Content creation is often regarded as a marketing overhead. But treating content as an asset, and calculating its value, realises several important benefits. This post outlines one way to do it.

Expenses and assets defined

Let’s start with the distinction between expenses and assets. An expense is a cost incurred in the process of generating revenue (sales), while an asset is something owned and controlled by the business that delivers ongoing value.

Suppose you start a lawnmowing business. You buy a lawnmower that you’ll use for several years. It’s an asset, and as such will be recorded in your balance sheet.

You then employ someone to mow lawns for you. In this case, you spend money on their wages, but you don’t obtain or create an asset in the process; you just get something done. So your employee’s wages are an expense.

Intangible assets defined

As well as physical objects like lawnmowers, a business can also own intangible assets like intellectual property, patents, trademarks, brand equity and goodwill.

Intangibles are hard to value because they’re unique, can’t be freely traded and may only have value to the firm that created them. For this reason, they don’t appear on the balance sheet. However, they can be a significant part of the true value of a firm, or a key source of competitive advantage. For a drug discovery firm, intellectual property is likely to be the most significant asset; the most valuable asset of ABC Copywriting (whether tangible or intangible) is the content of this site.

That’s why there is often a discrepancy between a firm’s book value (the market value of all the assets on its balance sheet) and the price that another company will pay to buy it (or its market capitalisation, if it’s a listed company). A business is much more than all the physical stuff it owns. And as the economy becomes more knowledge-based, intangible assets become ever more important.

Is content an expense or an asset?

IFRS, the international accounting standard, defines an asset as:

a resource controlled by the enterprise as a result of past events and from which future economic benefits are expected to flow to the enterprise

Is content ‘controlled by the enterprise as a result of past events’? Yes, because it will either have been written in-house, or produced under contract, and is now owned by the firm. The ‘past event’ is content creation, and the ‘control’ stems from direct ownership. This part of the definition is pretty clear.

What about ‘future economic benefits’? As the word ‘future’ implies, timespan is critical. Some types of content – such as an ad campaign for a one-0ff sales promotion – are relatively ephemeral. They are ‘one-shot’ communications with short lifespans, after which they have little value. So they would probably be classed as expenses: costs incurred in the process of generating sales.

However, other types of content can be much more valuable over the long term – white papers, for example. These types of content have a much stronger claim to be assets.

Suppose your business publishes an online ‘how-to’ guide on lawnmower maintenance. Your guide has lasting relevance and, with minor updates, can stay online indefinitely. It proves popular, is shared widely and soon ranks highly for popular search terms like ‘how to mend a lawnmower’. As a result, it attracts web traffic and builds trust in your brand, giving you an edge over competitors. If some of that traffic or goodwill converts to sales, you are realising ongoing economic benefit from a resource that you control – in other words, your content is an asset rather than an expense.

Implications of seeing content as an asset

Regarding content as an asset isn’t just a semantic or accounting point. It has important implications for the way content creation is regarded and managed. Here are some of the key implications of recognising content as an asset.

• Content creation adds value. Content development isn’t just an expense: it creates real assets that add enduring value to a business. This point can help to make the case for investing in content, particularly during phases of cost-cutting.
• Content can add tangible value. While content is an intangible asset, it can add tangible value to the business. This distinguishes content generation from pure brand-building exercises.
• Content needs maintenance. As a valuable asset, content needs to be kept in good condition – by updating it or adding to it, for example. Failure to do so reduces the value of the asset: in accounting terms, it depreciates.
• Content needs to be used effectively. Like any other asset, content needs to be used efficiently, not dissipated or wasted. Failing to get the best from your content is like leaving the windows open when the heating is on. In accountants’ language, the more efficiently you use your content, the better your asset turnover or return on assets.
• Content can’t be exhausted. Unlike a physical asset like petrol, content is an intangible that can’t be ‘used up’. You can use it over and over again, and even in different ways at the same time – and the more you use it, the more value it delivers. For example, content can be repurposed and repackaged into other formats, published in multiple media, split into modules or combined with other content.

Why value content assets?

As an intangible asset, content can’t be valued in the same way as capital assets, and therefore won’t appear on the balance sheet. However, that doesn’t mean that you can’t work out its value, or that the effort to value it is not worthwhile.

Not all content is equally valuable. If your content brings you more value than it cost to create, it is value-adding. But if it doesn’t ‘pay for itself’, it is value-negative. And even if all your content adds value, some items or types of content may add more value than others. Valuing content assets gives you a clearer picture of the value added by content.

Creating a content asset register

The balance sheet of a firm has two dimensions: it lists the firm’s assets, and it gives a value for each one. To be useful, it must be accurate in both dimensions: by exhaustively listing all relevant assets, and by valuing each one accurately. So the first step in valuing your content is knowing what you have.

