How Do You Want to Monetize This? (Pt 3) The steps in between theory and business

In business, at times it can be hard to understand the application of the ‘big theory’ to the practical, everyday nuts and bolts of day-to-day business. And so, it can be difficult to apply Ben Thompson’s Aggregation Theory to business decisions in the context of running a small, digital content creator.  Even where a clear end-goal is stated – Aggregation Theory suggests niche suppliers maximise subscription revenue via assets they control (e.g. one’s own website) - the intervening steps between having successful content and subscription Nirvana are less clear. This post is my best guess* at the application of Aggregation Theory to a situation that has arisen at another ‘actual play’ digital content producer, called The Glass Cannon Network.

Background: The Glass Cannon Podcast has been running for over four years, and grown in audience to a point where, in January of this year, it was announced that cast member, Joe O’Brien, would become the second member to quit their day job in order to help grow the podcast into a business called the Glass Cannon Network (GCN). O’Brien joins fellow cast member and CEO of GCN, Troy Lavallee, in focusing full-time on growing the podcast into a sustainable business.  As they freely admit (see the quote from Troy Lavallee below, or listen to the introduction of podcast #192 – The Eyes Have It by Joe O’Brien at 2:27 onwards), this puts more pressure on GCN to succeed with monetising their content.  Naturally, growing audience for their content, including a newer podcast, entitled ‘Androids & Aliens’ (A&A) is always on their mind.  In April of this year, Lavallee, announced, via their blog, that they would be trialling advertisements in A&A, as well as a partnership with Starburns Audio.  Starburns Audio are a studio that produce, amongst other content, the animated series, Rick & Morty.  Under the agreement A&A would join Starburns’ lineup of comedy podcasts, with the content sharing (imho) a distinctive, raucous but intelligent ‘male’ humour.

Lavallee is open about his motivations for the move and also details some of the logistical constraints that inform his decision:

“If we want to compete with the shows that are getting 1 million downloads per month, partnerships like this have the potential to increase the speed at which that can happen.

“I’m sure a lot of you are curious as to whether an ad-free version will be made available either on Patreon or via a subscription service. At the moment, I don’t have any plans for that because, frankly, that’s not what this experiment is about. I also don’t want the story we’re telling with A&A tied up in that one RSS feed we have for the Patreon where their platform does not offer the functionality yet to have separate shows with their own feed. That’s not to say we won’t offer it in the future, but for right now, we need to see if this is going to work as is (sic) stands. There is a lot more at stake now than there was a year ago when people’s livelihoods didn’t depend on the success or failure of the Network. The Patreon itself is going to be undergoing changes soon as we add another show to our lineup with our upcoming Emerald Spire playthrough GM’d by Joe. We’re bringing new personalities onto the Network as well. All of these changes cost more time and money. For the cost of a cup of coffee, I want people to feel like they’re getting more than their money’s worth with Raiders and soon Emerald Spire, not bummed out about what they’re not getting.” – Troy Lavallee, CEO, GCN. Accessed 10:04am 21/6/19.

Thompson’s own thinking on the application of Aggregation Theory for content creators (‘suppliers’) is worth repeating:

“For suppliers, the antidote for Aggregation is to go direct to consumers; the key is to embrace the same forces that drive Aggregation. First, the addressable market should be the entire world, not just a limited geographic area. Second, the same sort of automated payment tools available to advertisers on Aggregators can be leveraged for consumers; indeed, the tools for consumers, particularly given the lower dollar amounts and decreased need for paperwork, can be as simple as Apple Pay, and they can scale indefinitely. Third, a freemium approach to content means that social networks can be used for user-generated marketing.” Ben Thompson, The Cost of Apple News, Stratechery.com, February 13, 2019, accessed 11/4/19, 4:57pm.

Thompson goes on to say that niche content providers (such as his own Stratechery subscription newsletter) are better served by a subscription model, seeking to extract more revenue from fewer audience members, rather than the other accepted business model, which is to seek to extract small amounts of revenue from millions of audience members via something like an advertising model. The latter assumes of course, one does have an audience of millions.

