Startup venture analysis

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MGT 5903

Management Strategy and Policy

Fall 2012

Startup: Short Story Podcast

By

James Groh

Justin Peters

Submitted to

Dana Wang, Ph.D.

December 15, 2012

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Business Model

There are numerous short story podcasts currently available through iTunes. Exhibit 1 in

the Appendix shows the prolificacy of the short story podcast. We plan to launch an imitative

new business venture based on several successful podcasts described in Exhibit 2 in the

Appendix. We will provide short stories both in print and as downloadable mp3 files. Each

month two stories will be available for free and two will be available to paying customers. Both

the free and for purchase print and audio versions will accessible through our website, while the

free podcasts will be accessible via iTunes. The stories will also be available as e-book files

downloadable from our website or the online distributor Weightless Books. We will pursue a

low cost strategy which will include producing reprint fiction, thereby allowing us to pay authors

a lower rate.

The content of the podcast will be based on the two surveys shown in Exhibit 3 and 4,

which were distributed to UTSA students; data analysis based on the surveys is shown in

Exhibits 5-12 in the Appendix. Approximately 90% of respondents possess a mobile device, and

although only about 7% currently listen to short story podcasts, 40% listen to a close substitute,

such as books or non-literary podcasts. Furthermore, 15% of respondents stated that though they

were not current listeners, they would consider listening in the future. This finding, coupled with

the numerous extant successful short story podcasts, suggest this is a viable business model.

We will devote our podcast to stories in the Historical Fiction genre. Although this was

the second highest-rated genre, the highest-rated genre, Comedy, is not likely a profitable choice

due to the large number of substitutes: there is an entire podcast section on iTunes devoted to

Comedy which includes several podcasts by professional comedians. We will differentiate

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ourselves from other short story podcasts as there are none devoted to Historical Fiction. Most

stories will be under 40 minutes and will be preceded by a brief introduction describing the

author, which listeners can skip as the podcast will be broken into chapters. Including chapter

markers in an mp3 file will allow listeners to skip the introduction without manually scanning

through the file.

Revenue Sources

The business will generate revenue streams through donations, E-book subscriptions and

single issue sales on the website and Weightless Books, and the sale of ads in the podcast and on

the website. An estimation of the revenue streams can be seen in the pro forma income

statement shown in Exhibit 13.

Donations: Estimated at $100 per month. This estimate is based on the donations

received by Escape Artists. This organization hosts three different short story podcasts (fantasy,

horror, and science fiction) and receives $300/month in donations. Given the single genre our

podcast provides we assume we will receive a third of their donations. All podcasts we have

contacted have seen a nearly constant stream of donations so we project flat growth.

E-book subscription through the website and Weightless Books: E-books can be

transferred directly to a customer’s Kindle or similar device. This is Clarkesworld’s largest

revenue source as customers pay for the convenience of having the online magazine in the

format they want. We anticipate it to be on par with donations. Clarkseworld stated that the

number of subscriptions has grown over the years due to marketing and award recognition. The

latter will be difficult to obtain given our low cost model of reprinting fiction, but the former will

result from advertising on other podcasts. Clarkseworld did not provide an exact rate of growth.

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Single issue sales on Weightless Books: It is uncertain the contribution this will make to

revenue, but it will allow people to try out the magazine and hopefully induce them to subscribe.

In order to process payments from subscribers and donors, two options were considered.

The first requires creating a merchant account with a bank and partnering with credit card and

check processing companies. The alternative is to go through a third-party payment processor

like PayPal. In order to achieve our low-cost strategy, the second option will be used. PayPal is

a widely recognized and trusted payment processor and charges only 1.9% of the processed

amount. Technical costs for implementing this solution are negligible: the back-end database

housing the audio and text content can also be used to store subscriber information to verify

access to the paid portions of the site.

Advertising: Escape Artists states that less than 5% of their gross revenue comes from

advertising and Clarkesworld merely states, “Don’t count on it.” Using the Escape Artist rate of

$15 CPM—cost per mile or cost per 1000 page views—for banner ads will generate a small

amount of revenue. Advertisers can also place ads at the onset of the podcast, before the

Introduction. Such an ad could take the form of, “this podcast is brought to you by . . .”

