Business Models for Media Companies

How do media companies make money? There are 5 overarching business models to generate revenue from content your company creates: 1) transactions, 2) subscriptions, 3) licensing, 4) content marketing, and 5) advertising. Let’s review.

1. Transactions

Transactional business models are the simplest way to make money off content: slap a price tag on whatever you create and charge for it…just like you would when selling a pair of shoes. This works best when you have larger, clearly defined pieces of content that people are likely to want as one-time purchases separate from other content you’ve created. We’re talking about books, films, albums, games, online courses, research reports, etc.

Transactions can be for content to own or for content to get temporary access to. In the former, the customer buys a copy of the content that they can download or walk away with (i.e. they own a copy forever); in the latter, the customer buys access to content that remains hosted on the distributor’s platform.

Buy to Own/Download to Own

Historically (pre-Internet), people have bought physical copies of content: a book from Barnes & Noble, a record album from Virgin Megastore, a DVD from Best Buy, a video game from GameStop, etc. As content consumption moved online, this type of transaction went with it: in iTunes, you buy content, download it, and can send the file around to other devices. In a business context, you might buy a report from a market research firm and receive it as a PDF to download. Buying to own is still widespread online.


The alternative – and the increasingly common model – is to buy temporary access to content that remains hosted elsewhere so you can’t take a copy to do whatever you want with. For example, a pay-per-view boxing match that costs $100 to see on TV or a movie available for 48-hour rental on Youtube at a price of $2.99. Renting individual movies or TV shows to watch online is referred to as TVOD (Transactional Video-On-Demand). The period of time you get access to content for could be indefinite, but without having a copy of the file itself, you don’t own the content.

From a media company perspective, the pay-to-unlock approach reduces the threat of piracy, which is common with download-to-own content since consumers can send the file to friends or upload it for free on another site. Moreover, a media company collects tons of data about how people are interacting with content they’re hosting; they don’t get data from people interacting with downloaded files.

A newer innovation is pay-as-you-go content consumption through micro-transactions. The Dutch startup Blendle, for example, created a platform for reading articles from a wide range of publishers that charges you a few cents per article you read. Each piece of content is a new transaction, but because you have pre-loaded your Blendle account, you don’t have to go through a new payment process every time. There has been talk of using blockchain technology to do micro-transactions on an even smaller scale (i.e. less than $0.01 per article) as well. This micro-transactions model hasn’t taken off in a big way though.

2. Subscriptions

In media, subscriptions are based on access to content for a period of time that’s recurring (typically monthly cycles). It locks in an ongoing relationship with the customer, who has to opt-out of the recurring payments if they want to stop being a customer. Usually, the subscriber gets access to a pool of content that they can consume at will, rather than only getting access to one piece of content.

Because subscribers continue to pay on an ongoing basis, they also expect new value to be provided on an ongoing basis. You typically don’t pay a subscription to consume the same unchanging piece(s) of content again and again; you pay a subscription for ongoing access to a flow of content that’s regularly refreshed with something new. That could be daily news articles, monthly refreshing of movies on Netflix, etc.

Newspapers and magazines tend to operate on subscriptions because they are comprised of many small articles people consume a high volume of. Similarly, SVOD (Subscription Video-On-Demand) platforms – like Netflix, Amazon Prime, Hulu, VRV, fuboTV, etc. – have gained traction because people watch enough content on them that they prefer an all-you-can-watch subscription rather than having to consider each film or TV episode as a new purchase.

Because the relationship with a subscription customer is not tied to one specific piece of content but rather the broader offering available to them, the value they measure is their overall experience…the quality of content they’ve consumed, the affinity they feel for the media company’s brand, the “fear of missing out” if they unsubscribed. In this dynamic, subscribers are like members of a club…winning and retaining their business is about a relationship rather than a one-time transaction. It also means that you’ve locked in recurring revenue just by gaining one new subscriber; in a transactional model, you have to fight for every purchase you want a potential customer to make, regardless of whether they’ve shopped with you before (i.e. you have a new “Customer Acquisition Cost” or CAC for every sale).

3. Licensing

Many creatives want to stay out of the direct-to-consumer business…they just want to create the content they want, then license the rights to another media company that handles marketing and distribution. This is the classic way Hollywood and other creative industries operated; pre-Internet, it was incredibly difficult for creative teams to also distribute their content. Much of that traditional infrastructure is still in place. There are lots of structures for licensing; sometimes it’s one upfront payment, sometimes there’s a revenue share on the sales (aka royalties).

Films follow this path: a production company sells the film to a studio that markets it and partners with exhibitors (i.e. cinemas) and online streaming platforms to distribute it. Television shows are created by production companies, bought by networks, and distributed through networks’ partnerships with cable companies. Music, books, and games are more direct-to-consumer nowadays than they once were, but the traditional distributors still remain important (i.e. record labels and streaming platforms; publishing houses and e-book platforms).

This route makes sense when you work on a small number of big productions, each of which might be unrelated to the others in terms of theme, target audience, etc. It would be inefficient to launch every new film as its own standalone media company that has to build an audience from scratch, for example.

