Revenue Share Model over Content Business Value Chain



In the Mobile Content Business value chain there are several parties (ie. Telecom Operator, Platform Vendor, Content Aggregator, Content Owner or Creator, Content Sponsor etc) involved nowadays. Everyone is involved here for their own benefits. From my experience I have seen that the operator tries to lower their CAPEX (Capital Expenditure) as well as the OPEX (Operational Expenditure). Hence Revenue Share business model came in the scene to satisfy all the related parties. Here in this article I will not just try to describe on the Revenue Share Business Model but also will try explore some concept on the Expenditure share model.

Why Revenue Share Model:

The current telecom market is already very much competitive. The lifecycle of any rich service is very short. So operators are concentrating on quick service rollout to start making money quickly. So they are encouraging the service providers to sit into their network, to use the network resources and to provide the service. Operator earns money and then shares with the parties involved. Generally the providers maintain the platforms and manage the services related to that specific rich service. If contract finishes the provider takes out their platform from the operators network. This is generally termed as Managed Service with Revenue Share Model. Operators generally should be very much fond of this model because this reduces or nullifies their CAPEX and OPEX cost.

Another major point why operators are adapting the Managed Service with Revenue Share model is because there needs not calculate any ROI (Return of Investment). Because sometimes there comes some services for which it becomes tough for the Project Managers to guess the service nature as well as the subscribers’ response to that service. So even if they do the mathematics to calculate the ROI to show that the management can invest CAPEX in that project. But the guess may become wrong and the ROI may not be come back. So no investment, no ROI and the result is to take a chance and monitor the behavior.

But one CAPEX investment the operator needs to engage which is the Advertisement and the Promotional (A&P) investment. This cost is not even low. So then again comes the mathematics to calculate ROI for A&P.

Why Specialized Platform is Necessary:

As far as it is a content service there needs to have a specialized platform. The below are the points will clarify the necessities:

(1) Terminal Adaptive Contents: Content business is getting popular day by day. Also in parallel, the evolution of mobile terminals and their updated features are generating the needs for the rich contents and services in the market. One major drawback found in rich content business of course is providing terminal adaptive contents. So there needs to have a specialized platform which will have the ability to serve handset specific contents.

(2) Service Specific CRM: General CRM most of the time cannot serve the necessity to show service specific reports, trend analysis etc. Suppose as an example, we can consider the Mobile TV service. It is such a service which will not be popular at a go. It is necessary to monitor the subscriber tendency about this service and based on that analysis there needs to take proper service education plan. So CRM of specific interest is mandatory.

Business Model, Revenue and Expenditure Share:

Now come back again to the Mobile Content Business Value Chain topic. So from the above discussions I think it is clear that different stakeholders are taking part to make the value chain successful. The stake holders are:

Telco: The telecom operator who is providing the network resources.

Content Owner: The creator of the contents. Content owner can be a company or any individual person who creates content and sells those to the content aggregator.

Content Aggregator: Aggregator feeds the content into the content platform which is provided by the Vendor. A content owner can also be a Content Aggregator.

Platform Vendor: Provides the platform to process, store contents provided by the aggregators. The vendor can put their platform in their local place or can take the platform to the operators premise. At the end it is required to set up the connectivity between the platform and the operator’s network. The remote connection generally can be done through the secured VPN connection.

Subscriber: Pays for the service and enjoys.

In revenue share business model subscriber pays and all others enjoys the share. Recently one term is hugely being discussed in the mobile content business world. That is: AD Funded Content. So here comes another party in the value chain: The Sponsor. Mobile is now emerging as the 7th of the mass media, joining Print, Recordings, Cinema, Radio, TV and Internet. So the brands are now ready to promote their product through the mobile channels and thus opening up a door for the alternate revenue earning.
The sponsor selection can be done either by the operator or by the content aggregators or both.
Below I will discuss two revenue share business models focusing the content business:

(1) Model 1: Telco Managed Content Aggregator

As it is a revenue share business model so share needs to taken care by all the parties in all cases.

A Business Model always considers the Cash Inflows and Cash Outflows. Cash outflow is simply the expenditures by the parties. I will consider only Advertisement and Promotional costing as the Cash Outflow. Because this is the cost which will directly relate to that specific service (lets say Mobile TV).

The Cash Inflows are the earnings from the Mobile TV service (or any service). This may include two parts:

1.1 Content Revenue Share: This is the earning from the service content or from the subscription fee which directly related to the subscribers.

