Microtransactions for journalism & media: Business Model

The following is a business plan for a universal, micropayments paywall that any publisher or content creator would use that would charge an audience a few cents to read an article, listen to music or watch a video on a Pay Per View basis. Other people could re-sell and re-market this content and get affiliate payments for doing so, too.

The transactions were typically smaller than most, current micropayments and so, I called the start-up company, Nanotransactions.

There are various reasons that it didn’t end up happening, but for a while we had major publishers wanting to trial it, but weren’t able to. What follows is the result of over three years of research, planning, workflows and modelling which are all still valid today – even if the references are old. I publish it here because Elon Musk recently Tweeted about doing something similar. I’ve already done all the hard work. I hope this is useful…

In Brief

Nanotransactions is a new, disruptive business mechanism which solves the long-term problem of paying and charging for content on the internet.

Instead of forcing annoying subscriptions, paywalls and microtransactions on to an unwilling public, Nanotransactions allows customers to easily pay just a few cents for content using a near-invisible system that will work on any website without constantly having to log in.

It works with multiple currencies (including Bitcoin) and offers transaction fees as low as one cent instead of the usual 40 cents. It does this by spreading a single transaction across multiple payments.

Small scale publishers can commission content without paying out from their dwindling freelance budget – a 20c fee (for example) can be automatically split and paid directly into the publisher’s and writer’s accounts. This doesn’t only save the publisher money, they get more content and don’t have to worry about invoicing.

Larger publishers no longer have to lock out over 20 per cent of their audience with subscription models. They finally have a pay per view system.

It works for all media – music and video too. Potential future applications allow people to skip ads before music and videos and also republish other people’s content with all parties getting paid.

The running costs are minimal – almost everything is automated. The potential rewards of taking a cut from millions of webpages and pieces of content every day, are enormous.

Benefits to content consumers

One-click sign-up with trial credit given out for free.

Only pay for what is consumed.

Payment is an amount so small it won’t be resented.

Payment system is so simple that it won’t turn people away.

No multiple accounts on multiple sites: it’s one system that can work everywhere.

Potential to earn money online by creating their own content or republishing other people’s content using the affiliate system (more on that below).

Better quality content online – less reliance on low-quality listicles and click-bait articles.

Benefits to publishers and content creators

No more locking out over 98% of your potential traffic with subscription paywalls.

Publishers can commission content without using freelance budget – writers can automatically get a split of the proceeds of each story depending on the paying traffic.

No more having to worry about paying external contributors – that all happens automatically and instantly.

External contributors – especially those with large social media followings – will be incentivised to promote their own work to generate paying traffic.

More visits mean an increased ability to serve more adverts compared with subscription paywalls.

Significantly higher conversion rates than existing payment models.

Content that actually pays for itself (!)

Works in addition to existing subscription models.

Potential for affiliate system to allow others to republish content (with permission) with all parties getting paid.

Small publishers don’t have to rely on selling adverts – a heinous task for writers – or using Google AdSense which pays pennies for thousands of hits.

Freelancers rely less on dwindling freelance budgets and a shrinking market.

Publishers get more content from freelancers who want to write but can’t afford to get published.

Content creators who ‘write on the side’ of a paying job, can consider writing full-time.

Why was Nanotransactions created?

Nanotransactions’ founder is an editor with the Australian Broadcasting Corporation (and former start-up publisher). He’s been watching his industry die on its feet – over 20 journalists in his technology sphere have left the industry in the past year. Magazines and newspapers are closing down constantly. The top freelancers are desperate for more money – their pay rates have plummeted and the number of titles to work for is in constant decline.

Many of the top senior journalists and editors have left the profession and, if they have been replaced, it’s with young journalists who are paid little, are tasked with publishing a minimum number of articles each day and judged purely on traffic, not quality. As a result the quality of journalism is collapsing and the so-called ‘fourth estate’ – which keeps governments in check – has been hobbled.