Cost Drivers

The initial capital investment will include a Microphone (Studio Projects B) and Mixer

(small Berringher). Both were recommended for quality recording by Escape Artists. A high

quality digital recorder (The Zoom H2) was also recommended for recording while away from

the computer, but in order to pursue our low cost strategy, this extraneous cost was eliminated.

Fiction: The main recurring cost will be paying authors for fiction, which will be

purchased at Clarkesworld’s suggested reprint rate of $0.01 a word. This rate may be increased

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over time to attract higher quality fiction. If revenue decreases, this variable cost can be

decreased by purchasing fewer stories and substituting works from the public domain. Several

Historical Fiction short stories are available through the free e-book service gutenberg.org. One

example, The Adventures of Sherlock Holmes, would be a popular choice as Crime and Mystery

were highly-rated genres in our survey.

Art: Although Clarkesworld recommended providing new art each month in order to

make our website look professional in order to pursue a low cost strategy this extraneous cost

was eliminated. Listeners to the podcast may donate art inspired by a story as they do for several

current podcasts including The Dunesteef Audio Fiction Magazine.

Narration: Will be performed by volunteers. Respondents to our survey interested in

Historical Fiction may serve as narrators. Given our close relationship with UTSA we may

recruit drama students, members of UTSA’s Toastmasters, and other students.

Hosting: The technical aspects of the venture are fairly straightforward and will not

impose a large financial burden. Domain name registration is easy to obtain through many

reputable companies at the average cost of $100 per year. Website hosting comes with varying

levels of service, with higher cost alternatives providing amenities such as site design and

forums. The most basic hosting options cost as little as $10 per month. We estimate that hosting

will cost $15 per month due to the increased bandwidth required for visitors to the site to

download e-books and audio files. This cost will scale incrementally as the size of the audience

grows.

Website design will be performed in-house and will not incur additional costs; basic sites

can be built with software available for free. Maintenance and updates can also be done without

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hiring outside parties. In the future, if more advanced features are desired, we may incur non-

recurring costs to hire professional site designers or programmers. Fees for these services

typically run from $50 to $200 per hour.

Data storage costs may be an issue in the long-term, but initially, site hosting fees will

pay for several gigabytes of space. An e-book with few images is small, from fifty to a few

hundred kilobytes. The audio versions of the stories will be small due to the compressed nature

of an mp3; a 30 minute recording would only use 35-40 megabytes. Apple allows publishers and

subscribers to access iTunes for no cost; they simply provide a directory of available podcasts

which link to the publisher’s website.

Additional costs: May include purchasing fiction, advertising costs, and licensing fees.

In our cost estimations we assumed each story would be 4000 words. We arrived at this

approximation by reviewing the time of podcasts and length of stories from the podcasts given in

Exhibit 2. Given that our short stories will be under 40 minutes, this is a good estimate, but

some stories may be longer and require additional money to purchase. We plan to advertise in

other podcasts and post banner ads on their websites. While it is possible that we could offer

reciprocal advertising on our website and podcast we may need to purchase these ads. Finally, it

may cost additional money to license the e-book version of the stories distributed through

Weightless Books.

Investment Size

We will raise the money needed to start the business through Kickstarter, an online

funding platform for creative projects such as podcasts. Since its launch in 2009, more than 2.5

million people have pledged over $350 million, and funded more than 30,000 creative projects.

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Kickstarter allows potential donors to search the site for projects being launched in their city;

residents of San Antonio will be able to learn about our business and meet us in person to learn

more about it. Because Kickstarter requires all or nothing funding—a project is not funded

unless it receives all the funding requested—we will ask for $1000. Several recently funded

podcasts have requested this amount or greater funding. This will not fund the entire first year

but will allow us to purchase equipment and pay authors for half of the first year. The initial

funding will be considered part of the donation source of revenue for the first year and is less

than our projected value for donations. The initial investment will provide the business with

sufficient time to build the reputation needed to sell subscriptions.

Critical Success factors

The most important factor to our success is building a customer base. This means

informing people interested in short stories, podcasts, and the historical fiction genre.

