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Why freemium content is the better route to digital riches

A new Canada Media Fund report argues that an ad-supported model works best for digital content creators getting their product into the market.
November 11, 2014

There’s a lot of money to be made giving away digital content for free.

That’s a key conclusion from a new Canada Media Fund report on profiting from digital media, spotlighting the increasing appeal of the freemium business model.

The report, entitled Monetizing Digital Media: Trends, Insights and Strategies that Work, looks at monetization trends in Canada and abroad and argues that giving it away pays.

“In Canada, it is expected that in 3 years mobile screens will become the most important screen for multi-screen ad campaigns,” the report states.

The key is having engagement as your main goal for digital content, not revenue, the report notes. The trick is to continue to engage consumers through games, convergent media or web series until they are ready to pay to play.

“In the freemium model, micro-transactions are an important element driving incremental revenue,” the CMF report argues.

The freemium model generally has producers offering a product for free, possibly with advertising, and then charging a premium for value-added features.

“Companies that are using the freemium model typically see the share of sales rise and fall and then rise again in a predictable way over time,” the report adds about up-selling from free products to digital dollars.

The successful freemium model for games, for example, calls for a percentage of users to make in-app purchases, while non-paying players can still be monetized with in-app advertising.

“In free-to-play games, the opportunity for advertising is a lot smaller than is the opportunity for in-app purchases. However, advertising allows companies with freemium monetization models to cast a wider net and better monetize non-paying players, providing a more consistent revenue stream over the long run,” the report argued.

Less obvious digital content ripe for monetization includes web series, as consumers increasingly move from browsers to mobile platforms to view video.

An example is producers tapping sponsorship dollars to subsidize production, or licensing web video content to Hulu and monetizing as part of revenue share agreements.

“One producer interviewed for the study was successful in licensing a convergent web series to a different broadcaster (other than the commissioning broadcaster). The company is now exploring producing stand-alone original web series to create a potential new revenue stream,” the report said.

And as Canadians increase their online video consumption via mobile devices, advertisers are in turn migrating to the mobile platform.

“In Canada, it is expected that in 3 years mobile screens will become the most important screen for multi-screen ad campaigns,” the report said.

Challenges abound with digital content monetization.

Content creators have to get their games, web series or convergent media discovered before it can be monetized in a world of a million apps, YouTube or subscription- or ad-supported VOD.

“Licensing opportunities will likely continue to evolve, but the fees commanded will remain low as compared to broadcast licences,” the report said. “As digital platforms continue to emerge, media fragmentation will accelerate, forcing content producers to re-think the content experience to find the best platforms and formats to engage with consumers from the dual perspectives of content and monetization,” it added.

From Playback/StreamDaily file photo

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