Most existing profitable online entities are entirely ad-supported. We already saw the largest, CNet, recently reverse an editorial decision due to offending an advertiser. The way things are heading we’ll soon only have ad-supported content and blogs. There desperately needs to be a viable way of paying for casual content. None of the existing models work. Nanotransactions was born from this mother of necessity.

With so much talk about online publication funding at present (see Further Reading below) and with so many large entities trying new systems (which all have the same failings), now is the perfect time to launch.

The business in principle

The Old Way

Media has traditionally been funded by Newsstand payments, subscriptions and advertising. However, since the internet became the dominant platform, there hasn’t been a Newsstand equivalent which lets people pay for what they see – only subscriptions and advertising. Not surprisingly this media’s old business models became unsustainable.

At present, major publishers try to keep control of all subscription payments systems themselves. They charge tens of dollars each month and customers are expected to sign-up to multiple publishers and services and pay all of this money to all of them. Not surprisingly, the vast majority do not. Major newspapers are working on a business plan based on less than 98 per cent of their original customers paying for content. The economics of obtaining subscribers are not good – each subscriber is essentially bought and for a surprisingly high price.

On a smaller scale, systems used such as PayPal and TinyPass facilitate microtransactions. These are typically used to charge between one and ten dollars for individual items of content. While systems like this can work, it tends to be in very niche markets with highly-targeted audiences who are willing to pay for specialist content that they can’t get anywhere else. However, they are still a pain to use and require annoying sign-in processes for single articles. They are not thriving and represent the fringes of the mass market.

Small payment systems also come with high cost overheads – credit card fees and PayPal fees for merchants are very high for low payment amounts. For example, credit card companies charge around 40c per transaction PLUS a percentage of the total which naturally makes payments under 50c highly unattractive and therefore uncommon.

The New Way

With Nanotransactions, customers only pay for what they use. There is no need for only using monthly lump sum subscription payments but publishers can still use them too.

Nanotransactions amortises transaction fees by spreading them across multiple payments. Users charge up their Nanotransactions accounts using as different systems (PayPal, ePass, Braintree etc).

A customer then accesses content until the Nanotransactions account hits a certain level and they are asked to top-up their account.

Every time they pay for content, Nanotransactions collects a small fee.

From the content producer’s point of view, their Nanotransactions account tops up as customers make payments. When the figure hits certain thresholds (perhaps $50 or $100) the content owner can withdraw the money that they have owned. This is in line with popular and proven payment systems such as Google Ad Sense and Amazon Affiliates.

It is expected that Nanotransactions will sit on a significant pile of capital with people depositing money that is not being used into their accounts.

Notes: The minimum initial deposit level will be $5 to keep the barrier to entry as low as possible. The minimum auto top-up level will be $10. The higher the figure, the lower the cost of each transaction is to Nanotransactions.

Over time, the cost to Nanotransactions of the account top-ups is expected to decline with more-expensive payment options – derived from low-amount top-up values – being phased out. Initially, the barriers to adoption need to be low with as many payment options being offered (regardless of high fees). Much of the modelling has been done using worst case scenarios – that everybody only ever tops-up their account with $5 minimum payments and the merchant fees remain relatively high. This is to cater for conservative models.

Examples of use

The following charge scenarios are examples of the prices people would pay with Nanotransactions. In reality, the content owner sets the price.

Online Newspaper articles 5c

Online features or columns 10c to 20c

Music / Audio / Movies / TV streams 50c (Or charged per minute up to a maximum amount)

Typically the fees collected per piece of content will be in the order of: 1c for 5c articles, 2c for 10c articles, 4c for 20c articles and 8cents for 50c media.

Interestingly, whereas the cost of using PayPal for a $1 transaction is almost 33cents. With Nanotransactions we can make a profit at 12cents. That’s highly disruptive.

