Who really benefits from the "freemium" model?

UPDATE: Microsoft announces it won't pay content creators for exclusivity.  They probably won't give up the benefits of the "freemium" model unless all content creators demand it.

Luci, "Yet Another Struggling Writer" shares what she has learned about the Beached Whale Freemium success story and asks others to share more Freemium case stories.  Her intent is to rationalize the path she has chosen to transform from "yet another struggling writer" to a successful writer.   I do wish her the best of luck and hope she will beat the low odds of success, without continuing to risk so much.   But this is a perfect example of why we are committed to building an alternative marketplace for content creators, audiences interested in discovering and supporting them, publishers/programmers who seek new talent and are willing to pay for it, and patron sponsors who want something they can be proud to sponsor. 

The irony is the "freemium" model puts more risk on the content creator and reduces the risk for corporations which rely on content creators to make money.  

Before the days of the internet, big publishers and programming companies used to take more risk.  Content creators weren't out there exposing their ideas to prove they had some traction.  So the big publishers and programming companies relied on their experience picking winners and their analysis of why they were winners to pick ideas.  In the end, though, they had only one way to do business - "throw it up there and hope it sticks" (TIUTHIS). 

Now  independent content creators are taking all the risk by doing the TIUTHIS themselves.

And for what?

Well Luci shares the Beached Whale video on YouTube as a great Freemium case story.

After uploading the video and seeing some traffic, the creators went to CafePress and sold T-shirts.  CafePress charged them to make the t-shirts, in advance.  The Beached Whale creator did all the marketing themselves.  When a viewer converted to a t-shirt purchase, CafePress made money on fulfillment.  CafePress takes no risk at all. If Beached Whale T-shirts had not sold, they would have owned all that inventory, and CafePress would still have the money they made on the manufacture of the t-shirts.  If I read the numbers shared correctly, $1 Million worth (retail?) of products were sold on Cafe Press in 7 months or about $143,000/mth.   Then Luci reports, that at 10 months on they were "still" making $9,000 per month in profit (presumably their profits were higher before that, but she doesn't report a direct apples to apple comparison).  If profits were double or $18,000 during the first 7 months, then they were getting 12% of the retail sales.  That's it.  In exchange for taking all the risk, including paying upfront for the manufacture of the t-shirts, the creators of the Beached Whale were making maybe 12% of the sales.  CafePress made profit on the manufacture of the t-shirts, on the sale of the t-shirts plus kept all the fulfillment fees.

Then Luci celebrates that an Australian retailer, Supre, contacted Beached Whale to arrange a licensing deal.  The going licensing fee - I mean NFL and MLB - is less than 15% of wholesale price which translates to less than 7% of retail.  But at least the Supre folks take the risk on the inventory and invest resources in merchandising and marketing support.  But they wouldn't do that if they didn't have a proven popular image to work with.

We think that is totally out of whack.  There must be a way even a slightly popular content creator can reap some rewards - even if they don't have a blockbuster.  And we've written before that taking the risk out of creating content would benefit everyone.

The internet culture is so fixated on being anti-corporate but the irony is they aren't really changing the game at all.  In fact, this popular "freemium" model actually puts more risk on the independent content creator to the benefit of corporations who profit on other peoples' ideas.  And the utter irony is that the companies benefiting the most are the "new media" companies, like CafePress.  At least the so-called "old media" or perhaps better described as "real world" companies take all of the risk once they license a property.

In our opinion, independent content creators should think again about the Murdoch v Google debate.  if Google's search engine has marketing value to publishers/programmers like Murdoch, as well  as independent content creators, and the content that appears in their search results has value to them, shouldn't there be a way to account for both?  What if there were a transaction/accounting/barter virtual currency that accounted for credits and debits.  This would be better than speculating about the relative value of search as a marketing tool and content to search.  Google says they are interested in ideas on how to help news and we responded with this recommendation.

We believe that this solution would shift the balance of powers in the market of ideas to content creators, empowering David v. Goliath.