When you think of a media company, what do you think of? Does your mind immediately go to CNN, FOX News, and Disney? Or do you also think about NetFlix, The Washington Post, and Sony Entertainment?
Most of you probably thought about at least one of those media companies. But did you think about your favorite YouTuber or Influencer? Today, just about anyone who produces content can be considered a media company. The media company business model can create high engagement and can be lucrative if done right. That is why companies like Apple and Amazon, which were in the business of producing technology and retail, are now producing content through Apple TV and Amazon Video.
However, there are many drawbacks to this business model. Many of which need to be considered before an entrepreneur seeks to utilize this particular model. In the article, we’ll explain the media company business model, how it works, and some advantages and disadvantages of it.
Media Company Business Model: An Overview
First, let’s define what a media company is. A media company is an organization that specializes in providing various types of content and information to a mass audience. They usually distribute that content through a range of platforms and mediums. This can include print, digital, and broadcast channels.
Here are the different types of media companies:
- News and Journalism-This can include newspapers, online news sites, and television news broadcasts.
- Entertainment-This can include TV shows, movies, music, and online content such as web series or podcasts. Some media companies have studios where they produce their own content, while others purchase or distribute content created by others.
- Publishing-This can include books, magazines, and other printed materials, as well as digital publishing.
- Social Media- Some media companies operate social media platforms, where users can create and share their own content.
Most media companies, from the largest to micro influencers, fall under one of these categories. But, we can be pretty confident that the media landscape will continue to change and evolve in the coming years. Now, let’s take a look at how media companies make money.
This is one of the oldest revenue models and continues to evolve. The process begins with media companies creating content that appeals to specific audiences. This could be news, entertainment, sports programming, or any other type of content that can captivate an audience. The larger and more engaged the audience, the better.
Once a media company has established an engaged audience, it can then sell advertising space. Advertisers pay for this space based on several factors. These factors include the size of the audience, the demographics, or even the time of day the ad will be shown or heard.
Here are the most popular types of advertising options:
- Banner Ads: Advertisements that appear on websites and serve as a hyperlink to the advertiser’s website.
- Print Advertising: This includes ads in newspapers, magazines, brochures, and other print media.
- Television Advertising: Commercials that air during TV shows or movies.
- Radio Advertising: Audio advertisements that air during radio broadcasts.
- Video Advertising: These are online videos that promote a company or its products, often appearing before, during, or after digital content.
- Sponsored Ads: This is when a sponsor will place a message or post natively on a platform or podcast.
- Programmatic Advertising: This uses artificial intelligence to automate the buying of ads and target audiences more specifically.
The digital age has significantly expanded the ways media companies can make money from advertising. Since this is one of the major ways media companies make their money, the ways to offer advertising will continue to change and evolve.
A revenue strategy that has grown in popularity in recent years is a subscription. A subscription model involves the media company providing content that is directly paid for by the consumer. This is done regularly, often monthly or annually. This content can be in various forms. For example, print media like newspapers and magazines, digital content like online news, TV series, movies, podcasts, and more.
Traditionally, subscriptions were the primary revenue source for print media. It was common for readers to subscribe to a newspaper or magazine. In return, they would receive a physical copy delivered to their homes. This guaranteed a steady stream of revenue for the media company. They could count on the revenue for budgeting and planning purposes. In addition, this steady audience of subscribers also attracted advertisers. So they were benefiting in multiple ways.
With the digital transformation, the subscription model has been adapted to online platforms. Streaming services like Netflix, Disney+, and Spotify have popularized the digital subscription model. Customers pay a monthly fee to access a vast library of content, which is often ad-free, enhancing the user experience. The predictability and stability of this income can help media companies fund the creation of new content, maintain their digital platforms, and invest in innovative technologies.
News organizations have also adopted this model, providing their articles, reports, and other journalistic content behind a paywall. Only subscribers can access this content, and this exclusivity can entice more people to subscribe. Digital subscriptions have been successful for many established newspapers like The New York Times and The Washington Post, as well as for newer digital-only outlets. Check out our article on the elements of the subscription business model to learn more about how this works.
Licensing fees are a lesser-known revenue source. Primarily because it is used by media companies in the entertainment space. These fees refer to the process of granting permission for the use of intellectual property rights. Think copyright, trademarks, or patents, owned by the media company. These rights may be granted to another company or individual in exchange for a licensing fee.
One common example of this is television. A media company produces a TV show or movie. Then, they may license these to broadcasters in different countries. These broadcasters pay a fee to air this content in their respective territories. The licensing fee will often vary depending on factors such as the size of the potential audience, the popularity of the content, and the duration of the licensing agreement. Some media companies may also opt to license their content to streaming platforms.
