Brian Clark on Transmedia Business Models (Part Four)

This is part four of a five part series on transmedia business models by Brian Clark: Founder/CEO, GMD Studios. The segments are based on a talk Clark gave earlier this semester as a guest speaker to my USC class on Transmedia Entertainment.

A HANDFUL OF VENTURE MODELS

by Brian Clark

In the prior installment, we looked at handful of business models that try to work for even small budget projects. This time, we’re going to look at models that rely (almost) intrinsically on raising capital. These models all share at least two common features, and the key one is that the source of funding is some kind of venture capital (which means the return that investors expect is their money back and hopefully some profit for taking the risk.) If that ís a little bit of capital, these might be angel investors that resemble patrons, but if that ís a lot of capital you’íll be dealing with professional investors. The change that comes with that is the mechanism of promotion. If you’ve only got a little bit of capital, you’ll be relying upon media you create (owned) and earn (press and social sharing), but if you’ve got more capital you might start buying advertising from other places.

Ticketed Events

An entire set of business models that come from performance instead of media are frequently neglected by transmedia creators: an audience paying for a ticket to attend a live communal experience, whether that ís a theater performance, a concert, a conference or a stranger experience like “Red Cloud Rising” or “Sleep No More”. This is the core business model of theatrical distribution (in film), pay-per-view (in broadcast), and touring theater and bands (in music).

  1. FUNDING: Angel capitalizers, investors and venue partners.

  2. RETURN: Financial returns.
  3. SUSTAINABILITY: It’s all about the margins.
  4. AUDIENCE: My growing fan base.
  5. PROMOTION: Paid, owned and earned marketing support.

Independent music and theater artists will tell you about the entrepreneurial challenges of squeaking a margin from festivals and tours (and then remind you to buy a t-shirt on your way out), but sustainable careers can be built on these models (and the way they can work with fan incubation as a business goal between ticketed events.) Having funding is usually essential, as the expenses to put on the event get incurred before you collect the revenue back from the sales and you have to buy gas for the tour bus to the next town.

Marginable Arbitrage

In market dynamics, arbitrage is nothing more than buying low in one market to sell high in another, often by creating new value from it that others arenít optimizing. Informercial space on television networks is a good example of this (the broadcast time is cheaper for an hour than for a thirty-second ad during primetime, which is why you see hour long commercials for $19.95 products), but most of the Internet is driven by arbitrage thinking. Many online publishers, for example, get a huge chunk of their traffic from Google because of their knowledge of search engine optimization of content, but then make money off of ads served up by Google that were actually the same as the ads on the search engine page they came from: the publisher made the ads more relevant to the audience, and got paid more because of it. Will some transmedia innovator find a similar system that uses infomercial broadcast space the way online publishers use Google? An arbitrage business model might look something like:

  1. FUNDING: Angel capitalizers, investors and venue partners.

  2. RETURN: Financial returns from margin.
  3. SUSTAINABILITY: Buying cheap, adding value, selling higher.
  4. AUDIENCE: Those consuming it cheap and new fans interested in what weíve turned it into.
  5. PROMOTION: Paid, owned and earned marketing support.

It isnít as easy as it sounds to find value in the cheap: you get two Snuggies for $24.95 plus shipping and handling because they’ve tested that more sales happen if they price it like that. The more neglected value you find and extract, the more you attract others to do the same (making that cheap resource less cheap) and, like the ticket sales model, as soon as you stop creating arbitrage you stop creating revenue. Conversely, I know people who do nothing but write for the Web from home and get six-digit checks every month because of their understanding of content arbitrage.

Audience Developed Products

In the same way that “fan funded” treats the renewable fan base as a replacement for investors, you could instead treat them as co-creators (and thus invested in the sustainability and promotion of the work.) Online interactive art, especially community games, are an obvious example of this (such as Top Secret Dance Off, Socks Inc. or Ze Frankís Star.me), but there are also filmmakers experimenting with crowdsourcing the shooting of features and online documentarians working to preserve history through cellphone photos or family pictures. These kinds of projects often produce business models such as:

  1. FUNDING: Angel capitalizers, investors and the sweat equity of the audience.

  2. RETURN: Financial returns from margin and seeing myself in the final work.
  3. SUSTAINABILITY: New margins created by not having to raise as much funds for production.
  4. AUDIENCE: Those most attracted to my story, and especially those co-creating it with me.
  5. PROMOTION: Emphasize the earned and owned with fans to minimize the paid from funds.

