How Content Galaxy's model can lead to a channel's explosive growth
Content Galaxy (CG) has a formula for creating paid subscription channels and publications
that tend to grow rapidly in both size and circulation. A successful publication
must be appealing to both subscribers and content providers, and this appeal needs
to be sustained if the publication is to continue growing. Content Galaxy does more
than sustain growth - it promotes rapidly accelerating growth.
The key to achieving explosive publication growth lies in Content Galaxy's model
of aggregate publications, where subscribers gain access to a substantial collection
of digital content from many independent authors for a flat subscription price,
while authors receive fair compensation in accordance with the popularity of their
material. CG publications are built on Content Galaxy's proprietary infrastructure,
the Content Marketplace Platform (CMP), which automatically handles all of the
required functions for payment processing, subscription management, authenticated
access to content, usage monitoring, accounting, and compensation. By ensuring that
content providers, editors, and affiliates all are compensated according to a system
that is fair, transparent, and resistant to abuse, CMP provides the basis
for creating highly successful publications.
The advantage of Content Galaxy over traditional models of buying and selling digita
l content can be understood without going into CMP in detail. To see how it leads to
explosive growth, one only needs to understand how CMP makes a publication increasingly
attractive to both subscribers and content providers as the publication grows.
Subscriber appeal
We use the term "subscriber appeal" as a measure of the attractiveness of a channel or
publication to prospective subscribers. This could be expressed as the probability
that a given person in the publication's target audience will purchase a subscription
within some specified period of time. Obviously, the degree of subscriber appeal will
depend upon subscription price and the perceived value of the publication's content.
The rate of growth in a publication's circulation is directly related to its
subscriber appeal. Since subscriptions expire, there is some threshold amount of
subscriber appeal needed simply to sustain a constant average circulation. As the
degree of subscriber appeal increases above this threshold, the average circulation
will tend to grow.
Ultimately, CG publication growth will be limited by market saturation. For example,
most people already receive an ample amount of daily national news headlines from a
variety of sources, so this would not be a particularly promising market for starting
a new CG publication. More generally, though, hardly any segment of the information
marketplace is close to saturation. People have a considerable appetite for premium
digital content, and content providers would gladly supply an abundance of material,
at a fair price.
If the subscription price is fixed and the amount of publication content is
increased, there is an increase in subscriber appeal, leading to an increase
in the rate of circulation growth. Gaining circulation through subscriber appeal is
a lasting form of "organic" growth, like the growth in a population as a function of
birth rate. For a constant birth rate that exceeds the death rate, the population grows
exponentially. Likewise, for a subscriber appeal that exceeds the constant circulation
threshold, the number of subscribers grows exponentially.
What we mean by organic circulation growth is subscription sales arising from word
of mouth, unsolicited blog references, forum postings, incidental press coverage, etc.,
all of which result from the natural tendency of news to spread about something that
is stimulating popular interest. To the extent that publication has strong subscriber
appeal, i.e. it offers a compelling value for the price, the existing subscriber base
itself will become a significant contributor to marketing. The exponential nature of
such organic growth is a consequence of the fact that this effect is proportional to
the number of subscribers.
Of course, one could gain new subscribers purely through marketing, without increasing
subscriber appeal, but this method of growing circulation would be sustainable only by
incurring an ongoing marketing expense. Also, unlike the organic circulation growth that
comes from subscriber appeal, growth through marketing is essentially linear, i.e. the
number of new subscribers gained is directly proportional to marketing expenditure.
Author appeal
The other side of the coin is "author appeal", by which we mean a measure of the
likelihood that a new or existing content provider will be inclined to submit some
amount of additional material for inclusion in a CG publication over a specified
period of time. In other words, the higher the author appeal, the faster the growth
in the amount of publication content. For a given subscription price, it's easy to
see how additional content increases subscriber appeal, but the effect on author
appeal is not so obvious.
A measurable indicator of author appeal would be the author's total monthly
compensation from a CG publication, or the author's income per unit of content
contributed, to be more precise. If authors receive more monthly revenues for a
given set of items contributed to a CG publication, then that publication has
greater author appeal.
If adding new content had no effect on circulation, there would be limited
incentive to add more content. Content providers would be in competition with
each other, where one author's gain comes entirely at another's expense. In such
a case, for example when the market is saturated, author appeal is lowest, so
the rate of growth in publication content would be minimal.
Typically, however, the increase in subscriber appeal due to adding new content
produces a corresponding increase in the rate of circulation growth. While new material
dilutes the proportion of revenues credited to previous content, it also increases
total subscription revenues shared among all content providers. Thus some further
analysis is required to determine the net effect of publication growth on author
appeal.
