Revenue models for content startups

20 mins read

For content startups, there are three common revenue models. Ads, subscriptions and lead generation.

An advertising-supported model such as one run by The Guardian and Quora pays the bills by putting sponsored messaging on display. Or a subscription-model such as the one used by Medium and Quartz requires users to pay up to read after a free look period has expired.  A lead generation model such as Princeton Review or Bionic Turtle attracts organic traffic by sharing content with value for a specified segment so that they can sell members of the segment some product.

There are variations in between such as Wired which use a mix of both. These three versions represent the cleanest divide between the two worlds.

Advertising-supported pure content plays have been the rage for a while and the model is simple. Eyeballs, cost per milli (CPM) impressions or lead generation for sponsors. Content could be video, text, print, commentary, analysis or data.  Revenue estimates are linked to the ability to generate traffic on a consistent and periodic basis and converting it to impressions, clicks and conversions. Ability to generate traffic is correlated with the capacity to produce fresh, relevant, consumable content on a regular basis.

The cost or pricing for advertising slots available on content driven sites is based on traffic trends, markets from where traffic originates, paying capacity of advertisers and desirability of audience. Relevant North American and Western Audiences earn premium CPM rates; Asian, Middle Eastern, Eastern European and African markets earn lower rates.

If you have analytics, webmaster or traffic trends data, you can easily determine traffic patterns in your markets and likely share of voice across keywords being searched for in those markets. A quick tabulation of CPM rates by keywords and your potential share of voice can give you an indicative range of likely advertising revenues. You can supplement network advertising revenues by promoting your internal lead generation, campaign and advertising tools. If your site is fresh and unranked you can take a look at competition profiles using sites like Alexa, Semrush or Ahref to get a sense of traffic potential and your ability to capture a share of that market.

Modeling revenues is a question of using data from relevant sources. Revenue models for content startups without credible data are worthless. Important to do the groundwork on validating data and assumptions before committing the same to an Excel model or a PowerPoint presentation.

The content world tends to stay within the cost-plus world. Getting value to work here is a difficult task. Search traffic and CPM rates are publication agnostic. Till you are able to stand apart from the crowd and can sell your real estate at your price, you have to take what the market offers.  What the market offers is linked to your audience and their profile, not the quality of your content.

To do value in the content world you have to specialize and offer content that is unique and rare.  That is the only path to reader-supported revenues and non-advertising models.  While it is easy to do this with test prep (Kaplan, Princeton Review) and content product sales (Wall Street Prep, Bionic Turtle), it is difficult to achieve the same results with news, commentary and analysis businesses.

How would such models work?

Specialization within content world

When we pick The Economist from the newsstand, we read business and political commentary and maybe part of in-depth or feature coverage on a topic of interest. We rarely end up reading the entire magazine. The same holds true for FT, the WSJ and others. All three are specialized publications focused on the financial world. All three exist to serve readers interested in global markets, economics, and finance.

The economist focuses on broader, global, weekly coverage; FT is more Eurocentric, while WSJ is North American but also has regional editions including an Asian one. Revenue models are a combination of advertising, subscription revenues, individual story sales, syndication revenues and paid placement pieces.

We don’t have a choice but given an option, we would rather pay for pieces we read rather than the entire collection. Without the burden of a print edition, the cost of writing and distributing a story can be brought down significantly.

Medium model

In some ways, Medium is a good point of reference. Medium did a great job of incentivizing authors to write and then convincing people to pay for stories, but their leaky paywall is a turnoff, especially given their new efforts to drive traffic towards paid content.  

Medium was able to pull it off because it originally specialized in the voice that hadn’t been heard. There is a community of hardcore readers who like the diversity of authors and opinions on Medium and is happy to pay $5 a month to read an unlimited inventory of pieces.  Like other major publications, Medium doesn’t sell individual stories, it sells aggregated subscriptions. Which works for people who are familiar with Medium, have been regular readers or understand what the platform has to offer.  

However, for first-time readers and someone new to the platform, there is not also enough information available for a buyer to make a call on buying a piece. Medium offers a free look option that allows you to read a few stories for free as you make up your mind. Conversion on these readers is hit and miss. It is a function of the pieces they pick up to read and the impressions created by the same pieces. This gets offset by the large inventory of free pieces across a universe of diverse topics. Readers who have the patience to explore Medium keep on coming back for more and ultimately subscribe. 