The strength of this model (crowdsourcing of development) is also its Achilles’ heel — you need a vibrant enough community for that crowdsourcing magic to kick in, and that takes feeding and care. Where it seems to have the most predictable value is in creating longer tails of value, for example in videogames where making level editors available for Halo produced totally new fan-developed games like Portal that became products in their own right.

Infrastructure Play

If research & development models focus on creating new skillsets and proofs of concept, sometimes they are far more than that — they become infrastructure plays. The impact of THX on audio standards in movie theaters was an infrastructure play contained inside the Star Wars business model, just as Condition One are documentarians creating licensable interactive technology to increase audience immersion. These types of business models typically look more like:

  1. FUNDING: Angel capitalizers, investors and development partners.

  2. RETURN: Financial returns from licensing the underlying technology developed.
  3. SUSTAINABILITY: Revenue from the creative work is supplemented by technology licensing.
  4. AUDIENCE: Those most attracted to my story, but also the industry that might license the tech.
  5. PROMOTION: Owned, earned and paid for the primary creative work; business development for the licensing.

Infrastructure plays often require even deeper capital reserves than other types of models, because the core value of the sustainability argument requires scale (so, for the Facebooks and Twitters of the world, growth is more important in the short term than revenue generation.) These business models often also require “a business within the business” that focuses just on the licensing or enablement revenue streams (since those needs are often different than the actual creative implementation that generates that infrastructure).

Venture Capital

Every vibrant art form also has some kind of venture capital model, from financers of films and Broadway shows to venture capitalists in publishing and technology. Some of those communities are sophisticated enough to have created formal marketplaces for capital raising (for example, documentary film) while others have adopted venture capital models into new forms (for example, the artist granting organization Creative Capital). Venture capitalized business models often look something like:

  1. FUNDING: Professional, sophisticated investors and investment companies.

  2. RETURN: Financial returns from the project you are proposing.
  3. SUSTAINABILITY: A salary or stipend and a healthy share of the profit (it is happens).
  4. AUDIENCE: Carefully researched and justified to funders who might not be the audience.
  5. PROMOTION: Owned, earned and paid media.

The challenge with venture capital models are primarily in the courting of capital: people can spend years trying to put together a full slate of investors to trigger the actual creative work. Many give up before succeeding, and if they do succeed, then the pressure is on to deliver not just a completed creative work but a successful creative revenue stream. This is an even harder sell with innovation (unless you can show how youíll drink someone else’s milkshake) because it makes everything seem more risky and risk raises the cost of capital.

Three paragraphs per business plan is obviously skimming the surface of complex media business issues, but I’d like to extend that even further in the next installment and look at how multiple business models come together among the companies in the space (and thus potentially illuminate the kinds of innovations that will drive the next revolutions in transmedia.)

Brian Clark is the founder and CEO of GMD Studios, a 16-year-old experience design lab based in Winter Park, Florida. He lives in New York City and occasionally tweets as @gmdclark

Comments

  1. Mark Harris says:

    Not sure if you mention this yet, Brian. I haven't read all of this. But another model seems to be the “tools” model. Software is going to become not only an increasingly important part of movies, but certainly an increasingly important part of transmedia experiences that need to scale. A company like 4th wall is making RIDES, a sort of CMS for “transmedia” experiences. I think investing in technology and selling that to other companies is a pretty good model. It's a start-up model. It's something I'm focusing on myself as well.

  2. Brian Clark says:

    Totally agree, Mark, and there is definitely some daylight between tool models and infrastructure plays (but they are fairly similar in structure if not scale).

  3. Mark Wallace says:

    This is a great series of posts, Brian (and Henry). I jotted down some thoughts on two others models in a blog post (http://thelastweblog.com/20111…, although it occurred to me that what you're really talking about here are funding models, not so much revenue models. But I do see opportunity in two areas that don't get much mention here:

    One is distribution, and the opportunity to leverage an audience in a distribution / cross-promotion service, especially at a moment when transmedia experiences are discovered in such a haphazard way.

    The other is to borrow the freemium model from games and apps, giving people a baseline experience for free, and offering them additional content (in a variety of forms) that they can purchase in small or large chunks.

    All that said, I think your series is important reading for anyone considering a media venture of any kind these days. It's great to see this kind of conversation beginning to happen around transmedia production. Looking forward to more.

  4. arbitrage says:

    Developed a business arbitrage model that will give a 100% rebate, or make all financed payments for the buyer.

    Thomas thomasadair@live.com