Comparison of two simple CG publication scenarios
To analyze author appeal and its relationship to projected CG channel or publication
growth, consider the following pair of extremely simple scenarios:
- a CG publication consisting entirely of material from one author
- the same CG publication with additional content from a second author
Assume subscription price is the same in either case, and both authors
are of comparable stature, with both contributing roughly equivalent amounts
of different, but comparable content in scenario B.
Suppose that the organic circulation growth rate for publication A is
approximately 10% per month. In other words, assume the degree of subscriber
appeal of a CG publication containing one author's material at the subscription
price offered is such that circulation increases by 10% monthly. (This model
of circulation growth is analogous to a bank account earning 10% monthly
interest, compounded continuously.) CMP's accounting logic guarantees that
the author's monthly compensation will be directly proportional to circulation.
Starting from these assumptions, we wish to determine the projected growth
in circulation and per-author revenues for publication B. Since both authors
are assumed to have contributed similar amounts of material, the total amount
of publication content in scenario B is twice as great at that for scenario A.
At the same subscription price, publication B has essentially twice the subscriber
appeal of publication A. Thus it is reasonable to predict that publication B
will have an organic growth rate of approximately 20% per month, twice the
growth rate of publication A.
The following graphs illustrate the comparison between these two scenarios.
Explanation of the graphs
The red curve depicts the projected circulation growth of publication A, by
month. At month 0, we assume a normalized value of unity (1), so the vertical
axis may be regarded the scale factor relative to some initial value. The red
curve also represents growth in total subscription revenues and per-author
revenues for scenario A, since these quantities are proportional to circulation.
In mathematical terms, the equation for the red curve is y = exp(0.1 * x), i.e.
the formula for continuous compounding at a 10% periodic interest rate. (“exp(0.1*x)”
can be read as “e raised to the (0.1 times x) power”.)
The green curve shows the projected 20% monthly growth in circulation (or total
subscription revenues) for scenario B, as given by the equation y = exp(0.2 * x).
Since each of the two authors in publication B receives an equal share of the total
subscription revenues, the per-author monthly income in scenario B corresponds to
the blue curve, y = exp(0.2 * x) / 2.
Finally, the purple curve displays the ratio of the blue curve to the red curve,
which reduces to y = exp(0.1 * x) / 2. This represents the amount by which per-author
income in scenario B exceeds per-author income in scenario A. In other words the
purple curve shows the degree to which publication B has greater author appeal than
publication A.
Analysis
Obviously, from the standpoint of the publication as a whole, scenario B (the
green curve) is uniformly better than scenario A (the red curve), in terms of
projected circulation and total revenue growth. However, the comparison is not so
simple from the standpoint of the individual author who goes from receiving all
author compensation in scenario A to a half share in scenario B. There is an initial
period of time, approximately 7 months in this example, where the blue curve is
below the red curve, meaning that each author in scenario B is earning less than he
or she would have earned in the single-author scenario A. Initially, at month 0,
each author in scenario B is earning half the income of scenario A. This ratio (the
purple curve) gradually increases to 1 by month 7, when the blue and red curves
intersect, at which point the total circulation of publication B is expected to be
twice that of publication A.
After the initial 7 month period, the per-author earnings in scenario B become
increasingly more favorable than those for scenario A. By month 14, each author can
expect to be earning twice as much per month, and after about two years, six times
as much in scenario B compared to scenario A. Beyond two years, as the purple curve
shows, the comparison in favor of scenario B becomes increasingly pronounced.
Even if more conservative figures had been used, the same general argument would
apply: any increase in an exponential growth rate eventually will outweigh the linear
dilution of revenues across a larger pool of authors. For example, if publication B
were to grow only at a rate of 15% per month instead of 20%, the red and blue curves
would intersect around month 14, instead of month 7. But the estimate that publication
B grows at a 20% rate is a reasonable approximation, assuming the publication is far
from market saturation.
Conclusions
Of course, the preceding analysis of projected circulation growth doesn't represent
the whole picture, A more complete model also would take into consideration active
marketing, affiliate sales, cross-selling between publications, growth in publication
content, and the limiting effects of approaching market saturation. Nevertheless, it
has been a useful simplification to focus on organic circulation growth, because this
quickly becomes the dominant factor in a fast-growing publication.
This analysis demonstrates the somewhat counter-intuitive observation that an aggregate
CG channel or publication is much more than the sum of its parts. Not only is such a publication more
appealing to subscribers, but also it quickly becomes more appealing to content providers.
To put it another way, the linear dilutive effect of adding more content from more authors
inevitably will be trumped by the resulting exponential increase in circulation and revenue
growth. Thus the stage is set for creating CG publications that have a natural tendency
to grow with increasing rapidity in both size and circulation. By providing appropriate
incentives on both the supply side and the demand side, the Content Galaxy model of online
publishing holds the promise of enabling dramatic growth in a broad range of digital commerce.