How to Make Money With Digital Media

Note: This image is no longer available due to Evernote deleting all Skitch files.

The first question that comes out of any Media Executive when I mention New Media is “How will we make money?” To which I always answer “How will you make money without new media?”

However, they make a valid point: this is a business and if we can’t make money at it then we should be doing something else. So let’s try and figure out what it takes to make money online with your content.

Old Media Revenues

Let’s begin by looking at the costs of making television content and its associated advertising revenue. I’ll be using Fox Network’s “24” as an example.

• Producing one episode of “24” costs around US$4,000,000.
• Each 30 second advertising spot during “24” sells for around US$364,000.
• Each episode of “24” is seen by around 10 million viewers.

If Fox sells 100% of the advertising slots on “24”, they make 364,000 x 2 x 16 = US$11,648,000. The cost to each advertiser is US$364,000 / 10,000,000 viewers x 1,000 = $36.4 CPM (cost per one-thousand viewers). If FOX wants to supplant their television network with pure online distribution, then they need to find 32 advertisers, each willing to pay $36.4 CPM, and -more importantly- ten million viewers willing to seat through 32 advertisers while watching their shows online. Good luck with that, but it’s not happening.

Old Media Models, New Media Tools

Remember that you’re not trying to replicate your business model online, you’re trying to supplement it and, eventually, re-invent it. You’re giving your viewers the convenience and freedom to watch your content when they want to, how they want to and where they want to. All you need to do is make sure A=B: let every viewer who migrates online represent as much revenue as they did on TV. Many will still watch you on BOTH places.

Fox Networks has an interesting problem here: they make about one dollar for every viewer. That’s a $1,164 CPM rate (remember, even though it costs each advertiser $36.4 CPM, Fox can potentially sell 32 ad slots during each episode of “24”, netting them $1.16 per viewer - think about that the next time you pay $1.99 per episode on iTunes).

Now, Fox cannot get anywhere near a $1.1K effective CPM rate for online content, but CBS can apparently sell their shows online at higher advertiser CPMs than on television, and Hulu is selling ads at $20 CPM, so let’s assume Fox can sell eight spots on each online episode of “24” at $40 CPM (for argument’s sake). That makes Fox $320 per thousand viewers.

New Media Thinking

So, how do you design your new media strategy? Think about the following ways to maximize the revenue around your online content:

• Get your content online, it adds to your regular programming.
• Give the viewer the choice to watch your content online.
• Foster a community around your content: it’s all about the engagement.
• Online lets you target and personalize advertising. Use it to your advantage and charge a premium for it.
• Your online audience will tend to be younger and more attractive to advertisers.
• Online content will not cannibalize your regular programming, it will enhance it.
• Use online distribution to your advantage: if you run out of inventory, find partners that will give your content additional exposure.
• Allow the viewer to gain control.

And remember, the time is NOW.