Given a choice between $5 dollars a month for a Medium subscription and $5 per year for a Wired digital subscription which one are you likely to pick? Given Wired brand recognition, for most people, it would be a no-brainer to pick Wired. But if you were a hardcore Medium reader before Medium put up its paywall, you would pick Medium.

The same filters are now also making it difficult for new authors to be discovered with the ease they were being discovered on the old Medium. This means that the pool of people who saw Medium in its early golden days is reducing day by day. If Medium was a lifestyle business run by lifestyle founders, this wouldn’t be an issue. But in time the cash is going to run out and Medium will most likely be acquired or sold to someone with deeper pockets or a better business model.

The way forward

We feel that we could learn a great deal on product display from how amazon sells digital content and marrying it with a model like Medium.

We want to be somewhere between Medium’s 5 dollar per month and The Information.com’s 749 dollars a year subscription model. Finalizing the actual point will require some experimentation. Our starting point is the 0.99 cents per story price point. As we pivot our model the price point is also likely to change.  For individual stories, we don’t see pricing crossing the 99-cent benchmark. It may fall to 49 cents or lower in the coming years.

We also have clarity that the ultimate model is not going to be advertisement driven but reader revenue focused. This suggests that there will be some form of a paywall, but its effective deployment would be different. Historical, aged articles beyond their projected shelf lives (4 weeks) will be free and will be used to showcase the writing prowess and styles of their authors.  We will remain focused on finance and economic news, commentary, insights, surveys, polls and other related engagements.

Dissecting Medium and Quora missteps

Medium and Quora were two digital publications that inspired, educated and entertained us for many years. 2017-2018 were difficult years for them.

Recent pivots driven by business model tweaks have been a disaster at both publications. While Quora hasn’t introduced a paywall, sponsored content now is pervasive across the site, readership is falling, and the quality of contributed content has deteriorated significantly. Quora’s original pivot with advertising and sponsored content was a disaster. Quora’s experimentation with editorial and curation standards turned the site into a cross between a confused porn site and aunt agony columns. Thankfully better sense prevailed finally in Q4 2019 and the site is limping back to old ways.

Medium has experimented with the paywall but the $5 dollars a month, $50 dollars a year price did not gain enough attraction from a financial point of view and like Quora, Medium is now pivoting towards sponsored content.

Both ventures were run by teams that have a better track record than we do. They had a lot more in resource terms and significant clarity long-term vision. If they have faltered, what hope do we have of tackling this problem?

We believe there are three drivers that point to things that went wrong with the Medium/Quora pivots. The first is baggage. Quora and Medium both started with significant venture capital funding due to the track road of their founders. While the initial funding made it possible for them to get traction quickly it also added bloat to their headcount.

Second, they both focused on writers and themes across a wide range of topics. This was a mixed blessing and a curse.

Third the paywall or sponsored content was never part of their original vision. It was the biggest driver behind their appeal. Independent, neutral, unbiased, advise, opinion and writing from people you would never get the chance to read on any other platform. Essentially for free. When they switched they tweaked that core appeal.

They could have gotten away with it, but the model didn’t work. They tweaked a vision a bit more. Between the three drivers (bloat and baggage, broader lens and loss of appeal on account of multiple pivots away from the core vision) they killed the original charm of the two platforms.

While medium and Quora have struggled the New Yorker, the New York Times and the WSJ report that post paywall reader revenues in terms of subscriptions and views are up. All three did not have the elements identified above. The New York times had been suffering on account of lower print subscriptions and the onslaught of digital platforms.

Yet in 2016, 5 years after introducing the paywall the publication had booked US$ 400m a year in digital revenues and had added a million digital subscribers to its fold (2.5 million in total from its original 1.5 million base in 2011). Their primary learning from the experience was that the core business is now a subscriber centered business rather than a sponsor or advertising-supported one. 

Perhaps the biggest winner and role model in this space is Quartz. Quartz grew digital revenues (not reader or subscriptions) all the way to 30 million dollars annually before being acquired for US$ 110 million earlier in the year in 2018.  As a business, it brought together world-class writing talent, technology and media sense to the table and dominated stories, discussion and commentary in the spaces it chose to operate in. Quartz also proved that it was possible to build traction, build revenues, attract audiences and make money in a digital business within 5 years of launch.

