February 12, 2012 at 17:37Simple paid model for the media
- Transfer
The author - Frederick Fil (Frédéric Filloux) - General Manager of the French consortium ePresse electronic media.
Advertising is still the main source of revenue for the print newspaper. Depending on the country, the majority of daily print media from 70% to 80% of the revenue comes from selling ads on their pages. At the dawn of the digital era, when business plans were all measured in print runs, the editors hoped to bring this proven model into the future. Now the general misconception has been dispelled. A more mundane point of view prevails on the market: publishers want to maintain a high-quality (read expensive) product, realizing that they have no other choice but to make the user pay for it in one way or another.
Chicken and egg problem.You can only make a user pay if you offer him exclusive, unique content. To do this, you will have to hire a team of professionals who can produce something different from the product of the army of bloggers, which no one will ever pay for their goods. Then the questions arise. How much to take for access? 10? 20? More? Dollars? Euro? Pounds? What is the ratio of paid and free to navigate? What proportion of the existing audience will pay? 5-10%? What does the whole procedure look like?
Let's estimate the numbers.
First, we’ll make an assessment. Below I give figures based on data from the European market (France, the United Kingdom, Scandinavia) and the USA. The numbers may vary slightly, but I'm sure the deviations are insignificant. So, in the world of printing, the cost structure is as follows:
Editorial staff ....................... 25%
Production costs, printing .... 25%
Distribution ............ ......................... 20%
Marketing, advertising .................... ...... 20%
Management ...................................... 10%
Total ............................................... 100%
Now Imagine that we completely switch to electronic format, while maintaining the traditional journalistic standards and quality.
For the editors we recruit 200 specialists: writers, editors, analysts, graphic designers, video designers, etc. Everyone who was previously tied to paper was fired. When you have 200 people working on an online product, you can fly into space. This alignment will cost you 25-30 million dollars a year, including all expenses. Take the middle - 27 million.
With the rejection of paper production costs fall sharply. The old 45% of paper and production costs are now turning into 15% for website and app maintenance. The remaining costs (marketing, advertising, management) will remain at the same level.
The cost structure now looks like this:
Contents of the editorial board ................................ $ 27 million ....... 40%
Production costs, technical services ...... $ 10 million ........ 15%
Marketing, advertising ................................... $ 20 million ....... 30%
Management ................................................ 10 million $ ....... 15%
Total ...................................... ....................................... 100%
Now let's look at the revenue side.
Revenues from advertising. Suppose we have a real audience of 5 million unique visitors per month. By real, I mean the absence of markups, exchange networks, traffic surge, reasonable SEM and excellent SEO. People come to the site, read materials, return. Each user views at least 20 pages per month. This is at best. In comparison, Google Ad Planner provides the following statistics for unique visitors:
NYT ............ 15 pages per user per month (adjustable filter of paid access)
WSJ ............ 14 (part of the sections of the site are paid)
FT.com .. ...... 11 (paid access only)
Guardian ..... 14 (free access)
So 20 pages per user is a very ambitious plan. I am convinced that this indicator can be achieved through the use of a high-quality recommendation engine (see what Amazon is doing in this direction).
5 million unique visitors are multiplied by 20 pages, this gives us 100 million pages viewed. Now let's estimate that each page contains several banners and gives us a CPM of $ 20. This is an average. Since not all pages contain the same amount of advertising. In addition, not all banner sites will be sold. But carefully crafted pages with valuable content will bring twice as much. Thus, we get an annual income of $ 24 million, that is, each visitor to the site will bring us approximately $ 5 in revenue per year.
I repeat again: the numbers may vary, but they are adequate, consistent with what we see in the market of high-quality, branded content. (For comparison, the best blogs can boast of $ 1-2 per visitor per year.)
Subscription revenue.Since our audience is constant and loyal, we will assume that 10% of its number will agree to pay for access to content. Make no mistake! The New-York Times is counting on such a conversion. Now they have 1%, so there is still a lot of work ahead. I suppose that the news is a product of elastic demand, that is, if you set a price of $ 9.99 per month, then your conversion will be much higher than at a price of $ 15 or $ 20 per month. However, I draw your attention to the fact that specialized content is less price sensitive, it can be done more expensive.
In my model, I focus on materials for a wide audience and set the price at $ 10 per month. This makes a one to ten conversion more realistic. Then I take into account two factors:
- 15% of taxes (the figure varies from 8% in the USA to 20% in France)
- 13% of the cost of the platform, including transactions, databases, etc. (Google OnePass alone takes 10%). This line does not include technological infrastructure costs.
Based on the foregoing, a digital subscriber paying $ 10 per month will generate an annual $ 89 ARPU for me. Multiply by half a million paid subscribers (10% of the global audience) and get an income of $ 44 million.
The income structure will look like this :
Advertising ............... $ 24 million .......... 35%
Subscription ............ .44 million $ .......... 65%
Total .................. 68 million $ ........... 100 %
68 million revenue with 67 million expenses (all figures are rounded) means only 2% of operating margin. Hmm, there is nothing to envy. It is easy to turn such a margin into operational losses, especially considering that you have to work hard to achieve the stated indicators - 10% of the conversion of freebies to payers, a large number of pages viewed per user. Several years will have to work at a loss. But this is only the tip of the iceberg. In fact, if you raise the fee from $ 10 (this is only 50 cents per day for access on weekdays) to $ 12, then your operating margin soars up to 13%.