Advertising on extant short story podcasts will inform prospective customers. However, as our

survey shows, this tactic will only target a small percentage of the population. If funds are

available we will advertise on other podcasts. For example, we may advertise on Stuff You

Missed in History Class, a popular history podcast presented by HowStuffWorks.com. This

podcast is not a direct competitor and would therefore accept our ads. Both podcasts would

benefit by informing history buffs about podcasts tailored to their interests. A second factor to

our success is inducing customers to purchase content, instead of merely taking the free content.

Every month visitors to the website can view the title and summary of the stories available for

purchase. It will be crucial to create a compelling summary to entice visitors to purchase the

story. A third factor to our success is switching purchasers of single issues to subscribers. While

Weightless Books takes 50% of the revenue from single-issue purchases, it only takes 25% of the

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revenue from subscriptions. We may offer incentives for switching, which will likely come in

the form of low cost tokens of appreciation. For example, subscribers may receive a free Best of

the Year Anthology after their first year. Given its low upfront costs and success of other

podcasts, this business concept has the potential to overcome these challenges and be translated

into a viable, profitable business venture.

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Total Short Story Podcasts 10
Speculative Fiction (Fantasy, Horror, Science Fiction) 6
Literature 2
Crime 1
For Kids 1
Exhibit 1: Top 50 iTunes Literature podcasts. The “What’s Hot” tab for the Literature section of
podcasts was accessed on iTunes on 12/7/12. Of the top 50 podcasts, 10 offered short stories and
the majority of those were in the speculative fiction genre, presenting Fantasy, Horror, Science
Fiction, or a combination of those genres. The other 40 podcasts were a combination of novels,
book reviews, and discussions on writing.

Podcast Rate Donations/
month
Clarkesworld 10¢ per word up to 4000 words, 5¢ per Unavailable
word after
Lightspeed Magazine 5¢/word Unavailable
Escape Artists (Escape Pod, 5¢ per word for new works or 3¢ per $3,000
Psuedopod, and Podcastle) word for reprints
The Dunesteef Audio Fiction 1/2¢ per word with a maximum payment $50
Magazine of $10
Variant Frequencies N/A N/A
Exhibit 2: Model Podcasts. Our business was based on elements from these podcasts. We
communicated with all of them except Lightspeed Magazine. Our low cost model is similar to
The Dunesteef Audio Fiction Magazine. The concept of fiction available for free and for
purchase was taken from Lightspeed Magazine. Clarkesworld gave us the idea of subscriptions
via Weightless Books. We based our projected donations on Escape Artists. Variant
Frequencies is dissimilar from the other podcasts as it was started in an effort to promote several
authors and was discontinued after they were published. Using podcasts to promote writers is a
popular practice, and allowed Mur Lafferty of Escape Artists to achieve publication.

Exhibit 3: Survey version 1. This survey was distributed to the MS 3043 class.

I need your help with the final project for my Capstone. I am identifying a business opportunity
for a startup. The startup will provide free short fiction available in print or audio format. Both
forms of the stories will be available on the startup’s website and the audio version will be
available as a podcast through iTunes. Your input will determine the specific stories this startup
will offer.

1. Do you own a mobile device for listening to downloaded recordings (e.g. iPod)?

Yes/No

2. Which of the following do you listen to? (Select all that apply)
A. Short stories

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B. Books
C. Non-literary recordings (e.g. NPR’s This American Life or ESPN Radio: The Best of
Mike and Mike)
D. None of the above
E. Other, please explain: _____________________

If you selected D end the survey NOW.

3. What is the primary method by which you access your recordings?
A. iTunes
B. Website (provide name) ___________________
C. Other, please explain: _____________________

4. Of those that you did NOT select for #2 which would you consider listening to in the
future?
A. Short stories
B. Books
C. Non-literary recordings (e.g. NPR’s This American Life or ESPN Radio)

If you did not select A for either #2 or #4 end the survey NOW.

5. What length of short story are you most interested in?
A. Flash: under 20 minutes
B. Shorter short story: 20-40 minutes
C. Longer short story: 40-60 minutes
D. Giant: Over 60 minutes

6. What short story genre s are you most interested in? Pick your top 3. You may leave any
or all spots blank.
1. __
2. __
3. __
A. Adventure
B. Comedy
C. Crime
D. Fantasy
E. Historical
F. Horror
G. Literature
H. Mystery
I. Political

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J. Romance
K. Science Fiction
L. Other: ______________________

7. Would you like a brief (2-3 minutes) introduction at the beginning of each story that tells
about the author, his/her background and other works?
A. Sure, sounds interesting
B. Na, get to the story already
8. What is your gender?