Existing revenue models for content startups

The common themes that stand out when one compares the NY Times, Quartz and WSJ with Medium and Quora are obvious.

1. A model reliant on purely independent crowd sourced authors is less likely to work than a model with an internal team working with editorial oversight.
2. Curating content produced by free agents is difficult.  A model with an in-house editorial team and a small team of talented captive authors is more likely to fly and survive.
3. Like the field of investment management selecting the right stories and allocating your best talent on them is likely to do better than giving equal coverage to all stories.
4. Some stories resonate, others don’t. Some are amenable to a deep dive treatment, others aren’t. Some carry a broad appeal and are likely to have long shelf lives. Others are short lived. These are all factors that will make or break a publication and determine if readers will pay for content or wait for it to be available for free.
5. You don’t have to break a front page worth of stories every day to dominate your space.
6. Consumers and markets can tell the difference between a publication dedicated to clickbait and a team dedicated to quality journalism.
7. Absence of baggage is important, keeping costs low is important.  Focus on a specific area, geography or location is important.
8. Editorial quality, content and value addition is key.

While we have seen similar efforts do well with technology ecosystem, startups and current affairs, finance has been the odd one out given the effort it takes to get financial journalism right.

All the peers in our comparison group have used paywalls to mixed effects. Individual subscriptions rise which go to prove that quality of content improves when it is not ad supported. Monetization is driven by the quality of content. Subscription rise when click bait and ads are not the primary drivers for a business.

The choices when it comes to price points are many and range from:

1. Monthly subscriptions. Used by most newspapers. The reader pays anywhere between 5 dollars a month to 40 dollars a month for access to the full site, archives, historical articles, data set, etc. WSJ – $1 for 3 months. $29 per month after that.  Quartz is running a paywall launch special at 14.99 a month or 99.99 a year.
2. Buy a piece that you like. Economist. GBP 7.5 for reprints of special reports. 12 weeks for 70 dollars. 
3. Medium subscription model – $5 a month or $50 a year for unlimited access to everything. Wired – 4 articles free. You pay for the 5^th.

How are we different from the above group?

1. We shouldn’t see ourselves as a newsroom that needs to break 15 stories in a day. We don’t need a front cover that has one deep story and 30 shallow ones. We feel and believe that less is more.
2. One well research, well written, deep, long form story is likely to attract more loyal readers than 30 clickbait pieces with less than 300 words. We are still in the news business, just not in the hype and traffic monetization using display ads that pay per thousand impressions.
3. A focus on Finance and economics for south Asian diaspora residents in their home countries or living as international expats. We feel deep stories resonate well when they connect deeply with audiences that are still connected and relevant to their original countries of birth.
4. A focus on affordable, quality, sustainable journalism funded completely by reader revenues. We feel free from the baggage of a print publication and using a talented team of editors and writers we can produce focused, quality long form pieces at a fraction of a cost required at a mainstream news media player. This is partly a function of our design which is geared towards keeping costs and baggage low.
5. A content and digital sales model that takes the best of ideas from the New York Times (reader focus over ads and social traffic generation), Medium (reader experience), Quora (specialized answers), Amazon (product information displays) and iTunes (micro-payments, single titles, micro-transactions). While on one side we are driven by quality content, the other side of our organization is focused on selling that content as quickly as possible using well tested technological and consumer behavior tools.
6. The tools are supplemented by a focus on selling individual curated investigative, research and current affair commentaries to select audience matched to author profiles and article themes with reader interests. This is a statistical matching engine (read AI) that we use internally to promote, recommend and suggest stories to our reader pool that they are most likely to buy.
7. An emphasis on positive theme and hope rather than doom and gloom. There is enough misery in the life of our audiences. They would very much like for someone to cut them a break. Rather than pieces that highlights despair we want to focus on pieces that highlight hope. We think this is one big driver behind buyer motivation. Negativity gets you traffic. But people don’t pay to get depressed. Positivity and hope sell content.  People pay to feel good.
8. A driven team that understands the linkage between delivering value to readers and selling stories using well testing frameworks for generating interesting, relevant and engaging content faster. A team that brings talent from finance, from news, from the traffic business, from design and editorial expertise. A team that understands business, context and technology at the same time.
9. A trust based payment model that builds on incremental transactional relationships. A postpaid payment model that provides prospective readers with initial credits to get familiar and comfortable with the content and the publication before we finally ask them for their credit card or payment details.
10. By using a trust based model that given readers ample opportunity to explore content and get comfortable with our portfolio of authors and writing style we hope to drive reader retention and conversion rates higher than the industry average.

