Tag Archives: business model

Where do you get your music?

How we pay for music, 1983-2014
How we pay for music, 1983-2014

Digital Music News put together a visual showing the mix of revenue streams for music over the past 30 years. CDs, which represented only 0.5% in 1983 grew to the dominant medium in 2003 when it was 95.5% of revenue.

In 2004 downloads appear on the scene (or begin to be counted) at 1.5% and are, in 2013 more than the CD with both downloads and streaming/subscription revenues eating away at CD market share.

2013 Music Revenue Mix

Christina Hendricks & Johnnie Walker

Advertising, paywall or a bit of both?

GigaOM posted the audio to a fascinating session at last month’s paidContent Live conference. In it, there’s a great insight/throw down by Bob Bowman, CEO of MLB, Advanced Media. Right around the 15-minute mark Bob calls those that read metered sites such as nytimes.com without subscribing, rooting around their 25 articles/month limit are, “professional freeloaders” of no interest to advertisers. He goes on to state that mlb.com gets 4X the CPMs for ads served to their paid subscribers than the CPMs served to free, logged out users.

Bob’s argument is that media sites that have a paid audience are more valuable to advertisers. While the audience of subscribers may be smaller than the audience of drive-by readers via the social web & Google – it is the subscribers, the true fans, that are more valuable to a media company. While CPMs on non-paywalled sites are driven downwards by the infinite number of impressions on the public web, subscription audiences get better CPMs because advertisers know that subscribers have a relationship with the site on which they are running their ads. There is an opportunity to further increase CPMs by taking an editorial interest in making sure the advertising compliments, not competes, with the editorial, making the advertisements even more relevant.

Screenshot from Recurly, popular subscription management service.

The challenge for a subscription site is how to gain new subscribers. You will always have churn so you need new subscribers to come in and replace those that are lost. Free sites do not have this challenge. Paid sites always have a bar that new readers will have to clear to read their content and the broader question is how much do you show before you require a potential reader to pay? Give too much and they don’t realize the value. Give too little and they never scratch around enough to try.

WSJ on Jaguar

One innovative method a desirable subscription site such at the wsj.com can try to bring more potential subscribers in the door is to have the occasional open house where paywalls are dropped and the public invited in to poke around. According to the presentation from where the slide above was pulled, advertisers have been pleased with the campaign delivering 126% of the impressions anticipated. While the profile of those that see those impressions may not be as well-defined as the logged in subscriber, they are still an attractive segment of aspirational readers and therefore suitable proxy for the core audience. I have not heard of other publications using this same tactic and how effective it is in gaining new subscribers. A paidContent piece written about the Open House concept suggested that the benefits may be primarily for advertisers but I’d be interested to hear how effective they are in gaining new subs as well.

Christina Hendricks & Johnnie Walker

I watched Mad Men last night and as I DVR’d through the latest three episodes it struck me that the regular spots of Lincoln and Johnnie Walker featuring Roger Sterling and Joan Holloway blurred the lines between content and advertising. The brands are as much a part of the identity of the series as the characters. The two compliment each other perfectly so it makes perfect sense to have them underwrite each episode in just the same way it fits that Jaguar would invite me to enjoy 24 hours with The Wall Street Journal.

Something to watch.

banksy-graffiti-einstein

Unbundled Lectures and the Napsterization of Education

In the US, an undergraduate education used to be an option, one way to get into the middle class. Now it’s a hostage situation, required to avoid falling out of it. And if some of the hostages having trouble coming up with the ransom conclude that our current system is a completely terrible idea, then learning will come unbundled from the pursuit of a degree just as as songs came unbundled from CDs.

– Clay Shirky, Napster, Udacity and the Academy

Digitization and distribution via the internet is a great unbundler, disrupting every industry it touches. A great unbundling is coming to education and will overtake it’s institutions, altering them forever, just as it did to the music industry. It may not happen as rapidly as it did to the record labels, academic institutions are much older, but it will happen. As long as a four-year education sets students back $250,000 and saddles them with a crippling, non-forgivable loan that leaves them no better off than an indentured servent of old, the alternatives will continue to chip away at the established institutions such as private universities.