Male/Female

9. What is your age?
__

Exhibit 4: Figure 2: Survey version 2. This survey was distributed to the STA 3133 class.
Questions about gender and age were moved to the beginning of the survey to understand the
demongraphics of all respondents and not just potential targets. Some questions were rephrased
to make them clearer and instructions to end the survey prematurely were omitted. If
respondents showed that they were not targets by their early responses to questions, any
additional responses were ignored.

I need your help with the final project for my Capstone. I am identifying a business opportunity
for a startup. The startup will provide free short fiction available in print or audio format. Both
forms of the stories will be available on the starup’s website and the audio version will be
available as a podcast through iTunes. Your input will determine the specific stories this startup
will offer.

1. What is your gender?
a. Male
b. Female
2. What is your age?
___
3. Do you own a mobile device for listening to downloaded recordings (e.g. iPod)?
Yes/No

4. Which of the following do you listen to? (Select all that apply)
A. Short stories
B. Books
C. Non-literary recordings (e.g. NPR’s This American Life or ESPN Radio: The Best of
Mike and Mike)
E. Other, please explain: _____________________

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5. What is the primary method by which you access your recordings?
A. iTunes
B. Website (provide name) ___________________
C. Other, please explain: _____________________

6. Which of the following would you consider listening to in the future? (Select all that
apply)
A. Short stories
B. Books
C. Non-literary recordings (e.g. NPR’s This American Life or ESPN Radio)

7. What length of short story are you most interested in?
A. Flash: under 20 minutes
B. Shorter short story: 20-40 minutes
C. Longer short story: 40-60 minutes
D. Giant: Over 60 minutes

8. What short story genre s are you most interested in? Pick your top 3. You may leave any
or all spots blank.
1. __
2. __
3. __
A. Adventure
B. Comedy
C. Crime
D. Fantasy
E. Historical
F. Horror
G. Literature
H. Mystery
I. Political
J. Romance
K. Science Fiction
L. Other: ______________________

9. Would you like a brief (2-3 minutes) introduction at the beginning of each story that tells
about the author, his/her background and other works?

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A. Sure, sounds interesting
B. Na, get to the story already

Frequency Percent
No 16 11.9
Yes 119 88.1
Total 135 100.0
Exhibit 5: Mobile device ownership. Results from both surveys were combined for all data
analysis. The majority of respondents owned mobile device for listening to downloaded
recordings.

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Exhibit 6: Method of accessing recordings. The approximate division of access was iTunes
62%, iTunes and Website 5%, iTunes and Other 3%, Website 20%, and Other 11%. The
majority of people who put Other indicated they obtained access through Apps, which are related
to iTunes. Given that the most popular form of access is iTunes, establishing our presence on the
service will be crucial.

Frequency Percent
Short stories 3 2.2

Short stories and books 3 2.2

Short stories and non-literary recordings 1 .7

Short stories, books, and other 1 .7

All of the above 1 .7

Subtotal 1 9 6.7
Books 14 10.4
Books and non-literary reordings 6 4.4

Books and other 1 .7

Non-literary recordings 32 23.7

Non-literary recordings and other 1 .7

Subtotal 2 54 40.0
D. None of the above 61 45.2

E. Other 11 8.1
Subtotal 3 72 53.3
Total 135 100.0

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Exhibit 7: What they are currently listening to. Although only 6.7% of respondents are current
short story listeners, 40% listen to a close substitute, such as books or non-literary recordings.
Those respondents who selected Other primarily wrote Music as their alternative. Given that
Only 8.1% selected Other, respondents did not generally consider music a substitute for short
story podcasts.

Currently listen 7%
Would consider listening in the future 15%
Not interested or non-responsive 79%
Exhibit 8: Future listeners. 15% of respondents indicated that they would consider listening to
short stories in the future.

