## 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.

## Contents

- Introducing our video platform
- Make money being a content provider, affiliate or publisher
- Business case for video platform
- Why not YouTube?
- The basics: roles and payments
- Build successful, money-making, digital publications
- How subscription revenues are allocated
- How CG publication model leads to explosive growth
- Frequently Asked Questions (FAQ)