The downside of licensing is that the fate of your content is dependent on middlemen, and you collect little-to-no data on who your audience is and how they’re consuming your content. Without that data and without direct interaction (getting their emails, etc.), it is tougher to build ongoing relationships with fans and engage them with new offerings.

4. Content Marketing

Content marketing is, simply put, using content as a tool to market some other product or service from which you make money. (Content marketing is also done by individuals to market their personal brand, with the ROI coming from the benefits the notability brings to their career.)

Content marketing has exploded in recent years within the marketing departments of companies across every industry. Companies that are bad at it plug their product offerings extensively so there’s no mistake you’re reading/watching promotional material; companies that excel at it focus on creating high-quality, engaging content that develops a relationship between their brand and the audience like a media brand would. GoPro and Red Bull are the iconic examples of content marketing pioneers, but it ranges everywhere from mattress companies and airlines to investment banks and venture capital firms.

The content marketing model can also start with media, then expand into relevant products/services to sell once you’ve crafted a brand and audience. In fact, many free-to-read news outlets in the business world are – when you look at their business model – live events companies with extensive content marketing. They cover industry news through articles and videos, and they do monetize that through advertising, but the largest revenue generator is the conferences they host, which are marketed to their business audience with ticket prices ranging anywhere from $500 to $5,000.

A common content marketing model for independent media properties is using IP from the content to do e-commerce…selling merchandise for passionate members of your audience to purchase, just like bands do with their fans. Sites ranging from WaitButWhy to BuzzFeed have done this. Publications like the Wall Street Journal have curated products from other companies to sell in an e-commerce section to their audience. There’s a grey area between being a media company and a consumer brand nowadays.

(Compared to advertising-based media companies, the incentives in content marketing are better aligned with creating high-quality content. It’s about quality over quantity. Companies here are trying to build genuine relationships and affinity for their brand so audience members ultimately buy products from them…that means trust is critical.)

5. Advertising

There are many ways to do it, but ultimately advertising is a simple concept that’s been around for a long time. You create content that draws people’s attention, then you do a bait-and-switch by also showing promotional content from brands around, above, below, in front of, in the middle of, and/or after your content so the audience sees it too. Sponsored content and product placement can be more complementary ways to integrate advertisers into content.

Advertising isn’t the focus of this blog, and I’m not a big fan of media companies centering their business model on advertising, so I’ll leave it at that. (Read my post The Problem with Advertising.)

Which is best?

Most successful media companies employ more than one of these in their arsenal. Which will be most effective for any given media company depends entirely on the content they want to create, the audience they’re targeting, and ambitions they have for how the company will evolve. I do believe subscriptions are the heart of a strong media business though. We’re going to explore this question a lot more over the months ahead in this blog, so stay tuned.

The Problem with Advertising

I am excited to dig into this Monetizing Media project not just because I see the momentum gathering behind media companies’ move to subscription models but because I want to see more of the industry move toward charging for content.

Here’s the problem with advertising-dependent media…

Misaligned Incentives

Incentives matter, they shape human behavior – individually and in organizations – even if it is subconsciously over time. If my business model is one in which my primary customer is advertisers, then at its core I’m running an advertising company. My content is just ad products, and I’ll evolve those products to better sell to advertisers. That is the basis of my bottom line and the direction my organization will naturally take, as much as I might rationalize it to myself along the way.

In journalism, the creative side has long demanded a “separation of church and state” from the business side of their company that deals with advertisers, fearing pressure from individual advertisers could influence the content they create. There was a fundamental failure over the last 20 years to account for the fact that the free, ad-dependent business model online could undermine the integrity of their work far more than one overzealous advertiser would.

Race to the Bottom

What advertising-dependent digital publishing incentivizes is a race to the bottom on quality and profitability. Here’s how the game works: my media company is getting an $x CPM (cost per mille, i.e. cost per thousand views) for the ads; most of the ads are bought programmatically through ad exchanges because major advertising agencies that represent brands want to make purchases on massive scale.

To make more money, I need more views; so I start producing more articles/videos that each take less time to make, and I start getting really smart about all the best practices for getting people to click on my content. Everything that’s posted is A/B tested so I can determine the most click-able headline, and based on analytics on the type of content that’s performing best (and the type of content I see performing well elsewhere), I iterate. I don’t need deep analysis because the headline and the first couple sentences are all that most people read and all that I need to generate an ad impression. Content that’s timely – responding to some pop culture or news event of the day – performs well, so more of that. Content that uncovers the sensation in every story gets people to share it on social media – scandals that make them angry usually perform better than heart-warming stories that make them happy, but either way the key is to stay at the extremes of emotion.

So now I’m cranking out lots of short, timely, sensational content and getting a lot more views. Except every other site has taken the same path, and the growing abundance of impressions (i.e. slots available for advertising) has caused the CPM on the ad marketplaces to drop. It’s simple supply and demand: greatly increase supply – and increasingly commoditize the supply so its interchangeable – and market prices will drop. My content is getting lower quality and more commoditized but I’m not making much more money from it because the CPM prices catch up pretty quickly. My only way to survive is to perpetually run this race, trying to stay an arm’s reach ahead of the market and falling CPMs for as long as possible.