Revenue sources for content businesses

What would the revenue model for such a business look like? It is not enough to just saw we will generate revenues from a specific source. As founders, we have to model each line in enough detail to see if what we are trying to put together will be sustainable.

Primary revenue sources

We sell individual stories to readers.

A story here is defined as a piece of financial or economic non-fiction journalism. Stories are curated for readers based on their prescribed interests and geographies. Each story comes up with a short 200-400 words summary, an author profile, reader testimonials and ratings. If as a reader, you like the story summary and would like read the full story which may run between 2,000 – 5,000 words you would need to pay between 25 cents to 99 cents to get access to the full version in the initial testing phases. You can share the story within your network (so an incentive to add people and define relationships within your network), you can rate it or write a testimonial to get additional credit.  Similar models have been rolled out by Quartz and a couple of other publications but are not as information rich as the one used by Amazon. Possibly because they are still geared towards monthly subscriptions for the aggregated publication and not individual pieces.

Secondary revenue sources

In addition to the primary source of reader revenues, we will also use additional secondary sources. These include:

1. Digital compilation of the best new stories from the last quarter. Once news stories have gone beyond their shelf life they make useful additions to compilations. Compilations can be theme based, regional or simply driven by user and/or author ratings. They may not be a significant source of revenues but serve multiple purposes of introducing our brand to new audiences, drive more traffic to the site, incentivize the author to further promote their personal brand and at the same time generate revenue. Compilations are great for readers who need something substantial to bite into for a long flight, for students of journalism who need to study local and contemporary long form style as well as school students who would like to get exposure to long form pieces. Digital compilations can also be pitched and sold through our other media properties. More importantly, digital compilations represent an important source for expanding our reach while generating revenues at the same time.
2. Classified ads. Depending on the size, focus and the needs of the community, once we have built enough trust as a community, we will introduce focused classified ads for specific segments. The biggest within these in Pakistan are jobs, automobiles and real estate. Our current plans rely heavily on international expatriate traffic. This is a community that is always interested in a move back home for the right opportunities. Similarly, there are employers who are interested in targeting potentials candidates who have international exposure to move back home. In addition to jobs classified sections for new and used cars and for renting, buying and selling real estates are of big interest to the same market.  This is an area that is still being evaluated and something that we haven’t explored fully. It remains a promising avenue of supplemental revenue generation.
3. Consultative journalism, opinion polls and paid research engagements. Research engagements are an important source of generating new content as well as consulting revenues. We have a history of doing these as part of support work we do for the ecosystem. Previous engagements have included tracking venture capital investments within the startup ecosystem in Pakistan, the technology industry survey for 2018, a review of the tech industry going back to its origins all the way back to 1952, estimating the middle class in Pakistan and developing the technology industry infographics. All assignments that have generated useful collateral, sourced relevant traffic as well furthered our brand. While we have done almost all of the work above on a pro-bono basis, detailed analytical commentaries and reports can still be published and sold on a digital format. There is also room for generating partnership revenue when we are engaged as the primary data collection, analytics and commentary partner for a research engagement.

Tertiary revenue sources

Syndication – national and international. There is a very visible shortage of well researched, balanced news stories driven by investigative journalism. More so within the field of finance and economics. The only publication that has done anything to dent this demand is Dawn Group. Dawn launched Herald Publications in the late 70’s and the publication took hold as a monthly periodical with current affairs commentary using long form pieces. The team from Herald over the years seeded many other publications including Newsline but Herald was always the first to take up the challenge of running a publication dedicated to investigative pieces. Editorial quality and substance at both Herald and Newslines has deteriorated over the years. While they did venture into finance on occasions the commentary on economics has been limited.

