money and a mobile phone

Business Models in Cultural Industries

Introduction

Companies operating in the cultural industries are mostly commercial organisations whose output is influenced by their need to turn a profit and satisfy their investors. It’s showbusiness. The production and distribution of media texts is risky and expensive, but companies have different models and mechanisms to cover their costs.

In our introduction to media convergence, we looked at the new patterns of cross-ownership and vertical integration in the cultural industries. These conglomerates were able to use their vast resources and expertise to create more opportunities to sell content to consumers. We also considered how companies could combine their efforts in a process known as media synergy.

However, this summary simply focuses on the different ways consumers pay to access media products and services. You are probably already familiar with the business models, but it is important to know the key terms.

Single-issue Purchase

Physical copies of media texts tend to be a straightforward transaction. You give the newsagent a few coins to purchase the tabloid or broadsheet of your choice or click the “buy now” button to order the Blu-Ray boxset of your favourite television series. In both cases, you now own the copy.

It is a little more controversial if you buy the product in a digital format which is locked into a particular ecosystem. For example, a court case established the fact you don’t own the films you buy on Amazon Prime Video – you only get a limited license for “on-demand viewing over an indefinite period of time”.

Pay-per-view

Consumers pay to access individual events and pieces of content, usually for a single viewing. Pioneered by professional boxing broadcasts, this strategy remains popular in sports industries because fans are eager to watch matches live from their living rooms. You simply pay for your ticket and go to the channel.

For example, BT Sport Box Office offered “stunning pay-per-view events”, including “Mike Tyson’s thrilling ring return” and “one of the greatest heavyweight trilogies of all time between Tyson Fury and Deontay Wilder”.

Disney also locks some of its content behind a paywall on its Disney+ streaming service. When the live action Mulan (2020) was released, users could watch the film before anyone else by paying the £19.99 Premier Access fee. Cruella (2021) launched on Premier Access on 28th May for a one-time payment, but regular subscribers had to wait until the end of August to see Emma Stone as the eponymous villain.

Subscription

Video-on-demand (VOD) platforms, such as Netflix and NOW TV, are obvious examples of this business model where you pay for unlimited access to their films and television programmes for a fixed period of time. Magazines and newspapers offer subscription-based options to read their digital and physical formats. The New York Times is probably one of the biggest publications to deliver a successful online subscription strategy.

The computer game industry has also embraced this model. For example, the Xbox Game Pass enables subscribers to play triple-A games and enjoy a host of other benefits. Steam is one of the largest and most popular digital game distribution platforms where you can subscribe to some games. The Steam Workshop is an additional subscription service that allows players to create and manage some user-generated content.

Companies like the subscription model because it offers a reliable cash flow, and they can more precisely forecast future revenue. Consumers often appreciate the convenience leading to high retention rates.

Freemium

The word freemium is a combination of “free” and “premium”. By offering limited access to the media product, companies hope to establish a solid user base and raise brand awareness. Consumers are then charged money for upgrades, customisations, add-ons, and the more advanced features.

This business model is incredibly popular in the mobile gaming industry. Pokémon Go is a great example because you can download the app for free to your Apple or Android device and begin building your inventory. However, you need to purchase the in-game currency if you want get upgrades and useful items, such as Incense to lure Pokémon to your location and more Poké Balls to capture the characters.

The numbers are staggering. Download more than 500 million times worldwide by the end of its first year, the game grossed its makers, Nintendo, more than $6 billion in revenue between 2016 and 2020.

Freemium is also a popular tactic for smaller companies who want a slice of that market and convert users to paying customers.

Advertising

Many media companies depend on advertising revenue to remain viable. That is why you will see classifieds in newspapers, advertorials in magazines, jingles on the radio, commercials between programmes on television, product placement in films, unskippable pre-roll ads on YouTube, brand integration and embedded marketing in computer games, pop-up ads on websites, sponsored content in your social media feeds. Even Netflix is thinking about tapping the advertising revenue stream.

In What Makes Mainstream Media Mainstream, published in Z Magazine in 1997, Noam Chomsky argued “corporations sell audiences to other corporations”. In other words, media companies collect data about their audiences, such as demographic information and psychographic profiles, which they then use to attract advertisers who are targeting consumers with those characteristics. The audience is the product.

Licence Fee

Licence fees are hypothecated taxes with the money going directly to the broadcasters. In the UK, if you want toe “watch or record programmes as they’re being shown on any TV channel” or “stream programmes live on any online TV service”, you must pay the licence fee which funds the BBC. This model is used throughout the world, but it is often under threat.

For more information on the BBC and its funding, you should read our overview of public service broadcasting.

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