When Mark Zuckerberg told eG8 forum attendees that the music, movie and book industries could be "rebuilt from the ground up with social" in May, my thought was that this is exactly what execs at the major media and entertainment companies need to hear now.
At Live Gamer, we've spent over a decade helping video game companies generate revenue through micro-transactions and virtual goods – the business models that have made the social gaming industry an unparalleled success. More recently, we've seen interest from magazine and book publishers, record labels, and movie studios that want guidance (and solutions) for monetizing their digital content. The conversation typically starts with: "People are spending millions of dollars on things that don't exist in a farm game. Can we do that, too?" We follow up with: "You certainly can. Here's a glimpse into why and how."
Broadband distribution disruption
First, the why. Call it broadband distribution disruption. Broadband access has disrupted the traditional media distribution controls of scarcity and exclusivity. Once content is released, there's no such thing as "unavailable" to any consumer, in any part of the globe, as long as they have a broadband connection.
The music industry's tale of woe is well-known, but entertainment studios are struggling with shrinking release windows, and most print publishers struggle to get people to pay for their content on the web (unless it's on a Kindle). Piracy is also a continued issue. Knowing that consumers can download content from any number of sites for free, and at increasingly large file sizes, forces media companies to charge far less for their content than they'd like.
The good news is there is a model that works for monetizing content that analysts expect to reach $5 billion over the next four years. By applying the "free to play" gaming model to entertainment content monetization, media companies can actually use broadband distribution disruption to their advantage. In practice this means looking at content as a connected service rather than a stand-alone product, and creating business models that cater to individual audience members.
How the "free to play" model works
The free-to-play model says that 10 to 15 percent of the total audience will typically opt-in to pay for premium content. In social gaming, the average revenue per paying user is $5-$7 per month; with more enthusiastic online gamers that can rise to around $30 per month. These figures are the sum of multiple mictrotransactions per user each month. For example, a player may spend $30 per month in a game, but each individual transaction may only be worth fifty cents. This is the amazing thing about microtransactions – individuals opt-in at the price point that makes sense for them – and they keep coming back for more, due to the small perceived transaction size. The good thing for digital content publishers overall is that those little amounts add up very quickly.
Worth noting is that advertising still plays a vital role in monetizing both the premium and non-paying content consumers. These models are accretive, not exclusive. And for the broader entertainment industry, we believe that these dynamic monetization models will thrive when applied to any type of content.
Shift your thinking
But before major media and entertainment companies can start applying these online/social gaming business models to their content, a big shift in thinking also needs to happen around distribution. Historically, there's been a very healthy tension between the roles of content creators and distributors. But because broadband allows for full direct-to-consumer distribution, and the free to play, microtransaction model facilitates monetization, companies need to start thinking of themselves as direct-to-consumer content distributors.
I don't think the senior executives at media companies have wrapped their heads around this yet, because most are still using their direct-to-consumer channels – the new author's Facebook page, the band's Web site, or the movie's Twitter account – for marketing purposes alone. Why not monetize the communities that have sprung up around these channels directly, instead of driving them to make a future purchase? That's core to the online/social games model.
Take all of the Michael Jackson fans on Facebook, for example. They're passionate, they're vocal, and they're sticky, posting status updates and comments, and sharing content and links with their friends. The retail and marketing team's first inclination might be to use an online community to promote the new CD box release, or new physical merchandise, but if all of those fans were monetized with micro-transactions like a social game, the community could be worth $1.8 billion dollars, by some estimates.
Cash in on the community
The opportunity isn't just limited to Facebook. Media and entertainment companies can apply the same social games monetization tactics to other passionate communities, through other channels. Look at American Idol and its huge digital following. Fox, FremantleMedia and 19 could offer premium, "super-fan" content in addition to the usual photos and videos on the American Idol site, and if just one to 10 percent of the community paid to show off their loyalty, the franchise could generate millions in incremental revenue.
Most social games would kill to have the community that a Top 10 pop artist or upcoming new film release has, but most media and entertainment companies are barely conscious of how to leverage it. The 100 million or so people who play social games each month are being trained to pay for digital content in increments; media companies can leverage this behavior by offering them micro-transactions and virtual goods in the context of being fans and advocates.
There may be some resistance to the thought of monetizing an audience or digital content in this way, and even arguments that what works for games may not actually work for other media. To that I say, look to South Korea.
In 2001, high-speed broadband and fiber optics hit critical mass in South Korea. Great for consumers, terrible for game developers, because every game they tried to sell on a shiny plastic disc was pirated. High speed broadband made it as easy to pirate games and movies as DSL made it easy to steal music. Enter the free-to-play business model, which let game companies make the content a service and virtual items the business model. Our Korean subsidiary Live Gamer Asia powered those first microtransactions in 2001, and we begin powering the model here in 2007. A decade later the market is thriving, and game companies around the globe have fully adopted the model.
Shift the focus to media and entertainment companies. Munhwa Broadcasting Corporation (MBC), one of the largest broadcast, radio and digital TV providers in Korea, now offers some of its content on a micro-transaction basis. Viewers can pay with MBC Credits – a form of branded virtual currency – so MBC is essentially selling VOD the way we sell social games to consumers now. Live Gamer Asia is proud to enable this functionality for MBC, and we see the same model coming to fruition here in the US.
Why so bullish? Our global presence means we've been able to observe content-consumption and monetization trends in more advanced broadband markets across a variety of mediums. Five years ago, the thought of a company like Zynga prepping for a billion-dollar IPO would be ludicrous. Now, it's clear that the free-to-play business model is extremely lucrative, and there's no reason that media and entertainment companies can't successfully adopt similar monetization strategies. So yes, Zuckerberg was right, and Korea is the proof. It's just going to take the right combination of thinking and platforms to make it happen.
Andrew Schneider is Co-Founder and President of Live Gamer. He has been a digital entertainment industry leader and catalyst for emerging business opportunities at the crossroads of media and technology for over 14 years. Andrew can be reached at firstname.lastname@example.org.
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