And still I am silent about many other possibilities. For example, about a paper weekly, which a 200-person editorial staff will do without difficulty, related products like e-books, etc.
Advertising is still the main source of revenue for the print newspaper. Depending on the country, the majority of daily print media from 70% to 80% of the revenue comes from selling ads on their pages. At the dawn of the digital era, when business plans were all measured in print runs, the editors hoped to bring this proven model into the future. Now the general misconception has been dispelled. A more mundane point of view prevails on the market: publishers want to maintain a high-quality (read expensive) product, realizing that they have no other choice but to make the user pay for it in one way or another.
Chicken and egg problem.You can only make a user pay if you offer him exclusive, unique content. To do this, you will have to hire a team of professionals who can produce something different from the product of the army of bloggers, which no one will ever pay for their goods. Then the questions arise. How much to take for access? 10? 20? More? Dollars? Euro? Pounds? What is the ratio of paid and free to navigate? What proportion of the existing audience will pay? 5-10%? What does the whole procedure look like?
Let's estimate the numbers.
First, we’ll make an assessment. Below I give figures based on data from the European market (France, the United Kingdom, Scandinavia) and the USA. The numbers may vary slightly, but I'm sure the deviations are insignificant. So, in the world of printing, the cost structure is as follows:
Editorial staff ....................... 25%
Production costs, printing .... 25%
Distribution ............ ......................... 20%
Marketing, advertising .................... ...... 20%
Management ...................................... 10%
Total ............................................... 100%
Now Imagine that we completely switch to electronic format, while maintaining the traditional journalistic standards and quality.
For the editors we recruit 200 specialists: writers, editors, analysts, graphic designers, video designers, etc. Everyone who was previously tied to paper was fired. When you have 200 people working on an online product, you can fly into space. This alignment will cost you 25-30 million dollars a year, including all expenses. Take the middle - 27 million.
With the rejection of paper production costs fall sharply. The old 45% of paper and production costs are now turning into 15% for website and app maintenance. The remaining costs (marketing, advertising, management) will remain at the same level.
The cost structure now looks like this:
Contents of the editorial board ................................ $ 27 million ....... 40%
Production costs, technical services ...... $ 10 million ........ 15%
Marketing, advertising ................................... $ 20 million ....... 30%
Management ................................................ 10 million $ ....... 15%
Total ...................................... ....................................... 100%
Now let's look at the revenue side.
Revenues from advertising. Suppose we have a real audience of 5 million unique visitors per month. By real, I mean the absence of markups, exchange networks, traffic surge, reasonable SEM and excellent SEO. People come to the site, read materials, return. Each user views at least 20 pages per month. This is at best. In comparison, Google Ad Planner provides the following statistics for unique visitors:
NYT ............ 15 pages per user per month (adjustable filter of paid access)
WSJ ............ 14 (part of the sections of the site are paid)
FT.com .. ...... 11 (paid access only)
Guardian ..... 14 (free access)
So 20 pages per user is a very ambitious plan. I am convinced that this indicator can be achieved through the use of a high-quality recommendation engine (see what Amazon is doing in this direction).
5 million unique visitors are multiplied by 20 pages, this gives us 100 million pages viewed. Now let's estimate that each page contains several banners and gives us a CPM of $ 20. This is an average. Since not all pages contain the same amount of advertising. In addition, not all banner sites will be sold. But carefully crafted pages with valuable content will bring twice as much. Thus, we get an annual income of $ 24 million, that is, each visitor to the site will bring us approximately $ 5 in revenue per year.
I repeat again: the numbers may vary, but they are adequate, consistent with what we see in the market of high-quality, branded content. (For comparison, the best blogs can boast of $ 1-2 per visitor per year.)
Subscription revenue.Since our audience is constant and loyal, we will assume that 10% of its number will agree to pay for access to content. Make no mistake! The New-York Times is counting on such a conversion. Now they have 1%, so there is still a lot of work ahead. I suppose that the news is a product of elastic demand, that is, if you set a price of $ 9.99 per month, then your conversion will be much higher than at a price of $ 15 or $ 20 per month. However, I draw your attention to the fact that specialized content is less price sensitive, it can be done more expensive.
In my model, I focus on materials for a wide audience and set the price at $ 10 per month. This makes a one to ten conversion more realistic. Then I take into account two factors:
- 15% of taxes (the figure varies from 8% in the USA to 20% in France)
- 13% of the cost of the platform, including transactions, databases, etc. (Google OnePass alone takes 10%). This line does not include technological infrastructure costs.
Based on the foregoing, a digital subscriber paying $ 10 per month will generate an annual $ 89 ARPU for me. Multiply by half a million paid subscribers (10% of the global audience) and get an income of $ 44 million.
The income structure will look like this :
Advertising ............... $ 24 million .......... 35%
Subscription ............ .44 million $ .......... 65%
Total .................. 68 million $ ........... 100 %
68 million revenue with 67 million expenses (all figures are rounded) means only 2% of operating margin. Hmm, there is nothing to envy. It is easy to turn such a margin into operational losses, especially considering that you have to work hard to achieve the stated indicators - 10% of the conversion of freebies to payers, a large number of pages viewed per user. Several years will have to work at a loss. But this is only the tip of the iceberg. In fact, if you raise the fee from $ 10 (this is only 50 cents per day for access on weekdays) to $ 12, then your operating margin soars up to 13%.
And still I am silent about many other possibilities. For example, about a paper weekly, which a 200-person editorial staff will do without difficulty, related products like e-books, etc.