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A Social, Elastic Model for Paid Content

By - July 10, 2013

esquirepieceI was interested to read today that Esquire is currently experimenting with a per-article paywall. For $1.99, you can read a  10,000-word piece about a neurosurgeon who claims to have visited heaven. Esquire’s EIC on the experiment: “…great journalism—and the months that go into creating it—isn’t free. So, besides providing the story to readers of our print and digital-tablet versions of the August issue, we are offering it to online readers as a stand-alone purchase.”

I predicted that payment systems and paid services/content were going to take off this year (see here), but this isn’t what I had in mind. But it did get me thinking. What if you added social and elastic elements to the price? For example, the article would initially cost, say, $1.99, but if enough people decided to buy it, the price goes down for everyone. The more people who buy, the cheaper the price gets. It’d never go to zero, of course, but there’d be some kind of a demand/price curve that satisfies the two most important things publishers care about: readership (the more, the better) and revenue (ideally, enough to cover the costs of creation and make a fair profit).

The tools to do this already exist. There are plenty of sites that crowdsource demand to create pricing leverage, and sites like Kickstarter have gotten all of us used to the idea of hitting funding goals. And the social sharing behaviors already exist as well: Nearly all content has social sharing widgets attached these days. Why not combine the two? Those who initially paid the highest price – $1.99 say – would be motivated to share a summary of the article with friends and encourage them to buy it as well. They are economically incented to do so – the more friends who buy, the greater the chance that their initial $1.99 charge will decrease. And they’re socially incented to do so – perhaps they could get credit for being one of the early advocates or tastemakers who recognized and surfaced a great piece of content before anyone else did.

Let’s break down the economics to see how it might work. A really great piece of long form journalism in a magazine like Esquire pays around $15,000 (sometimes more, sometimes less, depending on the author, subject, length, and title). But for this model, let’s say the payment to the journalist is $15K. Then you need to factor in the cost of the editor, copy editor, production, sales and design, as well as general overhead of the publication per piece. Let’s call that another $5K per piece (I’m spitballing here but probably not too far off). So for this article to make a profit, it needs to make $20,000 – or sell roughly 10,000 copies. Of course, the article is also monetized through the regular magazine and tablet editions, so the real number it has to hit is probably far less – let’s cut it in half and say it’s $10,000. Now to clear a profit, the article really just needs to sell 5,000 copies at $1.99.

Let’s not forget that Esquire also shows advertising against its articles. If it maintains a healthy $25 CPM, and shows two “spread”  (two-page) ads between those 10,000 words, that’s roughly  $100 per 1000 readers that Esquire can make. If it indeed does sell 5,000 copies of that article, that’s $500 of advertising revenue earned. And if it gets more readers, it can earn more advertising revenue – and decrease the paid content price in some correlated fashion. (No matter what, Esquire wants more readers – both to increase its advertising revenue, but also to accomplish its journalistic mission – all authors want more readers).

Perhaps a model could work like this: The piece costs $1.99 for the first 5,000 articles sold, garnering $10,000 in revenue (Ok, $9,500 for you sticklers). Once that threshold hits, the price adjusts dynamically to maintain at least $10,000 in overall revenue, but adjusting downward against the paying population as more and more readers commit (which also earns Esquire additional advertising revenue). A “clearing price” is set, perhaps at 50 cents, after which all profits go to Esquire. In this case, the clearing price kicks in at 20,000 copies sold – everyone would pay .50 at that point, and it’s a win win win for all.

Just spitballing, as I said, but I think it’s a pretty cool idea. What do you think?

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24 thoughts on “A Social, Elastic Model for Paid Content

  1. Interesting… they show three methods… PayPal, TinyPass… and credit card.

    Questions of special interest to me:

    What are the total transaction charges for each method and their methods of computation?

    How low can the price go on an article or other piece of content and have it still remain a viable transaction?

    Could either side of that transaction be benefited by a one-click capability?

    I’m not suggesting its your job to answer the questions… but I think charges, threshold-of-viability and ease-of-purchase can all be bested by an Internet Wallet system with an account suitably designed.

    I believe a pooled-user-determined account structure can do the job and benefit both the user and content provider. But if I’m wrong… I sure as poop would like to know it and the reasons. Really…

    Patent #7,870,067 granted January 11, 2011

    • This innovation arose as a response to problems in campaign finance… And finding a way for ‘the little guy’ to respond to large players… and this led to a solution that applies much more broadly…

      THE PROBLEM HAS BEEN THE COST AND TROUBLE OF TRANSACTION

      And what makes this solution possible is for you or anyone (e.g.) to be able to receive from an interest group (by email, mobile, etc) a simple solicitation and a simple way to respond… and give a very small amount. (25 cents is a very low-threshold for click-through but becomes a very big deal in large numbers)

      Large Numbers + Small Money can completely alter the landscape of campaign finance. I can give some numbers another time but think yourself… that’s a low threshold for participation and at scale its a whole new game.

