African entertainment startups had their best funding year on record last year, even as they struggle to find business models that work in the continent, according to a new report.
The startups raised a total of $13.9 million in 2020, almost 19 times what the sector had raised the previous year and nearly 116 times what it had secured in 2018, says the report by Disrupt Africa, a website for news on African tech startups.
“Spending power is growing, entertainment startups are increasingly succeeding where others failed, and investors are looking for opportunities beyond busy spaces like fintech, health, and e-commerce,” Tom Jackson, co-founder of Disrupt Africa, told Quartz. “There was always going to be a drip-down effect, and we are starting to see it.”
The huge growth reflects the success of a handful of companies and not of the sector overall. This year, all the funding went to just 10 firms, according to the report.
Africa’s entertainment space “is still in its early days, and is characterized by a clutch of early-mover companies that intermittently raise cash; otherwise, the landscape is relatively sparse,” says the report.
The main funding recipient in the African entertainment sector last year was Kenya’s Mdundo, a music streaming and downloading platform. It raised $6.4 million through its oversubscribed IPO on the Nasdaq First North Growth Market Denmark.
Other startups that secured funding include South Africa’s Carry1st, which develops and publishes mobile games and content apps, and Sea Monster, a game and animation creator. They received $2.5 million and $1 million, respectively. StarNews Mobile, an Ivorian video-on-demand startup, got $1.8 million. The investments mainly came from venture capital funds.
Despite its record performance, the entertainment sector lagged behind most others, with fintech leading the pack by far. The entertainment sector secured 2% of the funding last year, compared to 0.15% in 2019.
With expanding internet connectivity and an increasing array of connected devices, Africans are becoming bigger consumers of content. However, finding a sustainable model to make entertainment businesses work in the continent remains difficult in part because of high data costs and piracy. A relatively small middle class and non-essential spending on entertainment have also prevented startups from grasping the market, Jackson said.
As an example, iROKOtv, one of Africa’s first mainstream movie streaming websites and an early success story among entertainment startups in the continent, has shifted its focus from Africa to African diaspora markets in North America and Western Europe in search of profit.
But Mdundo appears to have figured out a way to make money. It generates revenue by selling ad space on songs that users can download for free. The company made $300,000 in ad sales this way in 2019. Mdundo and StarNews Mobile, Jackson said, “realize that mobile-first, data-lite, cheap solutions are the way forward, at scale, and in multiple markets.”
Sign up to the Quartz Africa Weekly Brief here for news and analysis on African business, tech, and innovation in your inbox.