Wednesday, 18 November 2009

How much free stuff are you worth?

Twitter's free, Facebook's free, Youtube's free and they're all trying to raise enough cash to be profitable by selling advertising space.

Time for a back of a fag packet analytics session. How much free content can advertising support?

So far, I've seen this question approached in terms of dwell time and attention. A site attracts ten thousand visitors a month, they spend an average of three minutes looking at it and so through some kind of TV spot equivalence, broadcast ad space has a value. Either that or it's click through rates, in which case each site has a different value to different advertisers, depending on how well targeted the site is, and it all gets complicated very quickly.

Here's an easy way.

Average UK household income is £30,000 after tax.

Assume that on average, they will spend all of it (some will save and some will borrow, which is too much maths to fit on the back of a box of Marlboro Lights.)

Companies spend, on average, around 3% of their total turnover on advertising. (American data, from 2007. Stop moaning, it's a fag packet analysis.)

This would mean that in the UK, each household is generating about £900 per year of advertising. That's £17.31 per week.

With a few exceptions (traditional Outdoor advertising being one) all advertising piggy backs on content. ITV programmes, subsidised newspaper prices, websites, whatever. You permit companies to advertise to you in return for free stuff.

So we've got £17.31 per household per week to spend on content - all of it, from TV programmes to Twitter. Straight away you can see why a lot of web business models have got a problem. A Napster subscription is £10 a month, so free music would take about £2.50 off your weekly budget to start with. A Sky HD subscription is £55.75 a month all in*, which would take nearly £14 of your weekly budget.

As a rule of thumb, with a little bit left over, I think it makes sense to say that advertising could support content up to the value of a free Sky HD subscription, plus free on-tap music for everybody in the country. And no more. That's quite a lot of free stuff, but how many websites, TV channels, newspapers, magazines, sports matches and others have we got bidding for a piece of the pie?

* Yes I know Sky has a large element of ad funding too. It's a back of a... you know the rest.

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