Genre #1 #2 #3 Unranked Total
Comedy 3 3 1 3 10
Historical 3 2 1 3 9
Crime 1 3 1 1 6
Mystery 2 1 3 6
Fantasy 2 1 1 4
Horror 2 2 4
Adventure 3 1 4
Political 1 2 1 4
Romance 1 2 1 4
Literature 1 1 1 3
Science 1 1
Fiction 2
Exhibit 9: Several individuals did not follow survey instructions and rather than rank their top
three choices, merely circled three choices. In order to count this data, the total number of times
each genre was selected was calculated by combining respondents who ranked their choices with
those who did not. Combining the two different types of respondents is valid since those genres
that were highly ranked by respondents, were also frequently chosen by respondents who did not
rank their choices. For example, Comedy and Historical both received three #1 rankings and
three unranked selections, the maximum for both categories.

under 20 min 42%
20-40 min 33%
40-60 min 21%
>60 min 4%
Exhibit 10: Length of story. Respondents were mostly interested in stories under 40 minutes.

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Exhibit 11: Introduction. Respondents were evenly divided on whether they wanted a
introduction before the story which told about the author. 12 said no and 10 said yes.

Exhibit 12: Age and Gender. In the STA 3133 class, which took the 2nd version of the survey
and in which all respondents gave their sex and age, there were 9 males, and 11 females. All 6
respondents who indicated they either currently listen to short stories or will in the future were
female. This alone does not indicate that the target audience is female, due to the small sample
size. Combining both classes saw the sexes evenly split, with 18 males and 18 females
expressing an interest in audio short fiction. This seems to indicate that sex in not a factor in the
target market, but is inconclusive due to the unavailability of gender data for the MS 3043 class.
Average age of interested respondents in STA 3133 was approximately 29, while the average age
of the class was 27, and the average age of all interested respondents from both classes was 27.
Age does not appear to be a factor in the target market, though more analysis may need to be

Appendix 8

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conducted to include a more diverse range of ages. At this time advertising will not target a
select age or gender.

Year 0
Costs
Microphone (Studio Projects B) 100
Mixer (small Berringher) 100
High quality digital recorder (The Zoom H2) 250
Total 200

Year 1
Costs
Art 1200
Fiction 1920
Narration 0
Hosting 280
Payment Processing 23
Total 2223

Revenues
Donations 1200
Banner Advertising 180
Podcast Advertising 0
E-book subscription on Weightless Books and
website 1043
Single issue sales on Weightless Books and
website 0
Total 2423
Operating Profit 200
Profit less Year 0 costs (Break Even) 0
Exhibit 13: Pro Forma Income Statement. All data are in US $. Year 0: The venture requires an
initial capital outlay of $200 based on equipment recommended by Escape Artists for quality
recording. A digital recorder for recording narration while away from the laptop was omitted
due to our low cost strategy. Year 1 Costs: Although recommended by Clarkesworld, to make
the website look more professional, art was omitted due to the low cost strategy. We will pay 1¢
per word (the rate recommended by Clarkesworld) for fiction and produce 4 stories per month,
with an average story length of 4000 words. Narration will be performed by volunteers. Hosting
will be $100 per year for domain name registration and $15 per month for hosting. Payment
processing on the website will be done through PayPal and be 1.9% of our revenue through
donations and E-book sales on the website. Year 1 Revenues: Donations assumes $100 per

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month, a third the amount of Escape Artists, since they produce three podcasts and we will only
produce one. They claim the rate of donations remained flat since their inception. The $1200
includes the $1000 raised through Kickstarter at the onset of the venture. Banner Adverting
assumes 100 page views per month, with an average of 5 ad views each and a rate of $15 CPM
(rate used by Escape Artists). Revenue from podcast advertising and single issue sales of E-
books was assumed to be 0 as the demand for each is uncertain. Using break even analysis we
determined that five subscriptions must be purchased through Weightless Books and five through
the website each month in order to break even.

Time (hours)

Slush Reading 3

Recording and Editing 1

Website Maintenance 3

Ebook creation 3

Total 10

Exhibit 14: Weekly labor hours. The business will require a total of 10 hours per week.
Initially, twenty hours will be required for website creation and twenty hours for spreading the
word to other podcasts, creating social media, and Kickstarter setup.

Appendix 10

Startup venture analysis

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