Articles that are being charged at 5c are expected to ultimately be high volume. As such, of the 1c that Nanotransactions charges the publisher, some 20 per cent represents the cost of transaction. While this sounds high, the high transaction numbers and automated process means revenue has the potential to flood in.

Currencies, areas of operation and Bitcoin

Initial customers will likely be based in Australia but interest has already come from the UK (which has a much larger market than Australia) and take-up in the US could follow quickly.

There have already been requests from content creators for the option of Bitcoin payments. While this brings certain challenges, there is great potential: Bitcoin negates the high cost and logistics of dealing with international transactions. Bitcoin’s popularity is also ballooning but it’s tricky for people to use. Offering a simple payment system like Nanotransactions to the global Bitcoin community could lead to dramatic growth in this area alone.

Market Sizes

Typical Australian content from moderate media publishers gets around 10,000 hits per page.

Major Australian websites get 20-30,000 hits per page.

Standard UK and US traffic is typically 5x – 10x higher than this with occasional articles going viral and hitting the high hundreds of thousands to even millions of hits.

Launch strategy

While the first great aim of Nanotransactions is to get a publisher the size of Fairfax onboard, the initial push will be for grassroots support.

A basic working version of Nanotransactions will be launched as soon as possible and work with, at least several, small scale content creators who have existing followings and who can publish content from external contributors across a variety of subjects.

Media interest and industry interest has already been significant and can be expected to bloom from launch.

Professional Public Relations is already attached to Nanotransactions.

Immediate, launch expectations must be managed carefully. It’s a brand new system, there will be many challenges but the main goal will be to show that the system can work. The secondary goal will be to generate enough money from a single article that rivals the amount that a writer would have been paid from a standard freelanced article. At present the rate is a paltry $50 – $200. 1000 users paying 20c will do this. This is a very achievable goal.

Ongoing strategy

Publishers will always be recognised as the most important element of Nanotransactions. They take care of both the content AND the marketing of the paid-for content.

Nanotransactions fees should always be kept as low as possible. The golden goose is widespread adoption (and a cultural shift in the perception of the value of content) without alienating people due to price.

Challenges

The collapse of the music industry, the proliferation of illegal movie downloads and an expectation for all things on the web to be free illustrate that entire generations need to learn to pay for content again or for the first time.

This challenge is not insurmountable as Netflix, in the USA, has demonstrated: by offering an excellent service (vast catalogue of TV shows and movies), at a reasonable price (just $8 per month) and using well-designed, easy-to-use interfaces, it has disrupted and revolutionised video content distribution in America. Illegal downloading has reduced dramatically (according to Cisco VNI internet traffic reports) since it came into effect.

The biggest hurdle will be getting people to sign up for the first time. This has been made as frictionless as possible by using social media single-sign on systems which mean an account can be created in just one-click with free trial credit deposited at the same time. After a single pop-up, the new consumer will be looking at the article they wanted. If, when they logged in or signed up, they ticked the box to stay logged in, they won’t be asked to again – they’ll just be asked if they want to pay.

Operating costs

Nanotransactions is designed to operate in an ‘ultra-lean start-up’ mode. Once built, almost everything will be automated including customer support, payment top-ups and pay-outs. The main expenses will be hosting and third-party transaction fees.

Hosting costs

These will fluctuate according to usage. A high-volume of low-value transactions means higher costs but there will be more revenue. A lower volume of high-value transactions means lower costs but revenue will be different. The main price for hosting costs, based on Amazon AWS, is 0.1cent for high volume, low-cost transactions. At high-price transactions, volume will be less and the price is halved. This is a conservative figure. Early fees will even be free due to AWS start-up packages.

Third Party Transaction fees

These will also vary. In the first year, due to special schemes that Nanotransactions has been accepted onto, PayPal fees have been waived and Braintree Credit Card fees have been greatly reduced. After that year, fees become more negotiable with the providers but for the sake of modelling, worst case scenarios have been used – full, standard, cost.