So from the above, it appears GCN is going against a tenet of Aggregation Theory, by placing its content on another platform, that they do not control, and what is more, by seeking to raise revenue by ad placements. It is unclear from the post whether the ad placements are direct advertisers, with ads embedded in the content (e.g. by having the podcast talent read the advertisement as one sees on Critical Role read out by Sam Riegel at the beginning of each show, or through Gimlet podcasts, or like the direct-to-home mattress ads one frequently hears in podcasts) or whether it is mass advertising, including algorithmic advertising that is controlled by the platform or aggregator, such as one sees on YouTube. [Edit: The Patreon page comments confirm the ads are being managed and served through Starburns – See ‘Posts’ tab on GCN’s Patreon page, especially the post dated Apr 7 4:04am – ‘Controversial Ads’].  In my understanding of Aggregation Theory, the former, direct advertising is probably okay (if the advertising directly goes to GCN), but the latter form of mass advertising is not recommended, unless the primary strategy is to leverage the platform’s network effect for building audience (i.e. the third ‘freemium approach’ quoted from Thompson above), with ad revenue a welcome by-product.

This is not to say Lavallee and co. are foolish to try what they are doing.  So much of any theory, requires empirical evidence to test its accuracy and furthermore identify the thresholds for where the theory can apply or not, and to this end, Lavallee has clearly stated the exercise is an ‘experiment’ (see quote above).  In terms of metrics, Aggregation Theory suggests a key performance indicator (KPI) to monitor is audience growth, especially paying subscriber growth, through GCN’s own website - that can be directly attributed to posting content on Starburns Audio.  Lacking a clear metric on this, one might infer the KPI by using past data to infer attrition ratios to provide an estimate of likely subscriber take-up from audience gained on the GCN website.

Another difficulty of applying any theory in business is putting the cart before the horse.  Aggregation Theory suggests a number of actions, but new content required to make a subscription offering attractive needs to be cash-flowed. Lavallee is upfront about this issue:

“The Patreon (i.e. GCN’s subscription service running on the Patreon platform) itself is going to be undergoing changes soon as we add another show to our lineup with our upcoming Emerald Spire playthrough GM’d by Joe. We’re bringing new personalities onto the Network as well. All of these changes cost more time and money. For the cost of a cup of coffee, I want people to feel like they’re getting more than their money’s worth with Raiders and soon Emerald Spire, not bummed out about what they’re not getting.” – Troy Lavallee, CEO, GCN accessed 11:10am 21/6/19. Parentheses added.

Clearly, Lavallee and co. have the right idea: They wish to make a subscription offering that is outstanding value for GCN’s subscribers.  The difficult question is how much GCN can dance with potential rival niche content aggregators like Starburns Audio and Geek & Sundry?

[Edit 23/6/19:  A few hours after I posted my musings, I was alerted on Twitter of GCN reaching 6000 subscribers on their Patreon account.  The following italicised text is written in response to that update:

Is there another way for GCN to increase their financial viability without partnering with Starburns?  Once again, this is an empirical question that should be carefully tested.

However, prima facie, GCN appears to have recently reached a position of strong cashflow.  At the time of writing, GCN’s Patreon following was 6,019 patrons, paying $40,816 per month with a stated aim of reaching $50,000 per month.  Despite the fact that Patreon subscribers may unsubscribe at the end of each month, this campaign is a clear indication that GCN are on the right path by developing a subscription following for their content. It also points to GCN being in a strong cashflow position for the short-term (say, 6-12 months of ‘runway’).

However, it begs the question, why doesn’t GCN use this revenue to fund targeted ad campaigns over social networks, such as YouTube and Patreon?

The obvious (and fair) answer is that they have only recently reached these levels on their Patreon campaign and have not had time to reflect upon things yet.

So what should GCN do assuming Aggregation Theory is correct? From personal (nerdy) experience, I have found new ‘actual play’ role-playing game content on YouTube via YouTube advertising suggestions placed in the leading ‘actual play’ role-playing YouTube channel, Critical Role (Mentioned in many of my previous blogposts). This to me appears to be the right approach for niche digital content providers who have the cash flow (whether available via ‘bootstrapping’ and/or debt): i.e. Leverage social networks and, as Thompson said above: “(E)mbrace the same forces that drive Aggregation”.

Teaming up with Starburns brings GCN’s niche content to a niche ‘aggregator’ (here I’m using the term in the non-Aggregation Theory sense of a site that simply adds lots of similar niche content, such as Geek & Sundry).  Ultimately, the success of the Starburns partnership for GCN will be determined by what deal is struck and the goals GCN have set for themselves for this partnership.  What is clear though is that, according to my own interpretation of Aggregation Theory, it definitely benefits Starburns, who will be in a better position to leverage the model suggested by Thompson: Driving people to subscribe to their niche content site that they, Starburns, control.

In contrast, if cash flow is not an issue, a targeted YouTube ad campaign (and perhaps in the near future, a Spotify ad campaign?) provides a clearly measurable Return on Investment (RoI) to GCN that can be tweaked and tested over time.

