Monetization Models for Digital Content

Independent insight posted on Smartkarma 1st November 2017
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Ever since the rise of the online media industry and increasing pace of content digitization, traditional content creators, owners, and distributors have faced disruptions and declining revenues. Now, they are finding ways to monetize the content that they own or distribute. In this article, we explore seven pricing models that currently exist, but are still evolving. Some businesses could be using a combination of two or more monetization models.

1. Free with ads and/or exchange of data

Many major newspapers have adopted this model as readers moved to online reading, and get ‘accustomed’ to social media interfaces and ‘tailored-for-you’ newsfeeds. Advertisements are either embedded in the middle of the article, within a ‘pop-up box’ or ‘played’ before an article loads. Chatbots are embedded on certain Facebook pages to help with ad conversions.

For commercial websites targeting specific groups of users (eg. property portal), users get free access in exchange for their personal information. Such platforms depend on advertising from property agents/ agencies or other forms of deals with partners.

On video sharing platforms such as Youtube, famous musicians, artists, or vloggers thrive on their followership numbers so they can influence (or directly advertise to) their fans. Although content creators could earn some money by putting their creations on the platform, the big money comes in the form of corporate sponsorships or sales of other accompanying products.

To view the creators’ works, viewers may have to wait for that compulsory 10 to 30-second ads to pass, as in the case of certain free news sites. However, adblockers may be downloaded by viewers, thereby limiting advertisers’ reach (and hence monetization potential). This may be the reason why Youtube is starting to experiment with the subscription model, which leads to our next discussion.

2. Subscription

For this model, we are referring to those businesses that focus on differentiating free-usage versus premium customers. (The multi-tiered subscription model is discussed in the next point.) Newspapers such as the Wall Street Journal and Financial Times use this model. They allow reading of the initial paragraphs by the general public, but the rest of the content is behind a paywall. SmartKarma is on this model too but could add or evolve into other models later.

For video sharing platform Youtube, it has launched YouTube Red, a premium version featuring original content from Youtube’s biggest stars with no ads at all. In the US, it costs $10 per month, but there are no updates as to when this will be available in Asia.

Music streaming services such as Spotify use this model too. The regular subscription is often free or low-priced, but it has such a huge reach. If the subscriber base is too low, operating costs have to be covered through other means. Seeking Alpha, the US-based Investment Research Platform has a wide subscription base that provides early/ exclusive access to PRO subscribers.

3. Multi-tiered Subscription or Bundles

Here, owners or platforms of digital content offer tiered access based on formats, timeliness of access, the frequency of access, or duration of access. Wiley, a well-known publisher, has an online library of articles where one can purchase instant access via a few formats: Rent, Cloud Access, or PDF.

Source: A Page from Wiley’s Online Library

An extension of this model could be the pay-per-use model coupled with a low-priced subscription. This allows the platform to have a wide user base, which the businesses then dangle premium content for additional revenues. One example is Starhub TV, which used to practice compulsory subscription to their basic-tier content before allowing viewers to access premium channels (eg. EPL). However, the rise of online content platforms and changing customer behaviours have led the telco to scrap this model recently (Source: Straits Times).

Source: Straits Times

For brokers or banks providing investment research, a multi-tier subscription is less obvious, due to the bundling of commissions and other fees. However, clients are often internally ‘tiered’ by the sales or account managers based on the clients’ trading commissions or willingness to cut out a separate budget for research. The different tiers that clients are ‘grouped’ under will determine the amount of access to corporates, analysts, or their models.

4. Pay-per-use

This is used commonly by PayTV and the music industry. Use of music for certain events means payment of royalties to artist and recording label. Historically, this had been difficult to implement due to distribution costs or payment processing fees.

In the field of journalism, a new development is evolving to stem the decline in subscription revenues – Blendle has a good headstart which allows consumers to pay per use at around 20 cents per article. They even have a money back guarantee:

Source: Launch.blendle.com

5. Licensing for adaptation into other formats

One way to extend the monetary value of written digital work is to sell them for adaptation into other formats. One case study is China Literature Ltd (772 HK), a platform that aggregates literary works across China and collects subscriptions from readers. The real upside for writers and the platform comes from licensing popular content to film and/or game producers. The challenge for film and game producers lies in choosing the next blockbuster to adapt.

Not every good book leads to a good film reviews, or sufficient box office sales:

Source: FiveThirtyEight, and HollywoodReporter.com

Some publishers may extend services such IP management contracts and/or monetize content for e-learning. The publisher O’Reilly is one such example.

6. Content whose value is tied directly to a percentage of sales (or monetization)

Platforms provide authors and creators to display their works for free. If users like what they see (usually sorted by portfolio or ratings), they can engage the creators. The platform then makes a fee or takes a cut from every transaction. Service aggregator platforms such as Fiverr and Upwork fit into this model. They sign up artists, professionals, and writers and let them display their profiles, portfolios, services, and rates. Once the creators get orders for their services (whether by the gig or by the hour), the platform charges a processing or transaction fee. Fiverr adds a processing fee for every transaction while Upwork charges a percentage of the project fee, hourly fee, or contest fee.

The author or creator can also request additional payments for every round of revision beyond the standard 1 number of revisions (within a time frame), again creating monetization opportunities for the platforms. Such platforms must utilize promotions to drive end-user demand and create supporting features to retain the professionals on their platform.

7. Content whose value is tied directly to certain desired outcomes

Specific information can be packaged to help people achieve certain desired outcomes, allowing such information to be priced higher than others. As fellow insight provider Mark Artherton explained in his piece The Future of Investment Research , mere information on its own has little value. However, the synthesis of information and distribution to the right audience can create real value.

Hence, if the information leads to an advantage or time savings in some field, the writer/creator may get a cut of the performance outcome desired by the end user. One such business close to this model is research platform Tip Ranks, which ranks analysts/writers by the overall performance of his/her calls. In this case, the desired outcome by end users is good trading/investment returns.

Another business using this model are online course providers. CFA course provider Fitch is an example. They provide free re-use of its online course materials if the students fail their exams (under certain conditions).

Conclusions

The pricing models mentioned above may not be comprehensive but serve as a discussion point for owners and/or distributors of digital content. Other monetization models also exist but are not discussed in depth. Examples include platform Eri-c which uses auctions to price research, and IBIS World (a kind of aggregator for different industry reports offering tiered subscriptions), which fellow Smartkarma insight provider Mark Artherton kindly pointed out to me.

While monetization models will evolve over time, we both agree that research providers like ourselves must think hard about how best to organize and monetize the ‘synthesis’ part of the information value chain. Below, I summarise some of the pros and cons of each model for further reflection.