Eventually these fees can be greatly reduced by becoming a merchant ourselves and cutting out third parties. However, this decision must be balanced with losing out on the convenience levels, marketing potential and partnership potential won by not competing with third parties and potentially being pushed as their partner.

Spreadsheet Breakdown

Fees for different media prices, payment top-up methods and amounts have all been worked out and are displayed on the NT splits March 2015 Excel spreadsheet. All are summarised and displayed in the Master Tab and broken down in the additional tabs:

PP Merchant – The standard fees for PayPal

PP CC – Some (but not many) users will use a credit card to top-up via PayPal. This is 1% higher than standard. The same 1% surcharge comes with international currency fees.

Braintree – Fees using PayPal’s credit card provider

eWay – fees using eWay as a top-up system. Lower fees than PayPal and Braintree but less popular.

Blueprint – Fees are waived using PayPal and only include hosting. This will likely represent Year 1.

The Master Tab also displays percentages of transaction fees vs transaction cost, Nanotransactions profit and the full transaction charge for publishers’ profit.

Annual revenues plus ongoing operational costs

NT Splits March 2015 Excel spreadsheet describes the following:

Modelling for various stages of Nanotransactions operation from launch to years down the line. See Biz PP and Biz Blueprint tabs.
Modelling for Fairfax and the Sydney Morning Herald on its own. See SMH tab.
Fees for each type of top-up mechanism used (PayPal, eWay etc – see above).

i) Modelling

Eight separate stages of Nanotransactions operations are described. Despite Year One including build costs – $30,000 – hosting costs and third-party transaction fees are low or waived altogether due to startup partnerships created with the likes of PayPal and Amazon.

These can be seen and manipulated in the spreadsheet tabs:-

BizPP – assumption that everyone tops up only $5 using standard PayPal

Biz Blueprint – assumption that everyone tops up only $5 using PayPal with fees waived

In all of the following scenarios, revenue increases as people top-up more than $5 at a time. $5 is the minimum, however, and is used as the worst case scenario.

Launch to EOY 1

Stage 1 approximates what might be expected at launch: Ten small publishers pushing out content that attracts 10,000 hits in a week (each) – a conservative figure – at 20cents and 25% conversion. Were that to continue for the year revenues between $29,000 (standard PayPal) and $50,000 (fee-waived PayPal) would be achieved.

Stage 2 represents the aims for the end of the first year. Some 50 small publishers are onboard with 20,000 weekly hits at 25% conversion, now charging mainly 10cents. Revenues range from $135,000 (PayPal) to $247,000 (fee-waived PayPal).

EOY 2-3

Stage 3 represents a slight maturity to the market. It’s not completely unrealistic to hope that this reflects a soon-after-launch position of Nanotransactions. With one moderate-sized content producer onboard, interest flourishes. The fee-waived PayPal Blueprint scheme will start to evaporate here but the figures are included nonetheless.

With 100 small publishers publishing 30,000 premium pages at 33% conversion, charging 10 cents for content, plus one moderate publisher getting the same conversion rate from 100,000 pages at 5cents each, Nanotransactions revenues vary from $540,000 to $1m in a year.

At least one part/full-time employee would be required, but a trigger point may require an additional account manager which should easily be accommodated through revenues.

EOY 4

Stage 4 represents a point where many people are talking about and using Nanotransactions – mainly in Australia but with some overseas content producers. It is likely that some overseas entities are involved and they would likely bring with them large numbers of customers due to the much-larger market size. Numerous small content producers would still be the dominant form of income although the occasional moderate-sized producer would rival that.

By now there should be some viral success stories which are responsible for boosting Nanotransactions sign-ups on their own.

This would be an acceptable target for EOY 4 but shouldn’t be discounted for happening very quickly after launch.

With 500 small publishers charging 10c for articles and 100,000 hits per week at 33% conversion and one major publisher still charging 5cents for 100,000 pages, at 33% conversion, Nanotransactions revenue would be almost $9m.