Note too, in my interpretation, this article by Ben Thompson flags a poor outcome for niche aggregators, such as Starburns, who might come to depend upon revenue raised through advertising in the style of Google AdSense or YouTube (i.e. algorithmically inserted pre-, mid- and post- roll ads etc.)

End of 23/6 edit.]

I look forward to seeing future steps by GCN and similar businesses. To my mind, these types of digital content businesses are at the forefront of a living experiment in business model innovation in this brave new paradigm. I welcome thoughts and suggestions on this topic and wish the GCN the best of luck on their quest for the monetization Holy Grail.

[Edits were made on 24/6 to acknowledge the short period between the Starburns deal and the recency of reaching US$40K on their Patreon campaign.]

Film-makers as fluffy artists or tough-minded operators - you be the judge

This article has been summarised at Urban Cinefile. I am uploading it here, importing from our old website, because it has some still-useful insights from still-expert experts.  The clue was on the flyer: a picture of the hairless Sphynx, one of the world’s jarringly un-fluffiest of cats. At the 2012 AFTRS seminar, “Not Fluffy: Reimagining the Creative Enterprise,” six of Australia’s leading researchers in screen business each tried to answer the question: are screen practitioners fluffy-minded artists?  Or are they like the Sphinx  – tough-minded creatures, with little more than their keen nose for a business opportunity to protect them from the ravages of a competitive industry?

David Court: The King’s Men – Five great lessons from William Shakespeare’s theatre company

David Court, the Head of the Centre for Screen Business at the AFTRS, explained to the gathering of 30 screen producers and practitioners that even the great artists like Shakespeare are not as fluffy as everyone might think.

According to David, William Shakespeare’s theatre company, 10% owned by the Bard himself, was run in a most pragmatic fashion.  The Bard’s first company, “The Lord Chamberlain’s Men,” faced a steep rent increase.  At that point, pragmatic Shakespeare brought in a gang of “strong men” who pulled the theatre apart, from pillar to post, then re-assembled the theatre across the river.  The newly assembled theatre was renamed “The Globe.”

Shakespeare then tapped into what we would now call “market segmentation.”  He established a new theatre within the exclusive, and expensive, precinct of The City of London. The Globe charged only 1 penny for admission, whilst the newly built Blackfriar’s Theatre, with its smaller capacity, charged a steeper entry price of sixpence.  By setting up in a more expensive location and charging a higher entrance price, Shakespeare and his theatre company, now called “The King’s Men”, took what was then an art form for the masses into “high art”, for an elite and wealthy audience.  Think Woolworths, selling apples for $2.98 a kg, and its high-end store, 50 metres away, selling them for $5.98 per shiny punnet.

David dispels the myth of the artist as “a lonely man (and then, it was typically a man), sweating away at his art in a dusty garret.”  He blames this common, but misguided belief, on Romantic era thinkers such as Lord Byron, and later repeated by non-artists such as John Maynard Keynes in his acceptance speech for the position of Director of the British Arts Council.

David suggests that at least Shakespeare clearly did not conform to this stereotype. Shakespeare worked closely with his troupe of actors, borrowing liberally from other creative sources, and repurposing old material.  This was a great artist, and one actively engaged with realizing his art in a practical, and responsive business-like fashion.

David draws out five business lessons for screen practitioners from Shakespeare’s story:

1. Build common purpose companies.  David sees Matchbox Pictures, Cordell-Jigsaw and Zapudra’s Other Films (Andrew Denton’s production company) as local examples of this.
2. Negotiate terms of trade.  Clearly, The King’s Men were not passive in accepting the terms dealt them, but David sees too many filmmakers prepared to accept less than profitable deals “just to see their films released.”
3. The Audience is the Asset
4. Build the Brand
5. Embrace the Business

Box Office Prophecy, presented by Dr Jordi MacKenzie

Dr Jordi MacKenzie of Sydney University is trying to bring some predictability and measurability to estimates of likely box office takings of a yet-to-be-released feature film.  The boldness of this experiment flies in the face of conventional wisdom that says box office earnings of a film are too unpredictable to allow meaningful forecasts.

The study, now in its 5th year has managed to strip back the information required to make accurate predictions about box office to nothing more than the key cast and crew list.  Good results have also been obtained with only a small number of screen industry participants, sometimes as few as 10 in each “game”.

The researchers have found a correlation of r = 0.95 between actual box office results and their predictions.  In statistics-land, this is very, very robust.  A correlation of ‘1’ is a perfect correlation, with ‘0’ being no correlation – and a correlation like what Jordi and his co-researchers obtained is virtually unheard of in natural phenomena.