Just as MP3s and Napster were originally dismissed by the labels as poor quality alternatives to records and CDs, the tidal wave of enhancements to the production and distribution of digital music improved the ecosystem to where we have iTunes and Spotify as serious alternatives to the traditional methods of how to acquire and consume music.

The same will happen to education. The core nugget of a university class, the lecture, is online(Kahn Academy, iTunes U, Udacity). Tests can be taken online. Class discussions are taking place over email, on wikis, in forums. Bit by bit, the elements of a formal education are being replaced with lower cost, asynchronous alternatives. It’s the Napsterization of Education.

Over 200,000 have enrolled in Introduction to Computer Science on Udacity. There is a course on how to build a start-up taught by Steve Blank. Everything on Udacity is completely free, shared, re-shared, and improved as each student makes their way through the courses. It’s not just introductory stuff either, check out CS373 on Udacity where a Sebastian Thrun, a Google VP & Fellow, will teach you all you need to know to program a self-driving car.

Exciting times!

oatmeal-on-music

The Customer is God

I am a bit surprised that there was not more buzz around Doc Searls’ recent article, The Customer is God, where he re-hashed his argument for a new world of merchant/customer relationship that he has been noodling on for the past several years.

Since the Industrial Revolution, the only way a company could scale up in productivity and profit was by treating customers as populations rather than as individuals—and by treating employees as positions on an organization chart rather than as unique sources of talent and ideas. Anything that stood in the way of larger scale tended to be dismissed.

The Internet has challenged that system by giving individuals the same power. Any of us can now communicate with anybody else, anywhere in the world, at costs close to zero. We can set up our own websites. We can produce, publish, syndicate and do other influential things, with global reach. Each of us can be valuable as unique individuals and not only as members of groups.

The internet has enabled intimacy at scale. It is now possible for each of us to reach out to almost anyone, anywhere in the world and have a direct conversation. Doc argued in his seminal book, The Cluetrain Manifesto, the internet is the great dis-intermediator. We have seen it route around the middleman in every industry it has touched.

Today, consumers are moving away from commercial enterprises to tell them what to buy. They are increasingly turning towards their social networks for recommendations. Instead of a visit to a cookie-cutter mall, consumers are turning to more personal forms of curation which gives rise to sites such as Yelp, Etsy, or Pinterest.

The next phase in the evolution of consumer behavior which Doc has been banging on about is the era of the Vender Relationship Management (VRM). In this world, the consumer will maintain a profile of items which they are open to purchase. In much the same way we maintain a Facebook or LinkedIn profile as our signpost of our interests and desires, the VRM profile will be a strictly commercial profile, a public wishlist outlining items we hope to purchase complete with details of price and delivery options. Like the old mailbox flag that you would flip up on the country road to signal to the mailman that you have a letter for them to pick up, you would manage your VRM profile as a way to signal what type of offers they are open to evaluating and giving your attention.

Flipping the advertisement model on its head, the VRM arrangement channels only those advertisements that are guaranteed to be relavent to you and puts the power of control back into your hands. In this world there is no need to be tracked because you explicitly tell the ad networks exactly what you want. No more wasted impressions competing for your attention. In this world, advertising evolves from marketing to a sales channel.

The move from a “stalking economy” where vendors are always following you around trying to figure out what you want to a world where we clearly state what we want is already happening. Kickstarter is an example of this new “intention economy” where people directly signal what they want by actually pledging money towards products they’d like to see built.

Keep an eye out for companies and technologies that enable this direct consumer intent. These will be the ones that are on the right side of the wave. These will be the ones that succeed.

Is Next Issue the Spotify for Magazines?

Over the weekend I posted a question wondering why no one has done what Spotify has done for music and Netflix for movies. The fact that no one has stepped in to offer a bundled subscription for another “old media” type, the magazine & newspaper, seemed like an opportunity to me that made economic sense.

Yesterday, Next Issue, a company that had been doing exactly that on the Android platform jumped up with the launch of their iOS app which brings together all you can read from almost 40 magazines, for one monthly flat fee.

The publications are from their investors Condé Nast, Hearst, Meredith, and Time (full list of magazines on offer and their parent companies are listed on paidContent). Their basic plan is for $10/month while for $15/month you get access to additional “premium” magazines such as The New Yorker, People, and Sports Illustrated.