Another example is music licensing. For instance, a song owned by a record company could be licensed for use in a movie, TV show, advertisement, or video game. The same can be done for a popular character from a film or TV show. That character could be licensed for use in merchandise, from clothing and toys to video games and theme park attractions.
Media companies that produce information can also license their content but this isn’t as lucrative.
Affiliate marketing represents a unique and potentially lucrative revenue stream for media companies. At its core, affiliate marketing is a performance-based marketing strategy. This type of marketing is where a business rewards an affiliate (in this case, the media company) for each visitor or customer brought by the affiliate’s marketing efforts.
Affiliate marketing is something that can be done by anyone. YouTubers, bloggers, and even people who have no audience to speak of can utilize affiliate marketing. It is as easy as getting an affiliate code and referring the product or service to others. However, since media companies have a much larger audience, this strategy can become a significant source of income.
The commission’s structure can vary and is usually agreed upon between the affiliate business and the media company. It can be based on a percentage of a sale, a flat fee for a new lead, or a click-through. The more traffic or sales the media company can direct to the affiliate business, the more revenue it earns.
Affiliate marketing provides a way for media companies to monetize their content without charging their audiences directly. For example, a blog post or video review of a product can provide valuable content to the audience while also generating affiliate revenue for the media company. It’s a mutually beneficial setup: the affiliate business gets more visibility and potentially more sales, the consumer gets a recommendation for a product or service they might find useful, and the media company earns revenue.
Direct Sales and eCommerce
Retail and eCommerce represent essential avenues for revenue for media companies, especially those involved in the creation and distribution of physical or digital goods. This could include the sale of books, magazines, movies, music, video games, and various types of merchandise associated with a media company’s intellectual property.
Disney has become one of the most successful media companies through their ability to sell directly to their fans. Most likely you’ve ever gotten off of a ride at Disney World and had to walk through a gift store. The store is usually filled with branded merchandise featuring characters from the ride.
The rise of the internet has introduced another significant revenue stream for media companies: the eCommerce model. Many media companies now sell their products directly to consumers via their websites or other online platforms. This direct-to-consumer model allows media companies to have more control over the sale process. And, a larger share of the profits since they are not sharing with a retailer.
Advantages of the Media Company Business Model
Diversified Revenue Streams
As you can see above, there are several ways media companies can make money. This is a big advantage because it will allow for the diversification of revenue. If advertising income dips, subscription revenue might compensate for this shortfall, and vice versa.
Scalability refers to the ability of a company to grow and manage increased demand without compromising performance. For a media company, scalability is largely tied to the nature of content creation and distribution. Once a piece of content, whether it be an article, video, or podcast, is produced, it can be disseminated to a virtually limitless audience at minimal additional cost. This is particularly true with online content.
For instance, a streaming service can make a movie available to millions of subscribers simultaneously. The same is true for a YouTuber who creates a video that goes viral.
However, to truly achieve scalability, media companies also need to effectively monetize this increased reach. If a story, video, or song goes viral, the media company must be ready to take advantage of the reach that was achieved.
The content-centric nature of the business model allows media companies to foster strong relationships with their audience. Engaged audiences are more likely to be loyal to the brand and can be monetized through various channels.
Disadvantages of the Media Company Business Model
High Operational Costs
Creating high-quality content often requires significant resources. Costs include content production, talent acquisition, technology infrastructure, and distribution. In a highly competitive market, maintaining the quality and relevance of the content can be expensive.
Dependency on Advertising Revenue
Even though there are many ways to diversify income, many media companies remain heavily dependent on advertising revenue. This dependence can make them vulnerable to economic downturns. Usually, during recessions and downturns, companies cut advertising budgets.
Challenges in Monetizing Digital Content
Although it seems like these revenue options make it easy for media companies to cash in on content, it is not the case. With more information and entertainment being free or accessible from multiple sources, it is getting more difficult to monetize digital content. The competition for the attention of an audience has diluted the potential value of a piece of digital content’s reach.
Constant Need for Innovation
The media landscape is rapidly evolving. The way people consume content will change as well as the algorithms that help them find content. There are always new ways to engage with content and media companies need to adapt. This means investing in upgrading software, presentation of the platform, and marketing strategies. This necessity can strain resources and requires a culture of adaptability.
The media company business model is multi-layered. However, producing content for the general public has been proven to be very lucrative. Especially for some of the largest media companies in the world. Although this model can work really well, it is still heavily reliant on advertising and is highly competitive. Consider all of the factors involved before taking the step towards launching your own media brand.