 Using our network of advisors and contacts, as our content library grows, international syndication of our articles will become a tertiary source of revenue for us.  While it may not add up to a significant portion of our revenues, syndication is an important avenue for extending the reach of our brand and introducing us to readers who would otherwise not hear of us or discover us as part of their current reading exposure. There is a significant demand for well written news, commentary, insights and current affairs coverage in the Middle East, in India, in Far East, in Africa and in the APAC region.

Curated Events.  Events focused on themes with interest.

Given the profile of the audience, we plan to target it is also possible to host and launch theme curated events on topics of interest to the community. In addition to generating revenues, the events also create a fertile ground for stories and coverage. Nestio’s Pakistan focused 021-Disrupt event has grown to 1100 paid delegates per year over three years and creates phenomenal opportunities for new coverage, brand equity and marketable content/ Events represent a small source of revenues but like syndication help us extend our reach as well as create content for stories that are of interest to broader community.

Our monetization plan is laid out on a quarterly basis and is linked to the elements identified above under the readers’ revenue section. The primary monetization lines are

• Individual news stories sales
• Compilation sales
• Classified advertisements
• Consultative journalism projects
• Themes events
• International and local syndication

For each of these lines, we present and share our internal revenue and sales targets from Q1 to Q4 to give a sense of progression as well as the effort required to attain the targets. 

Reader Revenues – Individual story sales.

Stories sales are directly linked to traffic directed to the primary site, our portfolio of landing pages, our inventory of fresh stories for sale and our conversion rates.

1. From the end of Q1 (month 3) to the end of Q4 (month 12) we expect to grow traffic to our site from 80,000 visitors a month to 400,000 visitors a month. This growth occurs over a 9 months’ period from end of month 3 of our year to month 12.
2. We don’t expect to generate significant traffic in the first two months of launch.
3. Over the same time frame (Q1 to Q4) we expect to write 255 news stories using our pool of authors and editors.
4. We plan on converting 1% of the traffic in Q1 into paid customers or customers with accounts and raise that to 1.25% by the time we get to Q4.
5. This will yield us 35,000 paying or acquired customers over the 10 months’ period starting from the last month of Q1 to the last month of Q4.
6. In Q2, our first full quarter of performance we expect to sell 1833 stories per month during the quarter.
7. By the time we get to Q4 given the increase in traffic, fresh story inventory and our conversion rate we expect these stories sold per month metric to rise to 5,000 stories per month.
8. In Q1 stories will be given away for free or be available for reading through free credit so significant revenue is expected to be generated in Q1. We will start charging for stories in Q2.
9. The weighted average price for stories in Q2 is expected to be 49 cents. Since some of the stories will still be sold against free credit. We expect the rate to rise to 79 cents in Q3 and 99 cents in Q4 when the free credit given to new users will be completely used up or will represent a very small portion of new sales.
10. The three key drivers for sales growth are therefore traffic, stories and conversion rates. Hence are focus on all three in the first four quarters of our plan.

Reader revenues – Compilations Sales

As news stories age they become candidates for compilations. News stories rated by readers and customers can be ranked and compiled on a quarterly or half year basis. The best ranked news stories from plain speak – March to July 2018 edition would essentially be a compilation that you could download to your phone, your kindle device or your laptop. You could read it on your next long haul trip or your next ride to the dentist.  Think of it as your entertaining non-fiction read on finance curated by your fellow readers.  Well respected and regarded authors do them all the time. Panic by Michael Lewis is one; Some remarks by Neal Stephenson is another. They recycle old content and give us the stuff to read that we may have missed in our day to day cycle by our favorite authors.

We would start giving away complimentary compilations to active readers to get them introduced to the idea and then start suggesting compilations as giveaways and gifts in the following quarters. While we don’t expect compilations to be a significant source of revenues, they are a possible avenue for extending our reach and exposing the work of our authors to broader audiences.

Compilation revenues kick in Q3 and Q4 and we expect to sell 2,000 units in Q3 and 3,000 units in Q4 at an average price ranging between 3 to 5 dollars per individual sale.

A typical compilation would include between 10 – 15 top ranked stories and in addition to reading material could also be good candidate for case studies in the local business school education programs for both undergraduate and graduate students.