Now that the solution is here, would you go for it? The reception seems mixed. A shortcoming that my colleague at GigaOM has noted is the lack of social features. The web has forever changed the way we read. Both in how we discover what to read and again in the way we share what we’ve read. I think I saw Dave McClure wearing a shirt once that said, “If you can’t share it, it doesn’t exist” – this is the future, this is the way to growth.

It’s not clear to me how Next Issue will be able to roll in social into their subscription-only product. As with other paywalled sites, sharing of Next Issue articles will not work unless they get creative because subscribers will know that they’re sending out dead end links to their non-subscriber friends.

Social sharing will work if enough people can access what you’re sharing so a network effect kicks in. This is starting to work with Spotify because they have a free, ad-supported subscription so all you need to do is register and install the app to listen. The hope is that after enough listens, you’ll get hooked on the product and up-sell to their ad-free subscription product.

Without sharing, there will be no social discovery. Without social discovery, you’re stuck with what’s on the newsstand shelf and how the articles are presented to you by each publication. This is the way it used to be, this is the way to stagnation.

So how can Next Issue grow it’s subscriber base so that social sharing can kick in and drive further subscriber growth? I suggest two options.

1. Create an ad-supported freemium client that lets those that follow links put out by Next Issue subscribers get a taste of the product. They have a 30-day free trial but it requires a credit card, that is too high a barrier, it needs to be totally free and dead easy to install. This is probably not an option as there is almost no reason to convert to a paid subscription if such a free product exists. That leaves the next choice,

2. Do a deal with a major brand such as American Express or Microsoft to underwrite enough subscriptions as a membership benefit so that you get an install base large enough to encourage broad sharing between subscribers and a community of “haves” that are sufficient to encourage those without to sign up either with the sponsor or Next Issue directly.

The future is with sponsored subscription bundles. Not only for Next Issue but for Spotify and Netflix, all these services will take off when the media buyers put together deals which pay for these memberships. I have a bunch of United Airlines miles but would much rather use them to pay for my Spotify subscription than another cramped trip in a tin can on an airline.

Sponsored subscription bundles. That’s my big bet. It’s the future of the subscription business model and the future of brand advertising.

Subscription Bundles

Very interesting experiment over at the Chicago Tribune.

The Chicago Tribune will at last begin charging for its online content through an innovative scheme that will also give readers access to a premium package of third party content, the newspaper has told paidContent. Under the plan, readers will see selections from the Economist and Forbes magazines included in a new paid section, which will also include Tribune content that has been newly designated as premium. – paidContent, June 26th, 2012

Bundles are the obvious way to add value and therefore charge a premium. This is common in the print world. The Japan Times did a deal with the International Herald Tribune and would include several pages of their international coverage within their weekly paper, the Wall Street Journal makes it’s business news and Weekend Journal available for other papers to license.  I’m not talking about the AP, Reuters, or other wire services that make a business from licensing their content – I’m talking about visibly branded bundles where the reader recognizes they are getting two publications for the price of one.

I’m sure I’m missing something but I can’t think of an example of this happening online with any premium news sites. Sure, Yahoo bundled in brands such as ABC and CNBC into news.yahoo.com, that’s not what I’m talking about – I am talking about instances where a group of online publications get together to share subscription plans so their customers get the benefit of multiple brands with a single subscription.

I’m interested in this because it’s the next step in something that I first wrote about last year. Once you have the concept of a subscription bundle, the next step is to get sponsors to underwrite these bundles.

But the most visionary thing and something I keep coming back to is will.i.am’s vision of the next generation internet. It’s a world where brand “alliances” pool together to subsidize content producers. A world where, “chips talk to chips” without a middleman to make the free flow of content seamless and automatic. In this new world, a collection of devices will marry themselves to a library of content and work seamlessly together. – this blog, Feb 23, 2011

Imagine a perk for all American Express Platinum members that includes annual subscriptions to wsj.com, nytimes.com, the iPad app for the New Yorker, Spotify, and a Netflix account. Maybe they give you an iPad as a bonus for signing on today. Wouldn’t that be a compelling benefit? That would speak to me better than free access to airline lounges or free hotel room upgrades.

Besides iTunes or Amazon, is there a business out there pulling together online subscription bundles that isn’t tied to hardware?

Further Reading

Chris Dixon describes how subscription bundles maximize revenue.