a many-layered allegory about access models. (don’t fight me on this)
This is second in a series on the three business models of the creative economy; in our last newsletter, we talked about audience models. Today we dive into part one of two editions on access models (in an attempt to keep this email more brief, we’ve split into two parts) - look for part II coming next week!
Access models are the models that every creative business wants to be when they grow up - they’re the chicest, the most glamorous, the most financially stable. Many creative companies want to build access businesses; very few actually are. Where audience businesses monetize a consumer’s attention, access businesses monetize a customer’s willingness to pay.
Access businesses are predicated on the concept of taking on financial risk to create something (for the finance heads among us, taking on balance sheet risk), in the hopes that someone (either an individual or another business) will pay to access that thing - definitionally they involve a tradeoff between up front risk and longer tail reward. They’re sexy for creatives because they demonstrate the inherent value in the creative output; customers are willing to pay. They’re sexy for investors and operators because traditionally, access models have either stable revenue bases or long tail monetization (sometimes both).
Access businesses take many forms; the most famous access business out there is Disney. They own a trove of IP that they have paid to develop and that consumers and businesses pay to access in multiple ways - via movies, parks, streaming content, merchandise, licensing, and other consumer touchpoints. The experience economy is largely an access business; the music and sports business are also, traditionally, access businesses.
The Players / Who’s the Boss?
As with audience models, it is important to establish the main players in the system, as well as the Vladimir Putin. The players in the access model are as follows:
Makers, who develop and create creative output. Think record labels, movie studios, production companies, the New York Times - all of these are makers.
Consumers, who pay to access that creative output.
Distributors - the people who take the content from the makers, usually aggregate it in some form, and put it into the hands of the consumers in distributed models. Sometimes this is a function inside the maker itself; sometimes this is a separate link in the value chain.
So who is the boss?
In the access business model, the consumer is the ultimate boss - all content must be geared towards whether or not the consumer will be willing to pay to access your creative output. Sometimes, distributors or aggregators can try to position themselves as the boss in this ecosystem (the average production company probably spends a lot more time courting the commissioner at Netflix than the individual Netflix consumer) but even in distributed access businesses, the distributor should ultimately be serving the consumer. You sell to the distributor, but you succeed or fail with the consumer.
At the end of the day, if you are a maker, the metrics by which your output will be measured will be not how it was bought, but how it was eventually consumed. That $17.5M sale at Sundance will get you headlines on Variety, but if the film flops in theatres you’ll have a hard time repeating that sale.
The Fundamentals of Access Models
Access models must solve three problems, which map directly to the three core cost layers of the business:
Is the product I am making appealing (valuable) enough to justify the customer paying for this product? We think of this as the inherent value in the creative output itself: the movie, the concert, the articles, the experience. This is the upfront investment demanded by the access business model. This is the purview of the makers.
How does the customer access and purchase my product? This is the distribution layer of the access model. We will discuss how this has changed radically since the advent of the internet.
How do I make the customer aware of the opportunity to purchase my product? This is the marketing layer of the access model, and is usually handled by some combination of the creative layer and the distribution layer. We will discuss how this layer is becoming more important than ever.
Revenue models: B2C vs B2B vs Windows vs Subscription (got it?)
Access models are monetized by customers paying for access to a creative output; how they pay for that access falls into a 4 part grid on two axes, B2C vs. Distributed, and One-Off vs. Subscription:
B2C access models: Makers make content and sell it directly to consumers, through in-housing the distribution function. Examples: Streaming platforms that make their own content, paywalled media companies where you subscribe directly etc.
Distribution access models: Access models where a third party acts as an intermediary between the maker and the customer - usually their role is to consolidate a certain volume of content and then distribute that content to the customer. They provide some value in the transaction. Cable distributors, Spotify, Live Nation, movie theaters – these are all distributors in distribution access models
These businesses usually operate as either one off or subscription businesses: one-off businesses involve a one-time purchase of a creative output or experience; subscription businesses involve a recurring payment for constant access.
Everyone wishes they were Barry Diller (how access models have changed)
Access businesses were the majority of the creative economy before the advent of the internet because distribution was physical and expensive; paying to access a product was the only way to make the economics work. The ability to directly distribute to the consumer via the internet has disrupted both the traditional value proposition of the distribution layer, as well as the long-term economic prospects of creative output itself.
Traditionally, access businesses were rewarded for the high up front risk inherent in development of creative concepts with a long, healthy tail of monetization as their creative formats made their way across distribution windows. Movies first showed in theaters, then sold for home video consumption and then licensed to cable providers. At each stage in physical distribution, there was price discrimination on the customer’s willingness to pay. The windows were long, the monetization was robust!
This model - up front risk, long-tail reward - made them a favorite business model of investors and investment companies, who I assume saw some of their own business model in the “allocate capital to a basket of risk, and the best picker will be rewarded” pitch. In a way, the hedge fund guys and Barry Diller were sort of the same - Barry Diller just seemed to have a much more fun life. Given the healthy monetization in each window (not to mention the boom of revenue from formatting changes in the 80s and 90s as consumer technology advanced from VHS to DVD and from cassette to CD to MP3), the inherent risk in the hit-driven, portfolio strategy of access businesses was somewhat defrayed. Even though the business followed the 80/20 rule (20% of output drives 80% of consumption), one big hit could be big enough to defray the costs of a lot of bad bets.
The internet changed two things. First, content could reach consumers directly, disintermediating traditional distributors. Second, economics shifted — platforms like Netflix and Spotify moved access from one-off purchases to all-you-can-eat subscriptions. With content windows collapsed, and monetization under pressure, the traditional “long tail” model broke down. The distribution layer, previously mostly a function of physicality, took on an important new role - one of marketing and discovery.
Access models are still the sexiest business model in the creative economy, but the internet, and the great unbundling of the greatest business model ever built (cable tv) has had seismic effects on the ecosystem – all in service of helping the consumer spend just as much on subscriptions for less content. Next week we’ll dig into the biggest existential question facing access businesses today: to distribute or not to distribute — and what most companies get wrong when trying to measure ROI.
(PS everyone still wishes they were Barry Diller).
