Subscription Knowledge Series #10 – How to Unlock New Monetization Models in Media with a Platform Built for the Digital Age
Catching up with shifting consumer habits
Media companies have been undergoing a major reset due to the knock-on effects of the pandemic. The industry has experienced major disruption, such as responding to new consumer behavior with the shift to on-demand consumption and the rising preference for bundling content in an “all-you-can-eat” fashion. On this changing demand, the CEO of a multinational media company said “I do believe there’s this unique, time-sensitive moment to lean into the future [through technology], which is to think about different ways to entertain consumers.”
Identifying the right content mix and responding to shifts in advertising revenues are some additional changes the industry has been witnessing. However, one key learning from the pandemic is that shifts can create new opportunities. It is in these defining times that business models are being rewritten following new strategic priorities:
- Personalized experience and a shift to direct-to-consumer (D2C) models. This focuses on providing a personalized experience by catering to the specific needs of a defined target audience, down to the audience of one.
- Monetize customers insights and behaviors. Leveraging artificial intelligence, media companies can capture consumers’ behaviors and preferences that they can monetize through personalized content and recommendations.
- Scale and transform content production. On one side, media companies have scaled up their content library via M&A, on the other side they have tried to transform content production, exploring new ways of doing it. The audio platform Spotify, for example, has moved into the production of original content. The platform started offering exclusive podcasts to subscribers, seeing over 150,000 podcasts uploaded just in April 2020. This move paid off, with paid subscribers reaching 155 million (+24% YoY) by December 2020.
Extracting value from new monetization models
Capitalizing on changed market conditions and accelerating growth will require media companies to adapt their business models and focus on the revenue engine.
One key opportunity in the industry is the monetization of content in new ways.
The subscription-based model is the go-to model for providing content (from news to video to music) to customers. The impact of this model spans across several sub-industries. In the film industry, the pandemic has accelerated the rise of premium video on demand (PVOD) in which new films are released on top of subscriptions with a pay per view business model. IDC predicts that PVOD will emerge as a strong component of box office receipts and will drive 20% of consumer spending on new release movies in 2022. For example, The Walt Disney Company has become more reliant on Disney +, its subscription video-on-demand streaming service, as movie theaters have been shuttered down. The platform was used for the release of new titles; for example, “Mulan” was removed from theatrical release and sold through Disney+ for $30.
The second key monetization opportunity in the industry is linked to monetizing virtual objects through in-content commerce. In the gaming space, this includes in-app purchases for extra features such as additional lives or branded items. There is a growing trend for luxury brands to partner with media companies to reach new audiences by creating virtual items. Louis Vuitton has branded a virtual lethal weapon with its signature monogram pattern for the PC games League of Legends. In 2020, Gucci created several virtual wearables for video game avatars including The Sims 4 and Pokémon Go. More recently, the company launched a pair of exclusively virtual sneakers, which can be worn by users’ avatars on virtual reality social platforms and online games.
Three reasons why tech architecture is key
If adopting new monetization models is crucial to set in motion media industry growth, companies should not underestimate the key transformation required from a technology stack perspective. There are three main reasons why a platform-based architecture is key to address business challenges and maximize value:
- Managing complexity deriving from multi-sided relationship management, multichannel, and multigeo. The technology platform should be able to manage revenue sharing across different partners and channels, as well as complying with different geo-specific taxation processes and regulations.
- Enabling scalability: Direct to consumer models mean rapid scaling to 100s of millions of subscribers. This increases business speed and the volume of data points that the technology architecture needs to collect, manage, and secure.
- Ensuring transparency: Visibility into content usage is necessary for financial settlement and to collect insights on consumer’s behavior and preferences. The technology architecture needs to provide a clear view of who is watching what and when and drive visibility on entitlement to use specific content.
How to succeed
Drawing from the experience of successful companies, these are the things that should guide companies in their journey:
- Start small but think big. Start your transformation journey with a small proof of concept (POC) to test new models but keep a constant eye on the bigger plan. When starting a POC, you should already think ahead about potential scalability and future opportunities.
- Don’t forget that finance is at the center of transformation. Offering new services requires having an end-to-end platform for revenue and content accounting. However, finance transformation goes beyond that. It is about looking at the entire process, from the customer journey to profitability, revenue settlement, compliance and audit as well as cost management. The CFO should be involved from the beginning as finance handling should be built alongside the digital offerings.
Think holistically, business model transformation implies broader organizational transformation including finance and accounting, but also content supply chain and front-end customer experience transformation. Make sure corporate culture is open to support business transformation and everyone in the organization is pushing in the same direction. Having one internal evangelist or coordinator can help align and push forward.
Only if armed with these success factors and with the right platform-based technology architecture would media companies be able to swiftly adapt their business models, catch up with consumers’ preferences, and accelerate their growth in the new normal.
 IDC FutureScape: Worldwide Connected Devices and Consumer DX 2021 Predictions
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- This blog, co-written with IDC to be based on their market insights, is part of a blogs series
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