The Engage! Expo 2011, a conference and trade show focusing on tools and strategies for reaching consumers through mobile apps, social networks, online gaming, and other digital content, offered some glimpses into how companies are monetizing their digital initiatives. The event was held last month at the Javits Center, alongside Toy Fair, where digital content was top of mind for publishers and other exhibitors.
According to Michael Cai—v-p of video games for Interpret, a media and technology research service—who chaired a panel called "Monetization Strategies: What's Working Today," key revenue streams for digital content include:
• electronic sell-through, or selling digital content to consumers for a one-time price. The purchaser owns the content.
• subscription, a technique that has largely waned, with a few exceptions, since consumers are generally not willing to pay on an ongoing basis. However, some sites, such as Disney Fairies' Pixie Hollow (based on the Gail Carson Levine books from Random House), offer subscription membership tiers that give access to premium content.
• a free-to-play model with microtransactions. Items for sale include those that improve game play, such as a hint, or an embellishment for an avatar or its environment, such as virtual clothing.
• using digital content to sell physical products, as toy companies sometimes do. Mattel offers three free Barbie apps, which generate 2,400 downloads per day, as a means of enhancing girls' interaction with the dolls.
• advertising and sponsorship, which monetize those "grazers and fly-bys" who choose to use a site for free. Sponsors often give away branded virtual goods or unlock existing premium content.
Most successful initiatives incorporate several of these options, so consumers can select the one with which they feel most comfortable. "Marketing has to create a stew of options for everyone," said Roger Pavane, senior v-p, sales, for Payment-One, a digital payment service provider.
Marketers of digital content also have to ensure that payment options do not anger customers or treat some users unfairly (such as by giving away digital content during a promotion that other users had to earn through play). "We want as many players as we can, but we don't want to alienate or lose customers due to pissing them off," said Robert Ferrari, v-p, global publishing and business development, at Sanrio Digital and Typhoon Games, who works on Hello Kitty online gaming and virtual worlds. "They cost too much to acquire."
Children's digital content is governed by a raft of regulations, not to mention the need to be sensitive to children's well-being, parents' concerns, and the risk of bad publicity. Erica DeLorenzo, senior director of network development for the gaming network WildTangent, which includes children's virtual worlds like Free Realms in its network, said transparency is key. "Moms seem to understand and accept the need for advertising if you explain it clearly," she said.
For publishers, the most common monetization models are electronic sell-through, microtransactions on virtual worlds, and using content to support and sell books or book-based products. One company using the electronic sell-through model is IDW, which offers a combination of free apps, $3.99 iPhone apps, and $9.99 iPad versions of its G.I. Joe comics, licensed from Hasbro. "The consumer of graphic novels is not the same as the consumer for the apps," noted Matt Gildea, Hasbro's director of publishing and paper products.
Modern Publishing recently forged a strategic partnership with a company to develop a community online, which will have a retail presence, as well as a partnership with another firm to develop apps. "The question is, how do you run the new model and the traditional model?" asked Andrew Steinberg, president. "The new model brings no revenue."
Monster High—a Mattel property that launched online, followed quickly by toys and the first in a series of books by Lisi Harrison published by Little, Brown—is an example of online content being used to drive product sales. The 27 webisodes have generated 41 million views; the book was a bestseller on the New York Times list (the second book is coming out in the fall); and toys and licensed products are reportedly doing well.
Many digital initiatives are for children. "Kids want the same technology mom and dad have," said Tom McClure, director of marketing for VTech North America, a Toy Fair exhibitor that introduced the Innopad, an iPad-like device for interacting with downloadable kids' content such as games and e-books.
Rather than seeing online content as competition for physical products, publishers, manufacturers, and retailers increasingly see the two as synergistic. MerryMakers, a marketer of plush versions of children's book characters that showed its products at Toy Fair, said the company is looking into how to tie its products to e-books, perhaps on a publisher's or retailer's Web site. (Apple's app stores don't allow links to external products.) Betsy Foster, sales and marketing director, believes the value of a physical product such as plush will become more important as reading moves more into the digital realm. "It's a tangible thing that you don't have if you don't have a [print] book," she explained.
Barbara Peacock, managing director of Toy Fair exhibitor School Zone Interactive, which was touting its 15 e-book titles, priced at $1.99 each and available at Apple's iTunes App Store, Apple Store, and Intel's AppUp Center, noted that retailers appreciate the availability of online and mobile content. "It accredits us as a publisher," she said. "They want you to be all over, and that gives you credibility and provides value to consumers." She added, "Retail has shrunk. We can't get everything in the store any more. "
Competition among apps is fierce, which brings up questions of how to stand out in the crowd and how to decide which e-stores are the best platform. More than 650,000 mobile apps are available as of the first quarter of 2011, according to Joost Van Dreunen, president of SuperData Research, who said 400,000 of those are on the App Store and 230,000 on Android Marketplace.
A future development mentioned frequently throughout the Expo sessions was an upcoming change in mobile e-commerce in which U.S. consumers will increasingly use their mobile phones to pay for goods. This is common outside the U.S., but in the U.S. most mobile purchases are typically charged to a credit card rather than to the phone bill. Experts believe this change might drive additional purchases of digital content, thanks to the increased simplicity of the transaction.