The question researchers asked participants was not “What do you think [film X] will make at the box office?”, but “What do you think others will think this film makes at the box office?”  This was a conscious attempt to divine the “Wisdom of the Crowd” phenomenon.  In academic-speak they call it a “pari-mutuel” technique.

Another benefit of the study in using this technique is that they were able to have the predictions naturally render themselves into probability distributions, rather than a single point prediction.  This enabled the researchers to then quantify the uncertainty surrounding each prediction.

Whilst his statistical figures were too small for me to scrutinize from my vantage point, Jordi is confident that the research team has found a methodology that could be extremely useful in guiding early investment and financing decisions of individual film projects.

For those who are curious, the research paper is available online for free and entitled: “Nobody knows anything? Applying pari-mutuel information aggregation mechanisms to the motion picture industry.”

Copyrighting the Future, presented by Professor Michael Fraser

Professor Michael Fraser of the University of Technology Sydney next took the lectern and argued quietly but forcefully for a copyright registration database, which he dubbed the “National Content Network” (NCN).

The professor is realistic about the environment that faces IP enforcement, acknowledging that enforcement causes alienation within society.  This is because digital film piracy is practiced by 1 in 3 of the population. Consequently, in his words, “enforcement alone won’t fix this market failure.”

Michael proposes a solution, simply stated:  “Creators have to offer a better service.”  His National Content Network would give both consumers and creators what they want.  Creators want to be paid for their IP.  But what do consumers want?  According to Michael, they will pay for:

-       Instant access

-       Freedom to repurpose the material (“mash-up”)

-       All of this in one transaction

Of copyright’s importance, Michael says that a fair and enforceable copyright law was the essential ingredient to the Industrial Revolution.  He noted Imperial China had copyright law well before Europeans, however, it gave all copyright to the Emperor.  British law dating from the late 17th century on the other hand specifically protected a citizen’s intellectual property (IP).  It was this difference, he feels, that allowed the West to surpass China in technological terms, and how it came to dominate the World.

To further support his argument, he referred to Article 27 of the United Nations Universal Declaration of Human Rights to the effect that “If you can’t make a living from your work, you are silenced.”

Creative Futures – presented by Tony Shannon

Tony Shannon, Acting Director of the Creative Industries Innovation Centre (CIIC) described some of the work they are doing for the Creative Industries (CI’s).  According to Tony, all of the creative industries seem to struggle with a basic level of business-mindedness.

Tony urges creative businesses to make use of resources on the CIIC website (www.creativeinnovation.net.au) such as the Revenue Master.  As simple – and he himself admits, simplistic - as the tool is, he says it is too often that he comes across creative businesses that have not done a basic revenue forecast of this nature.

Tony mentioned an analysis which I am currently working on with CIIC.  We are looking at Centre’s findings across the hundreds of creative industry business reviews which the Centre has done over the last three years.   The picture which is emerging is that creative businesses’ key challenges arise because of weaknesses in business fundamentals, such as strategic planning, sales, finance and systems and processes.

Whilst the study does not yet include the screen sectors, Tony and the audience speculated as to how much these attributes of the broader creative industries might apply to the screen industry.

For Love and Money – presented by Simon Molloy

Simon Molloy spoke on the topic of “Psychic Income”.  Psychic income is the difference between what a producer does earn through their films, and what they could earn in an alternative profession.

In 2007, AFTRS surveyed 4,500 Australian producers.  The survey found that Australian producers work for love and not money, sacrificing professional careers and tens of thousands of dollars in incomes in other fields to become screen producers.  Drawing from and building upon results from the 2007 survey, Simon is investigating and attempting to be more precise about the reasons why Australian producers forego such large amounts of money.

Whilst Simon was reluctant to testify to the rigour of this research by conventional academic economic journal standards, he takes heart from the achievements of Daniel Kahneman, who was awarded the Nobel Memorial Prize in Economics in 2002.  A psychologist by training, Kahneman is recognized for his work in disproving the economic rationalist assumption that all people work in an economically rational self-interested manner.

For more information, see Urban Cinefile’s previous article on psychic income at http://www.urbancinefile.com.au/home/view.asp?a=18807&s=Features.

Insights into the changing roles of producers in the new Australian screen culture, presented by Professor Deb Verhoeven

To avoid what Deb, Chair of Media and Communication at Deakin University, self-deprecatingly described as “an incredibly boring talk about data”, she refocused her question to “How do you survive as a screen producer in a hostile IP environment?”

