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Venture Capitalists to Increase Investment in Content Creation for Digital Entertainment Sector

With a focus on mobile and online applications, venture capitalists expect to increase their investment in content creation for the digital entertainment sector over the next two years, and see increased M&A activity in the coming year, according to a recent survey by KPMG LLP, the U.S. audit, tax and advisory firm.

In polling 300 venture capitalists, corporate executives, and investment bankers, KPMG found that 52 percent of respondents say venture capital investment in digital content creation will increase over the next two years. In fact, 25 percent of the respondents indicated that they believe investment will increase by more than 20 percent. Asked whether that investment would support user-generated content or professional content providers, respondents were evenly split, with each option receiving 50 percent of the responses.

Beyond investment, 59 percent of respondents indicated that they expect increased M&A activity, including 18 percent that expect an increase of more than 20 percent.

"Digital entertainment is such a vast and constantly evolving sector, and has had a tremendous impact on consumer habits," said Packy Kelly, KPMG partner based in Silicon Valley and co-leader of its venture capital practice. "Investors will continue to seek opportunities to invest in those companies that are at the cutting edge of the disruptive technologies that are driving the evolution in how people communicate and access the information and content they are interested in."

While overall investment in digital entertainment will increase, venture capitalists see certain sub sectors as the leading opportunities. Asked which sub sectors would receive the most significant portions of those increased investment dollars, 31 percent say mobile applications, 26 percent said technology enablers and 20 percent indicated social media services.

With a focus on mobile entertainment, venture capitalist opinions vary when asked about which mobile entertainment applications would dominate market revenue in 2009, though social networks was the favorite with 31 percent of the responses. Rounding out the top five applications were gaming (20 percent), video (14 percent), music downloads (20 percent) and user-generated applications (10 percent). Additionally, 90 percent of VC respondents believe mass adoption of mobile video consumption will take off in the next five years, and 60 percent expect it will happen within the next three years.

"Activity in the market clearly indicates that the mobile space has become a significant area of opportunity for venture capitalists," said Brian Hughes, KPMG partner based inPhiladelphia and co-leader of its venture capital practice. "The population of consumers who prefer to receive content via their mobile devices is a rapidly growing segment of the market, and VCs have shown keen interest. We've seen new funds created specifically for the mobile sector, and social media also continues to gain traction."

When asked who they saw taking the lead in leveraging social media, respondents were mixed. Forty-four percent say the social media sites themselves, but 22 percent think content owners, 20 percent brand advertisers and 14 percent wireless operators.

In addition, many of the respondents (48 percent) believe advertising will monetize social media, while 19 percent believe, much like texting, it is the transport. While perspectives on what is going to truly monetize social media differ, 93 percent believe that the networks will significantly monetize their online viewership in five years or less. /PR/FierceWireless

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