Tuesday, February 08, 2011

Game Plan for Selling Content Online Is Shifting

Apple recently rejected Sony's e-Reader application as it did not allow users to buy content online through the Apple store.  Truth be told, Sony's e-Reader is a minnow in the online content market, and Apple was picking on the small kid on the block.  But the implications of Apple's decision are rippling through through online content world this week.

Most of the speculation has focused on Amazon's Kindle application, but Amazon is probably not as at-risk as many other companies.  The reason is simple economics and not user convenience: giving a 30% cut to distributor for managing online sales makes selling through Apple unprofitable for almost some online content companies.

Companies selling online content now face a tough choice: give up their profits entirely on all sales through the Apple platform, or give up the costs of operating an independent platform.  If you are going to give Apple 30% of your revenues, you cannot afford to operate your own online sales and management infrastructure.  This can actually improve profitability for small companies, provided you can shed enough overhead costs.

If, however, you want to operate through Apple and Android and other segments, you may need to continue to maintain your own online content sales infrastructure.  This means no profit on your sales through one channel that would be needed to support and sustain your overhead costs.

For many content managers, this would lead to a second logical decision: ditch any sales infrastructure and operate entirely through Apple's app-store and Google's app-store.  This is already the most cost effective and scalable approach for smaller companies.  For larger companies, it could force an uncomfortable dependence on a couple of platforms.

Many many start-ups are also re-examining their business plans in light of this.  For many companies that plan to aggregate content and sell it online (textbooks, animated stories, interactive books), they have agreed to model where they pay 60-70% of their revenues for content and live off the remaining 30%.  For that margin, they will wrap the licensed content in an iPad app and while the app will be free, users will have to buy or subscribe on their web-site.

I know of several companies who feel that their business models are now at risk and they face either bankruptcy, tough content renegotiations, or some other radical re-think of their approach.

Oh for the good old days.  Photo by Gastev.

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