In the above model it is shown that, for any content (or for the subscription Fee) if the subscriber is charged 10 unit (lets say in Bangladeshi currency, BDT) then below are the figures which will be received by the parties:

(0) Charged Amount = 10 BDT
(a) Initial Amount to Telco: 70% of (0) = 70% of 10 BDT = 7 BDT
(b) Initial Amount to Content Aggregator: 40% of (a) = 40% of 7 BDT = 2.8 BDT
*(c) Final Amount to Telco= 60% of (a) = 60% of 7 BDT= 4.2 BDT
*(c) Final Amount to Platform Vendor: 30% of (0) = 30% of 10 BDT= 3 BDT
*(d) Final Amount to Content Aggregator= 50% of (b) = 50% of 2.8 BDT= 1.4 BDT
*(e) Final Amount to Content Owner= 50% of (b) = 50% of 2.8 BDT= 1.4 BDT

If the Content Aggregator and the Content Owner are the same then this content provider/aggregator will receive (d)+(e)=1.4+1.4= 2.8 BDT
So then the end revenue percentage (of 10 BDT or any unit) is becoming as follows:

Telco = 4.2 BDT = 42%
Platform Vendor= 3 BDT = 30%
Content Provider= 1.4 BDT + .4 BDT= 2.8 BDT= 28%

Hope the above percentage shows a fair distribution.

1.2 AD Insertion Revenue Share: Each of the contents is singly a resource. If the content is good and popular then it is possible to insert advertisements with each of the content. As an example: If it is a streaming service like Mobile TV then it is possible to mix up the promotional text or graphics at the bottom of the streaming content. Or if it is an IVR based solution then promotional voice can be added before or after the main voice content is played.

But there is a major task here and that is getting the sponsor, setting the agreement with them, planning & developing the mobile insertion etc. Which can be done either by the Telco or by the Content Aggregator. In the above Telco Managed Content Aggregator revenue share model I have considered 55:45 share model where 55% goes in favor of the Telco. So if a sponsor pays an amount (lets say 1,00,000 BDT) for a set of contents or any specific category (or lets say the sponsor can sponsor a specific channel like News in case of the Mobile TV case) then from this 1,00,000 BDT 55,000 BDT the Telco will receive and the remaining goes for the Content Aggregator .

1.3 A&P: Advertisement and Promotion. This is the promotional expenditure which is very much important to make the service popular. If the service is popular the hits will be increased and so will increase the revenue.

As my understanding, although the service is focused as Telco branded, but the Platform Vendor is also enjoying a big portion of the revenue (30%) too. So it is fair that, the vendor should also participate financially in the promotional activities. This is what I am representing as the Expenditure Share where both Telco and the vendor will share the promotional expenditure (lets say 60:40 where 60% expenditure should be carried out by the Telco).

This Expenditure Share methodology will not only reduce the telecom operator load but also will output the best promotional activities to make the service an icon.

(2) Model 2: VENDOR Managed Content Aggregator

The concept and calculations are almost same in this model also as described above. But the main difference here is that, the Content Aggregators communicate with the Platform vendor. And the vendor manages the agreements and other staffs with the Content Aggregators. In Telco perspective this model is good I think because it totally nullifies their OPEX cost

2.1 Content Revenue Share: This is almost the same as previous. But here revenue portion of the Platform Vendor is shared with the Content Aggregator.

From the above figure if we consider the same amount (ie. 10 BDT) as the content price then the shares are coming like as follows:

(0) Charged Amount = 10 BDT
*(a) Final Amount to Telco = 50% of (0) = 50% of 10 BDT= 5 BDT
(b) Initial Amount to Platform Vendor = 50% of (0) = 50% of 10 BDT= 5 BDT
*(c) Final Amount to Platform Vendor= 60% of (b) = 60% of 5 BDT= 3 BDT
(d) Initial Amount to Content Aggregator= 40 % of (b) = 40% of 5 BDT = 2 BDT
*(e) Final Amount to Content Aggregator = 50% of (d) = 50% of 2 BDT = 1 BDT
*(f) Final Amount to Content Owner = 50% of (d) = 50% of 2 BDT= 1 BDT

If the Content Aggregator and the Content Owner are the same then this content provider/aggregator will receive (e)+(f)=1+1= 2 BDT

So then the end revenue percentage (of 10 BDT or any unit) is becoming as follows:


Telco = 5 BDT= 50%
Platform Vendor= 3 BDT= 30%
Content Provider= 1 BDT+ 1 BDT= 2 BDT= 20%

AD Insertion Revenue Share and A&P share is kept as the first model described earlier.

But little mathematics and engineering can make a fair share model which can encourage all the parties to do business.

Conclusion:

The above two models are not obvious. Of course the nature of calculation and cases will be different for different types of services. But one point I must say here that when everybody is investing less and gaining most then we the Telco as well as other parties must concentrate on the subscriber satisfaction. So we should go for the AD Funded Content business model to give the subscriber a little comfort which will obviously increase the service penetration.


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