Evolving business models
Growing tension between profitability and distribution
Consumers’ appetite for content outweighs their willingness to spend. With increased competition for attention, ad-funded media offers a way to balance access with revenue generation. Until recently, such models have incentivized engagement over quality. As subscription services proliferate and media companies take ownership of distribution, their content libraries become the differentiator, and, increasingly, the driver of marginal revenue for their businesses.
This incentivizes the integration of content into other areas, such as commerce, but also positions large platforms at an advantage going forward due to their strong ad businesses and e-commerce capabilities. However, finding new ways to make premium content accessible to the average consumer will be an important consideration for media companies.
Success will depend on how quickly news and media organizations can leverage distinctive content, value and purpose. These organizations will need to find more diverse revenue streams, looking at how to transform their existing business models and embrace new areas.
—Josh London, Chief Marketing Officer, Reuters, USA
Key trends and proof points
Recalibration of D2C and B2B revenue mix
- Interdependence of subscription and ad-based models: While ad-based users accounted for ~10% of Spotify revenue in 2019, researchers found that they have a churn rate three times lower than paying users and a higher average customer lifetime value (CLTV) driven primarily by the option to upgrade to a paid subscription. The results suggest that hybrid models offering both subscription- and ad-based consumption can expand access, improve retention and provide lucrative upselling opportunities.
- Licensing provides “low-risk” revenue opportunities: Despite its own streaming ambitions, ViacomCBS has aggressively licenced its content to major players like HBOMax and Peacock in the past year, and saw licensing revenue grow 9% YoY in Q1’FY20 to represent more than 20% of total revenue.
Ecosystem media platforms pursuing new forms of monetization
- Tying content to commerce: 50% of all Amazon purchases associated with Thursday Night Football campaigns on Amazon Prime Video were made by users who had not purchased a product from the advertiser through Amazon in the past year, highlighting the potential for revenue sharing agreements between the Amazon marketplace and content creators.
- Building a content marketplace: Apple TV, Roku and Amazon Prime Video provide marketplaces where users can select à la carte subscriptions to third-party content, of which the marketplace takes a 15-45% cut of sign-up fees and, in Roku’s case, a portion of the content’s advertising inventory.
Data unlocks future business models
- Telcos are monetizing data: In 2020, AT&T’s WarnerMedia and its proprietary analytics platform Xandr began to jointly sell advertising across WarnerMedia properties, leveraging anonymized communications data from AT&T, preference data from WarnerMedia content, and audience analytics from Xandr to better target advertisements.
- Algorithm-based models drive record-level engagement: TikTok’s content-serving algorithm based almost solely on learned behavioural preferences as opposed to a social graph drove a 55% increase in unique visitors and a 94% increase in time spent per visitor in the US between October 2019 and March 2020.
