What it means
Television, radio and print send the same content to everyone. Interactive media lets the audience take part, so that what a person sees depends on what they click, search, play or share.
Because the platform sees these actions, it can tailor the content to each user. This matters for business because the actions create data.
Companies learn which content holds attention, which advertisements lead to purchases and which features users ignore. That data lets them measure results far more precisely than they could with a billboard or a printed advert.
Revenue comes from several models. Advertising pays for many free platforms, with advertisers paying per thousand views, per click or per sale.
Subscriptions charge a regular fee for access, and in-app purchases sell extra content or features inside games and apps. Common measures include the number of active users, the time they spend, the revenue per user, and the cost of winning each new user.
Finance teams track these to see whether growth is profitable. A platform with many users but low revenue per user may still be losing money.
The costs of interactive media are mostly in technology and content. Companies spend on software development, cloud computing and moderation, as well as on content creation and marketing, and much of this is a fixed cost that does not change with the number of users.
This is why successful platforms can see profits grow quickly once they reach scale. The sector is also affected by privacy rules and by platform policies.
Changes to how user data can be collected can alter how well advertising works, which in turn affects revenue forecasts.
In practice
Real-world examples.
Example
A fitness app offers a free version supported by advertisements and a paid version with no advertisements. The finance team measures how many free users convert to paying subscribers, because each conversion greatly increases revenue per user.
Example
A video game developer sells the base game for $20 and then sells cosmetic items inside the game. The in-game purchases generate steady income long after the initial sale. The finance team treats the two income streams separately, because the base game is a one-off sale while cosmetic items depend on players staying engaged.
Example
A retailer builds an interactive product configurator on its website, where shoppers design a custom item. The tool raises the conversion rate, and the retailer uses the data to see which options are most popular. Product teams use those findings to decide which components to stock in larger quantities, which links the website directly to inventory planning. The retailer's finance team compares the extra sales with the cost of building and maintaining the tool to decide whether it is worthwhile.
Formula
Calculation
Advertising revenue = (Impressions / 1,000) x CPM
CPM stands for cost per mille, which is the price an advertiser pays for one thousand views of an advertisement.
A news app shows advertisements 4,000,000 times in a month at a CPM of $8. The number of thousands is 4,000,000 / 1,000 = 4,000. Revenue = 4,000 x 8 = $32,000.
If the app has 500,000 monthly users, revenue per user is 32,000 / 500,000 = $0.064, which is about 6.4 cents per user per month.Case study
Seen in the real world.
Tapwave Studios is an illustrative, fictional company that publishes puzzle games for phones. Its finance manager noticed that the games had 2 million monthly players but earned only $60,000 a month in advertising revenue.
She worked out that revenue per player was 60,000 / 2,000,000 = $0.03 per month. The company tested a premium version at $4 a month and found that 2% of players, or 2,000,000 x 0.02 = 40,000 people, were willing to pay.
That extra income was 40,000 x 4 = $160,000 a month, far more than the advertising. In this illustrative story, the company kept the free version for reach and made the subscription the main business. Its finance manager also tracked churn each month, because keeping paying subscribers was cheaper than replacing them and mattered more to the company's long-term profit. Churn, the share of users who leave in a period, became a standing item in the monthly report, since a small gain in retention was worth more than a large advertising campaign.
Watch out
Common mistakes.
- Counting total downloads as if they were active users, when many people install an app and never use it.
- Focusing on user growth alone, without checking that revenue per user covers the cost of acquiring each user.
- Assuming advertising rates stay constant, when they vary with the audience, season and privacy rules.
Questions
People also ask.
What makes media interactive?
The user's actions change what the platform shows or does, for example by clicking, searching, playing or posting.
What is CPM?
CPM is the cost per thousand impressions, the price an advertiser pays to have an advertisement shown a thousand times.
How do interactive media companies make money?
Mainly through advertising, subscriptions and in-app purchases, and many combine several of these.
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