One of my favorite questions I used to get when I was interviewing for CFO jobs was about business models. What’s your experience in this kind of business? Everyone in the creative industry likes to think that their business is somehow different and more compelling than the next one. And most of them are wrong about which one they’re actually running.

But the reality is, all modern creative businesses are based around three core business models. Those three models are Audience models, Access models, and Services models. 

Most modern creative companies run hybrid versions of these models - but every revenue stream ultimately maps to one of these three models. 

The most common syndrome I have seen in 15 years in this business is people misunderstanding (or willfully ignoring) the business they are actually running; thus, they invest time, resources and money into efforts that are doing nothing to actually drive their bottom line. Alternatively, they are ignoring a core piece of their model that needs investment and attention and therefore are hamstringing their business’ growth. Operations must match the strategy in order for businesses to spend and grow efficiently – if I had a small inspirational quote on my desk, that would be it.

The creative industry has evolved so quickly over the past 15 years that many businesses have struggled to keep up. Over the next three editions of this newsletter, we will be breaking down each business model - what defines them, who are the key players, who is the ultimate boss, and what you should be thinking about if you’re running one of them. 

A quick note on hybrid models: yes, we are aware that many businesses these days run hybrid models. We will be covering “managing your hybrid models”, plus maybe “advertising as content as advertising” (dependent on my ability to keep the word count down) in dispatch 4 of this series.

We’ll start with one of the most rapidly transformed businesses in the past 20 years - Audience Business. Audience businesses make money by building an audience (by giving away their content for free) and selling access to that audience (on the basis of certain metrics) to someone, typically a brand or advertiser. Audience businesses have been around since the invention of modern media (traditional broadcast TV and radio are audience businesses in the purest sense), but they have only recently become a more viable business model in the content realm as the cost of distribution has effectively gone to zero since the broad consumer adoption of the internet. 

Note that the most important part of an audience model is the free part - definitionally, these are not subscription businesses, but rather the business model that many subscription businesses deserted their subscriptions for when the promise of massive, scale-aided ad businesses showed infinite upside. 

The key players in this business are: 

My cofounder and I like to joke that every single person on earth has a boss (other than Vladimir Putin and Xi Jinping–though Xi may be Putin’s boss but that’s for a geopolitics substack). Every business model ultimately serves one stakeholder above all others – “who is the boss” is the most informative way to think about how a business is structured and where incentives lie. If you know who the boss in your industry is, you can generally start to align your operations around your boss. 

In the past 15 years, three major changes both exploded and reshaped the audience business: 

These forces combined mean that in pure play audience businesses, the audience is the boss. When content was scarce, the makers themselves could make the argument that they had the power to decide content strategy and do what was good, rather than what was popular; the mass proliferation of content means that people have infinite choice, near-zero switching costs and therefore, the audience rules. You must give the audience a reason to choose you. 

An audience-centric POV is why creators massively outstripped publishers in audience attention over the past 10 years. Creators built their businesses on top of platforms that had infinite feedback loops; they quickly pivoted to where the audience wanted them to go. Publishers, who still believed in things like “journalistic integrity” and “taste”, and operating mainly on shitty CMSs, got left flat footed. (This shift is why young men currently get their news from comedians and people suddenly doubt 100 year old vaccine science, but we’re talking business impact and not societal impact here). 

A fundamental shift in the ~5 years since the digital media bubble burst is the importance of engagement as the core audience metric vs. scale. As a maker, the calculus is now slightly different - the question is now “what content will make my audience engage the most / in a meaningful way, repeatedly?” The prioritization of engagement has many ramifications - but mostly, it means that the high-reach, cheaply produced clickbait content of the 2010 era has faded (see: buzzfeed)dex, resulting in higher content costs for the makers (good for humanity; bad for P&Ls). However, the truth remains: If you’re not building your content strategy around who you are reaching, where - you’ve already lost. 

The largest audience businesses these days are of course social media platforms; those audience businesses are in themselves made up of millions of smaller audience businesses (“the creator economy”). The platforms won the audience business because they amassed massive audience scale and offered better reporting and segmentation at a much lower rate than the competitive audience businesses of the time (i.e. digital media businesses). As a result, the platforms took share and pricing power from the more fragmented publisher market. 

The audience business and ad sales model on the platforms today is largely commoditized; CPMs as a measure of monetization power are not exactly Increasing (the platforms massive revenue growth is driven by an increase in consumption and and increase in ads served due to increased engagement, not in the profitability of each ad unit). 

The result is that the audience businesses (for makers) that still thrive on pure-play advertising tend to fall into two categories:

Youtube creators have also created a largely secondary system of ad sales (integrations) that are sold directly by creators and are able to achieve premium pricing. Podcasts, and their funny little RSS feeds, have kept the sales in this business highly distributed and therefore actually viable. 

Smaller platform-dependent audience businesses — creators or media companies — typically rely on hybrid models: services (branded content, custom work) or affiliate revenue (engagement in a different form). We will discuss how to treat these additional models in our hybrid models post. 

With the increasing commoditization of pure-play audience revenue, the cost of producing content, distributing content, and developing audience becomes even more important. Audience businesses make content, regardless of whether that specific piece of content has revenue attached to it. However, all makers, whether they are publishers, creators, or any other form, must understand how much their free content costs to make, at the most granular level possible. This allows you to measure the ROI of producing that content. 

Gone are the days where you could have a single editorial line item in the P&L; even small businesses are making 5 formats across multiple platforms. You need to understand where the dollars are going. If you’re building an audience on social media, or on podcasts, or on video -  you need to understand how you’re monetizing each platform and its costs. 

As audience businesses have come under revenue pressure, many of those content costs have been pushed from fixed (editorial teams, as FTEs) to variable (an army of freelancers). The fragmentation of content production has made cost attribution dramatically harder — which means most audience businesses no longer actually know the ROI of their content. The result is strategic decisions made on the basis of audience alone; expensive formats get doubled down on because the views are high, and high-margin formats get cut because they look “mid”.

Without cost visibility, the audience feedback becomes noise instead of signal. 

The other major cost center for audience businesses is reaching and developing their audiences. Distribution costs have been replaced by audience development - the people and processes that help drive eyeballs and engagement with content. In platform businesses, these teams are often tasked with understanding and interpreting the various moods of the various algorithms who play a massive hand in driving eyeballs to content. Too often, these costs are not fully considered, or not treated as a core portion of the business; but when audience, specifically audience engagement, is the product itself, these costs need to be as important (if not as scaled) as the content going to those audiences. 

So; what next? In the same way that the cost of distribution going to zero with the advent of the internet flooded the zone with content and left traditional players scrambling, so too does the advent of AI threaten to change the audience business model with a massive proliferation of…even more content. 

Either way - the business fundamentals remain the same: the audience is the boss. Engagement beats scale. Not all revenue is created equal. And the more granular you can make your understanding of cost, the better you will be positioned to measure the ROI against those costs. 

Are audience businesses viable in the future? Yes, but - they likely must necessarily become hybrid businesses in order to create meaningful revenue and scale. We will discuss in our hybrid business piece the pitfalls audience businesses must avoid to get trapped in the “audience pricing trap”. 

Next up are access businesses (what every business wants to be when they grow up).