How subscription revenues are allocated
Practical micro-commerce in digital content, with automated compensation
of content providers, editors, publishers, and affiliates
Content Galaxy’s Content Marketplace Platform (CMP) supports a
subscription-based model of Internet e-commerce that can be applied to any
sort of digital content.
The system receives income from the purchase of
subscriptions to paid channels, and it automatically
disburses those funds to content providers, editors, publishers, payment
processors, affiliates, and the CMP service itself. This process is designed
to provide a fair, transparent, and trustworthy basis for compensating all
interested parties and is implemented as a large-scale system
that includes secure, real-time facilities for audit and understanding usage
patterns.
Subscription Processing
The first stage of accounting occurs when a subscription to a specific
channel is purchased from Content Galaxy, typically through
a credit card transaction. In the initial
processing of a subscription purchase transaction, portions of the gross
subscription amount immediately are credited (as specified by pre-determined
formulas) to accounts belonging to various parties:
- a sales tax authority, if applicable to this purchase
- the affiliate, if any, who receives a commission on the sale of this subscription
- financial institution(s) that receive fees for credit card payment processing
- the CMP service (Content Galaxy), which takes an agreed-upon percentage for this
channel
- the publisher, who decides his own cut of the remaining, net subscription amount
The balance of the subscription, after the preceding subtractions, is credited
to a managed pool of funds devoted to compensating contributors to that
channel. For each channel, such an account (the "compensation pool")
is used in a daily, post-subscription stage of financial processing, when Content
Galaxy credits funds to content providers, editors, and affiliates.
How Does Subscriber Activity Translate into Payment Amounts?
To clarify how content providers make money (without diving into the actual
formulas for dividing up subscriptions), let's examine some specific sample
scenarios. Suppose you are a content provider who contributes to a video channel that charges $30
per year and follows a typical set of publication parameters (listed below). Content Galaxy provides
a detailed breakdown of viewing and subscription activity related to both your content (regardless
of which web site serves it) and to your web site (regardless of whose video content you are serving).
Here are samples of what you would find in analyzing your results:
- Amount of commission you make from the sale of a subscription to a channel that originates from
your web site (i.e. you are an affiliate at the time of purchase and receive 20% of the $30 price):
$6.00 at the time of subscription purchase.
- Amount you make for usage if the subscriber views only your content and all the viewing is
initiated from your web site, i.e. you are the affiliate that the subscriber clicks to stream the
videos (66% + 20% of $12.60):
$10.84 in total daily payments over the year (plus $6 sales commision if applicable).
- Amount you make for usage if the subscriber views only your content and all viewing is done from Content
Galaxy's web site, i.e. viewing has not been initiated from your web site or from some affiliate's web
site (82.5% of $12.60):
$10.40 in total daily payments over the year (plus $6 sales commission if applicable).
- Amount you make for usage if the subscriber views only your content and all the viewing is initiated from
Content Galaxy's web site, which also made the original subscription sale, i.e. there is no affiliate
responsible for the sale (66% of $17.10):
$11.29 in total daily payments over the year.
- Amount you would make for usage if the subscriber views only your content, but the viewing is always
initiated from some other affiliate's web site, which also made the original subscription sale (66% of $12.60):
$8.32 in total daily payments over the year.
- Amount you would make for usage if the subscriber does 50% of his daily viewing on your web site for your
content and 50% of his viewing on some other web site for someone else's content, assuming that some affiliate
made the sale, either your web site or some other one (1/2 of 66% of $12.60):
$4.16 in total daily payments over the year (plus $6 sales commission if applicable).
- Amount you would make for usage if the subscriber views only someone else's content but the viewing is always
initiated from your web site, i.e. you are an affiliate that includes links to videos by other content providers
and assuming that some affiliate made the original sale, either from your web site or some other one (20% of $12.60):
$2.52 in total daily payments over the year (plus $6 sales commission if applicable).
The calculations above are based on the following typical channel parameters:
Subscriptions are $30 per year. Credit card payments take 5% (i.e. $1.50). Content Galaxy takes 20% after the
credit card charge (i.e. $5.70) to host and stream the videos, leaving $22.80. When present, affiliates that cause
subscription sales, take 20% of the total subscription price (i.e. $6). The publisher takes 25% of the remainder
and puts 75% into the compensation pool (i.e. $17.10 or $12.60, depending on whether or not there is an affiliate
doing the selling).
In this case, the channel parameters guarantee that at least 66% of the compensation pool will be provided to
content providers, and if no affiliate web site is involved, then the content providers would receive more,
82.5% of the compensation pool. (This assumes that a primary editor and senior editor also receive a portion of the
compensation pool if they are responsible for your content, 14% total. Otherwise the remainder also goes to the
content provider, less 20% going to the affiliate that caused the viewing, if there is one.)
How Much Can Content Providers (Authors) Make?
Content Galaxy's model projects that, early on, building fewer, larger channels will tend to
optimize content providers' incomes (as opposed to having many smaller, more specialized channels).
The more overlapping areas of interest that potential subscribers see for a low fixed price, the
greater the chances that they will make the purchase.
To get some idea of what a content provider can expect to earn under different scenarios and
over time, here are some sample data points from the current model (which assumes an average
monthly subscription price of $3).
# subscribers
to the channel: |
300 |
1,000 |
7,000 |
25,000 |
200,000 |
250,000 |
# content providers
in channel: |
4 |
5 |
6 |
13 |
38 |
40 |
avg. # video hours
per content provider: |
5 |
10 |
15 |
20 |
25 |
30 |
avg. monthly income
per content provider: |
$125 |
$350 |
$2,000 |
$3,000 |
$9,000 |
$10,000 |
Until now, no one has made it easy for producers of narrowly targeted, "long-tail" content
to make money by streaming their videos.
Clearly there exists a lot of such material on DVDs, and with suitable incentives for streaming, many more great videos
could be produced. Content Galaxy’s web service offers a convenient new way for content providers to generate income from
their web sites, blogs, emails, and social networking posts. It supports streaming video to any device or browser, sparing
publishers the burden of serving many video formats and bandwidths. More importantly, it handles payment processing,
subscription management, accounting, reporting, and security.
Another unique feature of Content Galaxy's design is the way it includes editors and affiliates
in the compensation model. Editors are indispensable to creating a concentrated body of filtered, well organized
material of the highest quality. Also, the affiliate compensation mechanism strongly encourages authors and
independent web sites to promote Content Galaxy channels. Besides paying commissions on new subscription sales,
the system provides an ongoing revenue stream to affiliates, based on subscriber usage.
Subscription models present a challenge when it comes to compensating content providers, because there is no
pre-determined price assigned to each item of content. Content Galaxy has a unique solution to fairly and verifiably
compensating independent contributors to a common publication sold at a flat subscription price. Unlike
Netflix, the Content Galaxy model eliminates the need for individually negotiated contracts and up-front payments
to content providers.
Content Galaxy’s model of subscriptions, payments, and compensation makes micro-commerce more
desirable by reducing the number of financial transactions and eliminating potential avenues of abuse. The underlying
design benefits from a highly scalable architecture, which allows the system to handle large volumes of traffic
efficiently. By supplying a flexible service that addresses the full range of e-commerce infrastructure issues,
publishers, authors, and artists are liberated from those concerns, so they can focus on their primary interests
while being paid for their work.