Videoblocks
Joel Holland's stock footage business started in high school. While working on a small nonprofit TV production, he noticed that many independent video makers needed inexpensive but high-quality stock video. He began shooting footage himself, "lugging around a backpack with a camera and a tripod," and selling it online.
The business began as a la carte, with clips sold individually. Holland admired Netflix's model of a monthly price low enough that every subscriber felt they were getting a good deal. Videoblocks.com launched in 2010 as a test of whether that subscription approach would work for stock media. The company paid contributors 100% of what their clips sold for, because its revenue came from memberships. About 6,000 videographers now shoot on spec.
The company scaled through direct response marketing. Holland said it spends about a million dollars a month on channels with a call to action, including Facebook ads, Google AdWords, and email. Its affiliated websites give content away for free and feed a list he estimated at 20 to 30 million strong. Early on, monthly plans produced about 40% annual churn. The company moved users to annual plans, cut back on free trials, and pushed customers to pay upfront. Year-one retention reportedly rose to about 80%, with year two near 90%.
Unit economics were strong. Holland said the company was paying about $10 to acquire a customer worth about $70 within two months. The blended acquisition cost was about $50 against lifetime value in the hundreds of dollars. Holland also noted that Facebook is a constant cat-and-mouse game, since new ad formats lose effectiveness once everyone adopts them. In some channels the company was approaching breakeven, while others were highly profitable.
In 2016 Videoblocks had about 150,000 paying members, around $20 million in 2015 revenue, and a projected $26 million for 2016 from memberships. The company had about 80 employees, had raised a little under $20 million, and had taken on covenant-free venture debt. Holland said the company was neither raising nor in acquisition talks, but its long-term aim was a sale to a company like Adobe.
- •Adopting a subscription model after a la carte sales gave the company predictable recurring revenue and a larger, more loyal customer base.
- •Paying contributors 100% of sales let the company build a large content library at low cost while keeping the membership model as its only revenue stream.
- •Shifting customers to annual plans and upfront payment reduced churn from about 40% to roughly 10% in year one, which made high acquisition spend worthwhile.
- •Direct response marketing paired with a large email list from free affiliate content let the company spend heavily on acquisition while keeping a favorable LTV-to-CAC ratio.
- 1.Start with a clear market gap by identifying a content or resource that many buyers need but cannot afford at quality.
- 2.Test a subscription model against your existing pay-per-item model before committing, and pick a price low enough that subscribers feel they are getting a good deal.
- 3.Push annual plans and upfront payment early, and trim free trials that attract users who will churn.
- 4.Track customer acquisition cost against lifetime value by channel, and cut spend quickly where diminishing returns appear.
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