Alternative revenue – Consultative Journalism

The technology industry survey, venture capital state of the industry survey, startup landscape review, cost of living analysis urban centers, cost of doing business in Karachi, ease of doing business in Karachi index, women employment in financial services, student enrollment in computer science programs are all possible candidates for a consultative journalism engagement. The engagement would require creating a study with an objective, a survey, an outreach program, data collection, analysis and summarized reporting, presentation of finding. Survey results become a product that can be sold or distributed with sponsor logos. We have done this work regularly on a pro-bono basis for industry associations and can very easily do this on the plain speak platform given the profile of our target audience that can be used as a polling pool for assessing perceptions, mindsets and data points.

Consultative journalism is linked partly to our own credibility as professionals and partly to the size and profile of the audience project plain speak can attract. We expect these projects and associated revenues to kick in Q3 and Q4 to the tune of 15,000 and 30,000 USD per quarter.

Alternative revenues – International and regional Syndication

Once our content library grows to a reasonable size we will start an outreach effort aimed at regional publications to explore opportunities to syndicate our content with publications in the Far East, Middle East and East African news and media publishing partners. Once again like some of the other channels identified above, Syndication too is not going to be a significant source of revenue but will serve as a source of extending exposure and reach of our brand and our authors.

We expect it to generate between 3,000 to 6,000 dollars in Q3 and Q4 with the amount increasing again in the following year.

There are other items on our list of revenue generation sources but they have not been modeled in our financial plan as yet. These include revenues from classified ads from the classified section of the site. Not display advertising but an actual classified section along the lines of Craig List. And themed events where we collaborate and provide speakers, data, sponsors, audience members, topics and panels. Similar to consultative journalism, creating and hosting themed events is a skill in which we have significant prior experience due to our association with PASHA and the Nestio technology incubator in Karachi.

However, given our focus on reader revenues, we haven’t modeled the financial impact of the classified section and themed events in our financial projections and monetization plan.   They will play a role in bringing in revenues in our second year but that has yet to be modeled and incorporated in the monetization plan.

Based on the above four sources of revenues identified and projected above between Q2, Q3 and Q4 we expect to generate USD 96,000 dollars in gross annual revenues. As mentioned above no revenues are expected to be generated in Q1.

In the following year we expect the four sources to contribute USD 522,000 in gross annual revenues between Q5, Q6, Q7 and Q8. The quarterly break down by quarters for the next four quarters will be:

Q1. USD 93,000

Q2. USD 125,000

Q3. USD 142,600

Q4. USD 161,300

Incorporating the full financial model including projected expenses shows that the financial gap in the first year of operations will be USD 456,000 after including projected revenues in the first year and ignoring the impact of in-kind benefit and services received from related companies, founders and advisors. This is roughly the amount of funding support we would require to make ends meet in our first year of operations.

We expect to become cash flow positive in the Q8 of our second year but would still need an additional USD 55,000 of financial support to cover all costs. The total financial support required to cover all expenses over a two-year period would be US$ 510,000. 

If the planets align and all our assumptions and models hold and come true (which is unlikely), we expect to break even in terms of revenues in year three and in terms of capital invested in year four based on the trend in our current financial model.

Performance Metrics

Performance metrics and key indicators are linked to the core components of our business. You don’t have to track all of them. Just pick the most relevant and the most important.

• The first among these is our productivity in terms of generating quality stories
• The second is our ability to sell the same stories
• The third is our ability to attract relevant traffic
• The fourth is our ability to convert that traffic into sales
• The fifth is our ability to compensate our authors at an above average and above market rate.

The performance metrics identified below represent an initial list that will help us track our performance across these five elements over the next two years. The metrics you track and report are a representation of your maturity and outlook as a content business.

Stories written and published in a week. 

Sources and References

• https://www.asianentrepreneur.org/the-business-model-for-content-startups/
• https://www.singlegrain.com/content-marketing-strategy-2/companies-dominating-the-wold-with-content-marketing/
• http://www.brandquarterly.com/making-money-content-marketing-10-ways
• https://www.splicemedia.com/india-comments-section-reader-revenue/
• https://whatsnewinpublishing.com/10-startups-helping-simplify-the-world-of-media
• https://whatsnewinpublishing.com/95-subscriber-growth-in-less-than-3-years-how-a-news-startup-is-driving-reader-revenue-with-its-own-crm
• https://www.niemanlab.org/2018/10/hunting-for-reader-revenue-scroll-sets-up-shop-for-2019-with-more-publishers-and-10-million-raised/