At this point, marketing would be increased, word of mouth and proof of success would be significant, growth would potentially be large and rapid. Additional account managers would be required where necessary. An office may be justified depending on the income. However, income should cover these costs easily.

EOY 5

Moderate Stage Adoption. By now major Australian publishers should have seen that Nanotransactions is a proven model and be ready to be adopted. High-traffic publishers charge low amounts (expect a minimum of 50 per cent conversion rates) and become the dominant revenue stream.

Annual revenue hits $20m which covers the cost of an office, account managers and office manager. The running costs should still be low.

Revenues would be further increased by efficiencies gained from account fee top-ups and interest payments.

Ongoing

Once five Australian-sized newspapers/websites are onboard (or a few, moderate, overseas sites) revenues balloon. The installed customer base would be massive and the potential for adoption by major publishers increases. The number of small content creators would be elevated considerably – with so many people signed up to the system, why wouldn’t you use it?

At such a stage revenues are massive – almost nine figures and easily pay for any costs.

The final two stages reflect, firstly, significant Australian, UK and US adoption with revenues that are, well, world class. Subsequent global adoption would significantly increase running costs but these would be dwarfed by vast annual revenues.

Ultimately, if Nanotransactions works at all, it works big. This model hasn’t been used before, it’s the only one that will likely work, and the prospect is there of taking a cut from a significant proportion of all daily content on the entire internet including a great deal of video and music playback.

ii) SMH

Various models have been used for the SMH. These can be seen on the SMH tab of the spreadsheet. All assume $5 top-ups.

Model 1

Using the above models and with known traffic figures of 111m monthly page views, we estimate half are charged for at an even split of 5c and 10c.

At a conversion rate of just 10%, SMH makes over $666,000 per month. Nanotransactions makes over $80,000 or $1m annually.

At a lower 2% conversion Nanotransactions makes $16,000 per month or $200,000 annually.

At 33% conversion, Nanotransactions makes $3.3m annually.

Model 2

A separate model is even more conservative – The Complex Method

This assumes that 2% of the unique visitors to the SMH will pay to look at 1.25 articles per day at 10cents per go. This would land SMH $41,000 per week or $178,000 per month. Nanotransactions revenue would be over $5,000 per week or over $277,000 for the year.

All modelling can be tinkered with easily with the main changes being conversion rates. For the above models, rates have been very conservative.

Deposits

With people depositing a minimum $5 at a time using Nanotransactions, a significant float of money can quickly be accumulated. Using the SMH figures, in a month, almost $295,000 would be deposited with $25,000 of that representing transaction fees.

Future features of Nanotransactions

Potential to skip ads when wanting to access audio/video content without being bothered – there are few more mood-killing annoyances than being forced to watch a 30-second commercial on toilet cleaner when you just want to hear your favourite song or watch a 15-second cat video.

Affiliate publishing: The ability to republish articles that other people have written knowing that both parties get paid. This needs to be kept as simple as possible to avoid the need for technical support. Ideally you press a button – similar to Facebook’s Like – and are given cut and paste code and only a few variables need to be entered – such as Nanotransactions account number.

Potential to play movies online and only pay only for what you watch (per minute) when you watch it. No more set time limits for watching or rental limitations. After a certain amount has been paid then the movie will be owned.

Potential to pay per play for music. Listen to your favourite song without a monthly subscription or dealing with ads. Own the song after a certain number of plays. There’s potential to also republish the song and be paid while other people listen to it knowing that the content owner is also being paid. There is great potential here for fixing the music business.

Another music-related potential is for sampling rights be automatically granted by splitting fees using Nanotransactions. This is traditionally a nightmare for musicians and could happen automatically using our system.

Musicians have already publicly lamented that sites like Pandora pay out less than $20 for one million plays. However, charging 20c per play using Nanotransactions would see artists being paid over $100,000!

Microtransactions for journalism and media: The Business Plan