      THE PROBLEM HASN’T BEEN HAVING A BUTTON, OR APPLICATION, or WEBSITE… Or whatever…

      THE BUG IS THAT ITS NOT CURRENTLY A FINANCIALLY FEASIBLE TRANSACTION BY ANY SYSTEM…

      THE SOLUTION REQUIRES A VIABLE MICROTRANSACTION W/O BURDENING THE TRANSACTION WITH ADDED COSTS

      This patent is the design of the account structure that makes a (e.g.) a 25 cent contribution, or theoretically micro-penny size transactions financially feasible given sufficient volume… and it doesn’t take much.

      And the same design that works for political transaction (patent includes fulfillment of reporting requirements) works for ANY transaction for any purpose.

      I can explain the mechanics relatively simply:

      You put (e.g.) $20 in your account via Visa
      Chagora pays Visa transaction fee
      You designate 25 cents to “save the whales” in a solicitation
      79 other people designate 25 cents to ‘save the whales”
      “Save the Whales” reimburses Chagora for an equivalent $20 contribution fee they’d have paid if a payment of $20 had come to their site directly (80 x 25 cents)
      That’s an obviously simple way of explaining the patent and account but that’s how it works in simplified essence.

      Donor/User (or payer generally) relinguishes OWNERSHIP (as in cash card/internet wallet) of Money deposited in Pooled Trust Accounts.. but retains total Discretion re its Distribution.

      This is the key… not having a button or application… which you can do for anything. Its the patented account design making the transaction financially feasible.

      And I’m fairly sure there’s not a cheaper way to do a microtransaction. I should add that their are potentials for monetization external to the transaction and there are a number of ways and vehicles via which the capabiltiy can be utilized.. but the account design is the essence of its uniqueness.

      I’m pleased its gaining attention and frankly shocked by the way its been ignored by Silicon Valley and those supposedly interested in Internet and society…. not to mention that its very smart business.

      It makes one wonder if there’s reluctance to provide competition to the dominance of big money in politics… by the large players in the payment space. I look forward to clarification.

      The failure of both the financial services industry as well as the Internet ecosphere to address issues of scale on economics and decision is… frankly… disgusting.

  2. Harish Vasudevan says:

    Great idea John.
    Wonder if you can go a step further and variability to the writer’s income as well? ie why should she/he get the USD 15K irrespective of how many people read the article? Thereby there is incentive up and down the value chain to maximise readership with a variable compensation/cost model. Just thinking aloud here..

    • johnbattelle says:

      I think that idea could be incorporated, but probably with some floor and possibly a ceiling as well.

    • Chuck Taylor says:

      Nobody’s going to spend months on a story without some guaranteed minimum. But if there is a percentage share of revenue above a certain level, as in Hollywood deals, that would make content creation a pretty attractive proposition.

  3. Chris McCoy says:

    No doubt crowdfunded content is part of the future of premium content.

    In the absence of guaranteed demand for readership/audience (unlike TV, portals, etc), advertisers won’t pay premium up fronts against it. Therefore premium content like this (and videos) isn’t guaranteed to be profitable. If you produce it, it’s a guess (gamble) whether you’ll make your money back.

    A new model should emerge and that model should be fan funded content.

    • RE: “A new model should emerge and that model should be fan funded content.”

      Absolutely correct! And while publishing/editing/promotional functions are valuable and will continue… a simpler ability for direct creator-to-consumer transaction at both very low price (and commensurably low cost-of-transaction) is both possible and necessary.

      As well as an availability for user pre-funding of investigative journalism or similar.

      • johnbattelle says:

        Yes, Kickstarter clearly could (and probably is) fund quality investigative work.

        • Chris McCoy says:

          We experimented with crowdfunding and sports games a few years back. It worked, but couldn’t scale. I do think it works IF a strong interest graph (sports graph) and communication channel (social network w/email tie-in) is in place. Have spent the last couple years building that. Have plans to bring crowdfunding back and we think it’s the future of local sports content (and newspaper coverage of local sport).

          Here’s article from way back: http://www.digitalmediaminute.com/article/5487/sports-online

  4. Andrew Creighton says:

    Maybe the way to do it is the reverse, i.e start the content at the lowest price and as it becomes popular it gets more expensive. Value increases with popularity, people may pay more when its shared with a “you must read this”. Although the awful by-product will be the rise of a new agency strand, Content Pricing Optimization or something

    • johnbattelle says:

      Interesting. I’m not sure that model would encourage the behaviors publishers would want. But I do think it’s about time that publishing got with the times wrt pricing optimization.

  5. gregorylent says:

    micropayments is the near future, but my god, how i despise advertising .. what a dehumanizing time suck

    • johnbattelle says:

      Well tell us how you really feel! I don’t feel that way about advertising, as I am sure you know from reading this site. I do think there’s a lot of terrible ads in the world. But I think brands have a right to add value to a conversation, given they are helping pay the bills.