In a vein strikingly resonant with that of Professor Fraser earlier in the day, Deb argued that what matters in this new environment is the “interoperability of content with data.”  This ‘interoperability’ has 3 layers:

1. Copyright owners must align their content with archival facilities
2. Copyright owners must align their content on a semantic level
3. Sharing of data

Deb foresees the second layer as the most difficult.  She says it will involve standardizing meanings, which will require an army of what is known in academic circles as ‘ontologists.’  The layperson would probably identify them as the humble librarian or “information manager”.

The upshot of the above she says, is that we should be thinking more about production workflows (e.g. AGILE production techniques, Just-in-time (JIT) film production etc) instead of just production or distribution.

Deb’s notion of “interoperability” predicts that the difficulty in Michael’s National Content Network (NCN) will likely be setting up definitions and standards.  I asked Prof Fraser if he knew Deb’s talk was going to align with his work so neatly.  He confessed he didn’t, but added wryly, “We nearly embraced after her talk.”

Panel Discussion:  How can Australian screen businesses become more sustainable, profitable and long-lived?

The panel consisted of Sandra Levy, CEO, AFTRS, Brian Rosen, President, Screen Producers Association Australia (SPAA), Neil Peplow, Producer and Director of Screen Content at the AFTRS, Dr Chris Burton, UTS Business School, David Court, AFTRS Centre for Screen Business.

The usual questions populated this discussion, such as “What is the correct business model for screen content creators?”, “What will happen to the independent film?” (left unanswered), and “How do we lift the Australian screen industry out of being a cottage industry and what is the role of Government in this?”

On the correct business model for screen content creators, Brian Rosen ventured that television has it pretty much right, with pay TV operators like HBO branding high quality content, and broadcast television producing “event” television.

One upshot of this for the feature film industry, is that he suspects there is a gap emerging in the film market at the $20-25 million budget level.  This is because Hollywood’s response to the paradigm shift occurring in media has been to make big “event” movies, with lots of CGI.  It was not mentioned in the discussion, but there was a pre-World Wide Web precedent for this gap in the Working Title films (e.g. Four Weddings and a Funeral) and Merchant Ivory films of the 80’s and 90’s (e.g. A Room with a View).  The success of these films probably prompted the studios to create spin-off specialty studios such as Rogue Pictures, Miramax (created by the Weinstein brothers, but later purchased and remodeled by one of the big studios), and Fox Searchlight.

With regards to the last question, on “How do we lift the Australian screen industry out of being a cottage industry, and what role does Government play in this?”, it was Brian Rosen again that ventured an answer.  He argued that to create a viable screen industry like Hollywood, you have to look to what Hollywood has that attracts the best ideas from all over the world.  His answer to that is i) capital and ii) infrastructure.  Consequently, he says it would be better to invest the $42 billion being invested in the National Broadband Network (NBN) instead into film production in Australia.  This would attract film productions from all over the world, and the rest would follow.

The main disagreement (and there were many) between the panellists and some audience members appeared to revolve around the “business-mindedness” or otherwise of screen practitioners.  Leading the “for” camp was Sandra Levy, who claims that the producers she has seen in her career, both in television networks and as CEO of the AFTRS have always “been market savvy, known their audience and are highly entrepreneurial in getting their films to market.”  This was a claim supported by David Court’s own view of his AFTRS students.

On the “against” camp, i.e. screen practitioners do not appear to be business-minded, was Tony Shannon and other members of the audience.  Clearly, Tony Shannon’s experience of creative industry practitioners, as well as Simon Molloy’s presentation would appear to suggest there is some evidence for this position too.

One attendee commented after the event that one of the statements by the panelist Neil Peplow was telling of a non-commercial mentality typical amongst even successful film producers such as Neil.  Neil was describing the ravaging effects of piracy on his film income.  He said that his film, Waking Ned Devine, had been illegally downloaded hundreds of thousands of times.  “If”, he speculated, “every one of those illegal downloads were to be charged 50 cents, I would nearly have made a profit on my film!”  The suggestion was made by the attendee that if Neil were truly “business-minded”, he would have been seeking to make millions rather than just breaking even.  If this assertion is correct (and let’s give Neil the benefit of the doubt here – he was speaking off the cuff and his statement could equally be interpreted as a keen desire to redeem money from an irredeemable situation), then it is a mentality that runs against the lessons from David Court’s paper that a good creative business should be prepared to “negotiate its terms of trade”.

Perhaps though, the two opposing opinions can be reconciled.  My own penny’s worth (or sixpence, if I was feeling especially wealthy in Shakespeare’s time): most Australian screen practitioners make films for love and not money.  It’s such hard work that your heart has to be in it.  However, once they have made a film, they can and do work in entrepreneurial and business-savvy ways to bring their film to a paying audience.

Yen Yang - Principal, Creative Industries, BYP Group