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Cost Structure of ContentS. Masiclat

ICC 606 | Applied Research in Content Management

Fall 2012

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asic !efinition" Cost Structure

#he e$penses that a firm must ta%e into account &hen

manufacturing a product or pro'iding a ser'ice.

#(pes of cost structures include transaction costs) sun%

costs) marginal costs and fi$ed costs.

#hose costs are distri*uted through the s(stem of

production and distri*ution.

#he Cost Structure must *e measured against theRe'enue Structure to get a complete picture of content

'alue.

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asic !efinition" #ransaction costs

#he costs associated &ith participating in a mar%et) and

supporting *u(ing and selling.

+$amples of transaction costs"

Administering lo&,fee pa(outs from rights pools -ASCA/

Su*scription management and fulfillment

Accounting associated &ith fee collections

ringing these operations in,house creates a cost,center) *ut *eing the first to create such a pa(ment

management s(stem and then selling it to other media

companies ma%es it a profit center. -*illing de'ices/

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#ransaction Costs in Media

In single content sales s(stems) for e$ample) the cost of

ma%ing transactions ta%es up the *ul% of the price. In the sale

of mo*ile telephone ringtones) for e$ample) the composer)

arranger) and performer get onl( a*out 20 of the price. For

digital song do&nloads e'er(one associated &ith the content,,song&riter) arranger performers) and record compan(,,recei'e

less than half. #his occurs *ecause merchant and financial

transaction costs are 'er( high. #he cost for using a credit

card adds 3 to 4 percent to merchant costs and the e$pense

for *an% processing of each transaction is a minimum of a*out23 cents. +'en electronic fund transfers *et&een *an%

accounts incurs a*out 50 cents in transaction costs.

Ro*ert 7. icard) #he Media usiness

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asic !efinition" Sun% costs

Costs associated &ith (our *usiness that ha'e *een incurred)

and cannot be recovered.

est +$ample" Research !e'elopment

Sun% costs are the source of a particular dilemma and a

strong fallac("

!ilemma8 Choosing *et&een continuing a pro9ect of uncertain

prospects alread( in'ol'ing considera*le sun% costs) or

discontinuing the pro9ect.

7i'en a choice *et&een the certain loss of the sun% costs &hen

stopping the pro9ect 'ersus possi*le -e'en if unli%el(/ long,term

profita*ilit( from continuing) polic( ma%ers tend to fa'our

uncertain success o'er certain loss.

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#he sun% costs pro*lem

Man( people ha'e strong misgi'ings a*out :&asting: resources.

#his is loss a'ersion has it;s roots in perception of sun% costs.

#he standard e$ample in'ol'es a non,refunda*le mo'ie tic%et.

Man( people &ould feel o*liged to go to the mo'ie despite not

reall( &anting to *ecause doing other&ise &ould *e &asting thetic%et price8 the( feel the(;'e passed the point of no return.

+conomists &ould la*el this *eha'ior irrational *ecause it

misallocates resources -opportunit( cost of doing something

more fun/ *( predicating action on information that isirrele'ant to the decision *eing made -mone( spent on a mo'ie

tic%et/.

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asic !efinition" Fi$ed costs

#he cost of producing one unit of a good.

#he costs of doing *usiness.

Salaries

Infrastructure -li%e factories and par%ing lots/

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http">>&&&.&isegee%.com>&hat,

is,a,cost,structure.htm

?hen attempting to create a reasona*le picture of the cost

structure associated &ith the production of an( t(pe of good

or ser'ice) the first step is to understand each indi'idual

step that occurs. #his *egins &ith the de'elopment of the

idea for the product) the ac=uisition of ra& materials) andthe creation of production facilities that are used to create

the end product. At the same time) a cost structure &ill

address all la*or costs associated &ith each step. #his &ill

include not onl( the e$pense of &ages and salaries) *ut also

ancillar( *enefits offered to emplo(ees) such as 'acation)retirement) and health *enefits. +ssentiall() an( e$pense

that is incurred to ensure all the necessar( components for

production are in place &ill *e part of the cost structure.

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asic !efinition" Marginal costs

#he cost of producing one additional unit of a good.

For electronic media) marginal costs are essentiall( @ero.

?ith a marginal cost of @ero) a *usiness must account foropportunit( costs of inno'ati'e operations such as content

indi'iduation.

If a *usiness incurs @ero cost for a marginal increase) then e'er(

customer the( forgo is lost re'enuea massi'e opportunit( cost

for doing nothing.

Media *usinesses forgo customers *( not offering indi'iduation of

content) not ma%ing content &idel( a'aila*le) not ma%ing

content granular for re,pac%aging or *undling through partner or

third,part( distri*utors.

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#he

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!iscussion" Cost Structure and

CMS Dalue

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!iscussion" Cost,reco'er(

opportunities

?hat partner ser'ice-s/ can *e con'erted from a cost

center to a profit centerE

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Cost Structure Case Stud(1" Social Media

Bo& to moneti@e "

Face*oo% presence

#&eets

+,media mentions

?hat is the cost of *eing social and &hat mechanisms

are in place to reco'er those costsE

Is there an opportunit( cost to not *eing present in a

social media net&or%E

Is there a model that helps us ma%e decisions a*out social

media costsE

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o*od( understands social media

Appro$imtel( 1)000)000)000 are on face*oo%

A t&eeted lin%;s half life degrades on an ! cur'e.

M( %lout score is 5GH

S-g/ J did9

-I)9/ KeL

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Cost Structure Case Stud(2" Ad'ance u*lications

Re'enues are dropping

Incenti'e,structure is print,centric

Fi$ed costs are risinge&sprint

Salaries>*enefits

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Recommended Reading

#he Media usiness) Ro*ert 7. icard

themedia*usiness.*logspot.com

Si$ !egrees8 #he Science of a Connected Age