Duopoly of Tech Giants

Social media companies are the ones earning most the advertising revenue from the content I’m creating and that my audience is sharing…its just part of the daily flow of publisher content that keeps people on their sites. Facebook and Google now collect 73% of all digital ad revenue in the US and account for 83% of market growth. Their platforms are where people actually spend time, engage with content, and engage with each other, so naturally they’re also the ones with the data to best to target ads (making them preferable to advertisers).

My audience isn’t really my audience after all. It’s just anonymous people (or bots) clicking on posts within their newsfeed, Twitter stream, etc. then moving on to the next one without much thought given to my brand or my other content. I don’t know their names and they don’t specifically come to my site to see what’s new. If I stopped publishing for a month, very few of them would notice.

And at any moment, these tech companies can change the algorithms that dictate how content spreads (the algorithms I’ve worked so hard to game to my benefit). In fact, they certainly will, again and again, because they’re companies too and their incentives are to keep figuring out how to evolve their product to make more money.

Lower Valuations

I now have a media company that’s not in control of its own fate…it’s very survival swings with changes in ad markets and the algorithms of tech companies. I don’t have much of an audience that’s truly dedicated to my brand and its hard to differentiate what I do relative to many other sites out there. I haven’t built a very attractive business from an investor standpoint. Even the most successful media companies at this game – who’ve been propped up by funding from investors focused on the audience growth rate – experience this.

Companies whose revenue is dominated by advertising income raise capital from investors on lower valuations than media companies of equivalent revenue whose income is mostly from subscriptions or transactions. That’s because subscription-based businesses have comparatively stable financials and control their relationship with the audience…they have a customer base that likes what they’re selling and would be receptive to new product offerings or even a subscription price hike.

Is advertising a universally terrible idea?

No. It can be a great secondary revenue stream for media companies who treat their audience as their customer. In fact, an engaged, loyal audience within a certain demographic niche that values my distinct brand enough to pay for it offers the type of genuine interaction that certain advertisers would value involvement in…sponsoring segments, product placement, etc. Content creators can maintain their focus on quality, and selected brands can be included in ways that are complementary.

Advertising-dependent companies, however, are a bad business to be in and not where we’ll find top quality content being produced consistently. But they will always be around providing the filler content…the daytime soaps of the digital world offering mindless distraction.


**What about TV? Top TV channels make most of their money from carriage fees the cable companies pay to them. They use the bargaining power of a large, loyal audience to get higher rates: “pay us $X or we’ll walk, and our devoted fanbase will revolt against you”). FOX News, ESPN, USA, etc. get paid the most because they focus on creating (or buying rights to) must-see shows that people follow loyally. Advertising revenue is still a very significant revenue stream, but its secondary to their carriage fees. And notably, the hottest newcomers to “TV” are the online subscription platforms like Netflix and Amazon Prime who are funded directly by their audience and benefit from all the data collected by owning that relationship themselves.**

MediaDeals – a morning newsletter for media execs and investors

As I dive into this Monetizing Media project, I’ve been hunting for a media industry equivalent of Dan Primack’s Pro Rata newsletter at Axios (a morning round-up of key investments, M&A, and other business news in venture capital and private equity).

I haven’t been able to find any daily media newsletters that seem very business-savvy, however, and several of you who have been in the industry for many years echoed that sentiment too. So for a couple days last week, I compiled an example newsletter and sent it to friends. Based on the positive response, I’m formalizing it as the “MediaDeals” newsletter and will keep publishing it every weekday for a couple more weeks. If it seems to be finding “product-market fit” then I’ll keep at it.

Sign up for MediaDeals here and invite friends and coworkers to join us as well. I eagerly welcome any ideas, critiques, or other suggestions on how to make it better.

Launching “Monetizing Media”

Amid the Disney-FOX and Time Warner-AT&T deals, “fake news” deteriorating most Americans’ trust in media, and publishers up in arms over changes to Facebook’s news feed, I kicked off 2018 with a particular interest in how the media industry is reshaping away from a race to the bottom for pageviews and toward subscription platforms.

Seeing dependence on advertising as a fundamental misalignment for most media companies, I keep coming back to one simple question: how do you get people to pay for content? Better yet, how do you make people proud to pay for your company’s content so they are evangelists of the brand and generate high lifetime value?

I’ve started this deep dive into understanding the details of media business models where your audience – not advertisers – is your customer. The biggest business model shift underway, not just across media but across nearly every industry, is to digital subscriptions. We’re entering the era of the “subscription economy” where both people and companies are shifting from pay-per-product transactions to ongoing subscriptions…shifting from one-night-stand relationships with companies to long-term dating.

While there are many resources for understanding the major shift to enterprise SaaS (software as a service) in tech – like the blogs of venture capitalists Tom Tunguz and Jason Lemkin – I found a gap in resources on this topic for media executives, entrepreneurs, and investors. Whether it lasts a couple months or a couple years, hopefully my Monetizing Media project helps fill some of that gap through the upcoming blog posts, podcasts, newsletter, and events.

If you share my interest on this topic and are interesting in contributing to the project or collaborating in another way, don’t hesitate to reach out.