Business models play a large role in the success of digital content platforms. Spotify and Apple Music are built on top of existing content platforms such as YouTube and iTunes. They offer content creators and consumers enhanced access to a library of online music and video content. However, this is not like that in 100% of cases.
These platforms use either of two business models. For the aggregators, such as Spotify and Apple Music, the business model is to leverage the popularity of the aggregator’s content partners by adding them as partners to their own platform. The online aggregator solutions use that content to build their own content library and audience. For the content providers, such as Pandora or Last.fm, the business model is to provide access to their libraries through a pay-per-use platform. This allows the aggregator to pay for the rights to use the content and the content provider to get paid for their creation.
The challenge is that each business model comes with unique concerns. Let’s check the most important ones.
#1 — The Aggregators’ Business Model
As mentioned, the most important thing for the aggregator is to have a large content library and audience. If it can grow them, it will be more successful. This is because the value of the content will increase. The aggregators have the most to gain from building content libraries and audiences as this will allow them to pay the content providers for use of their content. It also increases the number of people who will pay for the aggregator’s platform.
But there’s an important consideration to take into account:
- Since the aggregators’ content library is not their own, it must come from someone else. In other words, if it doesn’t come from them, their audience won’t be large enough to make the business case to pay content providers for their content.
- To make their case, the aggregators need to have an active content library. Fortunately, most popular content creators and aggregators share an audience with each other.
- While this doesn’t guarantee success, it’s a huge advantage. It allows the aggregators to leverage their combined audience to make a compelling case to the content providers.
#2 — The Consumer’s Business Model
While the aggregator may use a pay-per-use system to maximize their revenue, this business model is not for everyone. Instead, the content providers want to be paid for every user that accesses their content. There are two major issues to take into account when using a pay-per-use business model.
- Platform risk — If users don’t access the platform, they don’t pay for it. They may not return or even know they have a platform to return to.
- User experience — As content goes up in quality, the user will access it at a higher rate. This will cause the pay-per-use business model to experience significantly higher costs to sustain.
This puts the content creators in a difficult position. They need to make sure that they have the quality of their content so that it can generate enough income. They can’t afford to have users view their content at a rate that is too low.
#3 — The Marketplace Business Model
As mentioned, the marketplace business model is to provide access to their content libraries through their platforms. This allows the content libraries to be combined. For this, the platforms must provide a place for the content library to be stored and accessed. This is an important consideration since the content libraries are the core of the platform.
The platforms then make money by monetizing through advertising. This allows them to be profitable without the need to depend on users to pay for content and have a sustainable business model, regardless of how popular their content libraries are.
The platforms are incentivized to keep their content library as large and as valuable as possible. By doing this, they make their platform even more valuable. This increases their platform’s reach and the value of the content they sell.