ad is displayed or not. Amazon Prime and Netflix both offer ad-supported plans that are available for a fraction of the price of their premium, ad-free services.
The key point here is that customers can continue at a budget price and enjoy all the same content; they just have to sit through the occasional ad break. If they do this, the advertisers are then spending part of their budget with the streaming platform. Alternatively, users can opt out of the ads by choosing to pay more each month as part of their subscription plan. Regardless of what the user does, money is being funnelled into the streaming service.
The pandemic brought with it the largest surge of tech startups and content ideas in recent memory, but not all good ideas become viable long-term businesses. Many have either been put out of business, failed to scale, or been acquired by a more established competitor as we write this in 2025. The market has certainly matured, with certain sources of digital entertainment becoming brands that are known around the world.
For every Bitcasino and Zoom, there are a dozen Pelotons and brands you will have never even heard of. The point here is that some brands were able to take their surge of traffic and interest and build on it, while others came to rely on it only to be caught out when the world returned to normal. That said, if you take the digital entertainment industry as a whole, it continues to grow at a faster rate than the global economy.
The entertainment businesses that have fared best during the transition of recent years are those that took a long-term view. Easy money and a massive captive audience are one thing, but it’s building a secure and robust position in the market by doing something no one else can that really matters. Gaming is a classic example of this point, and one that investors are increasingly paying attention to.
The viral nature of certain titles and franchises may lead you to believe that everything that a particular developer touches turns to gold, but there is far more to it than that. Players fall in and out of love with games and genres, and it’s the developers who are ahead of this curve who continue to prosper. This is why it should come as no surprise that one of the areas of greatest activity for successful gaming companies is the acquisition of innovative startups. Fresh talent, new ideas, and a willingness to adopt new technology all follow from this proactive approach to consolidation and expansion.
New ideas are the lifeblood of any industry, and this especially applies to the entertainment industry. A trend could be capturing the attention of the world one day and costing the company business the next if it fails to move with the times. Many entertainment platforms have leaned into the concept of fan-driven content, and others have focused on driving whole new mediums of play.
A prime example is the Bitcoin casino table games that you will now find online. Another example is the mobile games that leverage AR so that players can feel like they are immersed in the real and virtual worlds at the same time. The viral nature of Pokémon Go is all the proof you need of this concept.
We can also expect the rise of generative AI to completely transform the way that content is personalised. Rather than recommendations and suggestions, what would the digital entertainment landscape look like if we could each request our own RPG or AI-generated drama to enjoy? The future will be led by innovative thinkers and creators, quite likely at a pace that far exceeds anything we have seen before.
YouTubers like Mr Beast and Jake Paul are crossing over into the mainstream and being hired by platforms like Netflix and DAZN to deliver fresh content. With more viewers and greater choice than ever, comes an ever-increasing demand to have the latest must-watch piece of content. The same is true of any new gaming platform or console that tries to enter the market.
We expect to see streaming giants lead the way as they set about consolidating their positions by buying exclusive broadcast rights to a wide range of live sports. This could well be the final blow to legacy media, and one that it will never be able to come back from.
Challenges lie ahead for the industry, especially when you consider the fact that the companies themselves will have to spend more and more to compete with one another. This may result in an aggregating effect where the digital landscape is dominated by fewer than half a dozen players, as was the case with the legacy media in its heyday.
The services that win will be the ones that manage to move seamlessly across platforms so that users can consume their content without having to compromise. It will also be important for them to continue to deliver value as the continued rise in the cost of living will see more and more households trim down and streamline their entertainment budgets.
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