      • Chris says:

        But they’re not adding to the discussion anymore are they? They’re just filling what seems to be an endless void.
        Who out there isn’t thinking that advertisements are the easy way to pay the bills? I know I am. If I can get the right audience.

  6. george says:

    Interesting…
    Perhaps ebay can build a publishers site and handle this exchange.

  7. Chuck Taylor says:

    So there needs to be a time factor, then, at which point a price is locked in before everyone is billed? Or do the early buyers actually pay more than later ones?

    • johnbattelle says:

      Lots of variables, but once a threshold is hit the early buyers end up paying less

  8. Troy says:

    Thanks for writing this John. Interesting thoughts. Friction in process is indeed biggest hurdle. Beyond this, a model that created visible financial upside for author would motivate. Challenge for publishers is how do you do repeatedly, or turn one transaction into annuity. Other iterations could create tiers for multiple purchases and certainly a reader’s ability to influence their network.

  9. Chris Parente says:

    I think — this is exactly why I read this blog John. Love the creativity. I’m an old fashioned Esquire sub BTW, and it was a fantastic article, devastating but fair. The quality of Esquire content is amazing, and it should be supported.

    Add a bit of gamification — Esquire could rank its online advocates, and send them swag like tee shirts and free cocktails at bars across the country.

  10. David Reardon says:

    You are partially right, Mr. Battelle.

    The right price point is essential to maximizing profits. While highly motivated readers might pay $1.99 to read that Esquire article, that’s way too much for people with a more casual interest. But if the price were only 10 cents, people with a casual interest would be reading it in droves.

    If that article cost Esquire $15,000, they would only need 150,000 readers paying a dime each to break even. Very doable.

    The problem isn’t finding enough readers who are willing to pay a “fair” market price; the problem is finding enough who will pay twenty times that amount.

    In short, the real problem is that Internet pricing is grossly distorted by the high cost of credit card transaction fees (minimum of 25 cents plus 2.5% per transaction).

    Credit card fees force content providers to either push for subscriptions or to price content at 99 cents or more. Add to this fee barrier, the inconvenience of filling out a credit card forms for a purchase the buyer sees as just one of nominal interest, and you’ve lost all opportunity to capture the nickels and dimes that millions would be willing to pay if it were an easy, impulse buy.

    The solution, which has already been created by 2-Way Micropay, is an easy to use payment platform that tracks accounts to 1/100 of a cent. This allows us to accommodate purchases as low as one cent, while still deducting our small fee and to offer the opportunity to split the payment up to three ways. . . between the publisher, the content creator, and a referring party.

    Similar micropay solutions have failed because they couldn’t establish a large enough user base. Why? Because users had to prefund their accounts with $10 or $20, taking the risk that they wouldn’t find enough content they really wanted.

    We’ve eliminate that risk. 2-Way Micropay users don’t have to prefund their accounts. Instead, they immediately begin to receive a stream of “free money” from loyalty rewards, rebates, viewing ads, or taking any other incentivized action.

    Because we allow micropayments to flow both in and out, we’re creating a micropay economy with less risk for both consumers and publishers. Plus, because our users feel like the money they are spending is “free bonus money,” they are even more quickly inclined to pay 10 cents to read that Esquire article.

    The bottom line is most Internet content is not worth $1.99 or even 99¢. On the other hand, time is money, so nearly every link worth my time to click on is worth at least 1¢ . . . especially if I have a stream of “free money.” So nearly everything on the Internet has some monetary value to us, but more often at price points in the pennies rather than dollars range.

    Another unique aspect of our service, and the prime way we ensure our users receive a stream of “free money,” is that we are also acting at the market identity broker for each of our users.

    We gather marketing data on every thing they buy and on every ad and incentive they respond to. In return, our users not only see better targeted ads, they also receive 85% of the ad dollars spent to by advertisers who want their time and attention. Instead of exploiting our users for our sole profit (as per the example of Google and Facebook), we partner with our users and actually give them the lions share of their market identity value.

    We further empower our users by allowing them to set different rates for different commercial categories for which they are willing to see ads. Proven, frequent buyers can therefore earn more by seeing fewer ads from companies who appreciate that they are reaching highly qualified prospects. And users who don’t want to see ads can set their ad receipt charge high enough to effectively block any or all ad categories.

    Returning to the price point issue, our research indicates that prime time network tv ad revenue averages just 18 cents per viewer per hour. Eighteen cents. This suggests that companies can be profitable charging just 20 cents per hour of entertainment . . . if millions of people had a way to conveniently pay nickels and dimes for access.

    These are the price points we should be aiming at. And they can’t be reached as long as we are slaves to credit card fee structures.

    So, Mr. Batelle is right. We need to have a way to lower the price point for buying online content. But until we eliminate credit card barriers, content providers will remain unable to experiment with price points that will really identify the optimum price points which consumers will embrace.