In the history of the entertainment & media industry, we have witnessed the continuous evolution and affirmation of different business models. In this article, we’ll focus on the business models in the audiovisual content sector, film and television.
We will explore the most common models, but let’s keep in mind that the range of business models is much broader, and it’s not rare that different business models are intertwined.
More than that, further business models are conceptually possible, waiting to be “invented” one day. Nobody knows if innovative players could leverage new models and undermine the incumbents (the current industry leaders), even disrupting the whole audiovisual sector.
There would be nothing strange: as we will see, continuous innovation of the business models is exactly what we have been witnessing for over a century!
The Business Model Canvas
Talking about business models, we’ll use a strategic template, the Business Model Canvas, developed by Swiss business consultant Alex Osterwalder and Belgian business professor Yves Pigneur.
The Business Model Canvas describes the architecture of the business (how a company creates and delivers value while generating profits) with a simple structure composed of nine building blocks.
The template became popular, a sort of common standard in business design, thanks to the success of Osterwalder and Pigenur’s best-selling book “Business Model Generation: a Handbook for Visionaries, Game Changers, and Challengers” published in 2010.
The business model in the film industry
The first paid public screening, organized by the Lumière brothers in Paris, happened in Paris on December 28, 1895: for one franc, customers of the Grand Café on Boulevard des Capucines could attend the screening of 10 short films in the space of 25 minutes.
Since then, a business model was gradually established and has never substantially changed, at least in its fundamentals.
From a certain point of view, a film’s supply chain is similar to some traditional consumer product’s supply chain: a producer creates products that are delivered to distributors that in turn resell the products to a retailer, and finally consumers purchase the products in the stores, the key touchpoint.
So, there is a producer who invests his own capital for the production (and at the same time looks for additional sources of financing), chooses the director and creates the audiovisual content: a new film.
Then there is a distributor, who acts as an intermediary between the producer and the cinemas. And finally, cinema (or a chain of cinemas) in which the content experience takes place.
It is clear that the producer’s business model is quite distinct from that of the distributor, and in turn distinct from that of the cinema operator. Let’s see and compare them.
(A) Film producer: the business model
The producer gives life to the film and assigns the film distribution rights to a distributor against a fee whose calculation is ruled in the contract.
In this example as well as in the following ones, we’ll include in the template only the key elements so that we can have a broad view of the full pattern and focus on the ‘essence’ of the models.
(B) Film distributor: the business model
The distributor makes the content, and therefore the film, available to cinemas (its customer segment), obtaining a share of the box office made. Actually, the distributor’s Value Proposition also includes ensuring cinemas’ owners that the film will be supported by marketing investments to maximize the box office.
(C) Cinema: the business model
The last player in the supply chain is the cinema (or movie theatre). Cinemas are the places where content consumption takes place, and their business model is so intuitive that it does not need comments.
We have seen different models, but in the reality, they often overlap and intertwine within the same company. An example is film majors (such as Disney, Warner etc.) that act at the same time as a producer and distributor.
The business model in television
The first experiments – carried out by the Siemens brothers – date back to 1877, even before the birth of the film industry. But the first broadcast on a television equipped with a cathode ray tube – the one that will spread to millions of families around the world – will happen only in 1927.
In the following decades, television will surpass any other mass-media in terms of penetration as well as impact on popular culture.
The new appliance will give new impetus to the audiovisual content entertainment industry, and in parallel with its continuous technological innovation, there will be continuous innovation of broadcasters’ business model.
Linear television
Linear TV is the simplest mode of television service, the first historically appeared. There is a broadcaster with a schedule of programs transmitted through different possible technical solutions: with an analog or digital signal, which is propagated via terrestrial or by cable.
We can’t talk about one business model for linear television. The key distinction is between commercial television, public service (such as BBC in UK or Rai in Italy) and satellite television, which correspond to different business models.
(a) Commercial television
The business model of commercial TV is the classic example of multisided platform: there is a customer segment that does not generate revenue, the non-paying “viewers”, which however become a key resource – the audience – which allows to sell advertising space to a second customer segment, advertising investors.
It is true that the audience does not generate, in this model, revenue, but in reality, there is a price that is paid for the content experience: not in monetary terms but in terms of time and attention ( always remember that “if the product is free, the product is you!”).
The audience becomes the key resource for the Value Proposition that is sold to advertising investors through an ad agency.
(b) Public service television
The business model in the case of public service (BBC in the UK, Rai in Italy, etc.) is quite complex because the company addresses three different customer segments:
(1) the ad investors, selling them ad space and generating sales revenue.
(2) the audience, getting no monetary revenue but getting their time and attention, which will be “sold” as part of the Value Proposition to the ad investors.
(3) the State, getting a large share of the subscription television licence fee collected by the State and paid by the citizens.
The intriguing question here is: what is the Value Proposition delivered to the State as a customer segment?
(c) Satellite television
We are still in the scheme of the multisided market, as in the case of commercial TV, but there is something different: this time users pay a subscription.
The great advantage of satellite TV, in comparison to commercial television, is this double stream of revenue: from users (subscribers) and from advertisers. On the other side, there is a price for such advantage: the investments and maintenance costs required by the satellite infrastructure.
Here is the Business Model Canvas of satellite TV (again, we focus only on the most relevant “building blocks”):
(d) TV on demand
The term says it: the user decides what content to watch. There is no longer a schedule predefined by the broadcaster. The user can create his own schedule, watching the content he wants, whenever he wants, and today – we add – where he wants, from the device the user prefers: a television, a tablet, a laptop, or a smartphone.
TV on demand obviously requires a certain type of technological infrastructure, and it is no coincidence that it has only established itself with the spread of broadband internet. The leading platforms belong to global media companies: Disney +, Netflix, Prime Video (Amazon), Apple TV +, etc.
This most common business model is known by the acronym SVOD, or Subscription Video On Demand, but although it is the most frequent (think of Netflix) it is not the only one possible when it comes to video on demand.
The Business Model Canvas is rather simple: basically, the customer pays a subscription fee to get access to the content (movies and TV series).
There are alternative business models, in which the monetization of content follows other paths, and which therefore correspond to Business Model Canvas different from the one represented above.
Just to mention a couple of them:
AVOD: Advertising Video On Demand, in which the only revenue is advertising, while for the user access to content is free and no subscription is required
TVOD: Transactional Video On Demand, in which the user pays a price for the purchase of the single audio-video content.
Actually, the reality in the market is going to change and become more complex, as few TV streaming platforms are oriented to put into practice hybrid models to increase revenue streams. Disney+ and Netflix are going to propose paid subscriptions at lower prices but with the insertion of advertisements.
Let’s not be surprised if in the future the world of audio-video will propose even new forms of content monetization, around which business models never thought of before will emerge. An example? The blockchain as a distribution channel of content through NFTs, a scenario deepened in an article in which the first experiences in the industry are told.