To get a clear picture of your content assets, you can carry out a content audit, and record the results in a content asset register. To do this, work through each piece of content you own and record data such as:

• Title, subject, author
• Date created, date last modified
• Versions or editions produced
• Extent (in words, pages etc)
• Places(s) where the content has been used or published
• Filename and/or storage location
• Person responsible

The specific fields required will differ from business to business, but the basic concept is clear. The information can be entered in a simple spreadsheet.

Determining the value of content

Having itemised your content, you now move on to the more difficult phase: valuing it.

To an accountant, the economic value (EV) of an asset is the increase in cash flow or profit that results from using that asset. The value added by the asset is then calculated as the difference between its EV and its cost:

Value added = EV – Cost

Let’s do the simple bit first. The cost of content will be either a fee paid to a third party to write it, or an internal cost for someone in the business to write it. To account for their own time spent producing content, freelances and sole traders might use opportunity cost: the money they would have earned if they’d spent the same time working for a client rather than writing.

Calculating EV means working out the contribution to revenue made by each individual piece of content. Sometimes this is simple – for example, if you sell an ebook online, it’s easy to calculate how much revenue that content asset has brought in:

EV of ebook = Copies sold x Cover price

In other cases, it may be more difficult to gauge the EV of content accurately. You need to use the data available to build a measure of EV that is as accurate as possible, while still being relatively easy to calculate. It’s better to get a rough-and-ready sense of value than adopt a measure that depends on data that’s too difficult to obtain.

For pages of web content on an ecommerce site, you could calculate the EV as the total revenue through the site divided by the number of pages in it:

EV of web page = Website revenue / Number of pages

This provides a very clear perspective on the benefits of expanding your ecommerce site. If you add pages and website revenue increases, the value of each page also increases (or at least stays the same), and the total value of your content increases too. But if you add pages and website revenue goes down, the value of your content has decreased.

Determining the lifetime value of content

Since content can deliver value over many years, you’ll probably want to calculate its whole-life EV. If you don’t, you won’t get a clear picture. For example, you might pay £1000 to have a white paper written that only delivers a few leads in its first year online, but could become more popular later, delivering more benefit. If you front-load the cost on to the white paper’s first year, it will look like a poor investment.

You can calculate lifetime value by adding together the value delivered by the content in each period, for example:

Lifetime EV = Year 1 EV + Year 2 EV + …

To make things simpler, you could simply multiply a value for one period by the number of periods in use, for example:

Lifetime EV = One-year EV x Number of years in use

An alternative to calculating lifetime value would be to gradually write off the initial cost of a piece of content over the course of its useful life, by setting a proportion of that cost against EV each year. This is what accountants call amortisation.

Using proxy measures to estimate content value

Valuing content depends on establishing a link between content and revenue. The clearer the link, the easier it is to value your content accurately. For some types of content, such as white papers, you may have to estimate the EV, or base it on a proxy measure such the number of views or downloads. For example:

EV of white paper = (Downloads / 100) x Average lifetime client value

This formula assumes that one in 100 people who download the white paper go on to become clients, based on the assessment of those involved. It then calculates EV by multiplying the number of new clients resulting from the white paper by the average lifetime value that each client of the business delivers.

Initially, value estimates like these may be partly or even completely subjective. Over time, though, they can be revised and made more accurate in the light of experience.

Using savings and deprival value to estimate content value

It’s important to take cost savings into account too. For example, if you produced a set of online how-to guides that reduced the workload on customer services staff, you could use the resulting savings in your value calculations, since they directly affect cash flow and profit.

EV of each how-to guide = Total cost savings / Number of guides

Another useful perspective is the idea of deprival value. This is about asking what you’d do if you lost the asset, or didn’t have it. What would you do, for example, if you lost all the product descriptions on your ecommerce website? And what would it cost to replace them? The answers to questions like these can provide useful insights into the true business value of content.

Using content valuations for management decisions

Once you’ve calculated the value of all your content assets, you can enter them into your content asset register. The result is a ‘balance sheet’ that shows all your content assets and their respective values, which has real value as a management and decision-making tool. For example:

• You can calculate the total value of your content assets and how much value they’ve delivered.
• By creating iterative versions of your content asset register, you can see how your content assets change over time, and whether their total value is increasing or decreasing.
• You can see the return on your investments in content at three levels: overall, for different content types and for individual pieces of content.
• You can see which types of content are most valuable, which could help you decide where to invest in the future.
• You can look ahead and get a sense of what value your content might deliver in the future, possibly basing your estimates on past trends in web traffic, visitor numbers and so on. Again, this helps you decide what is worth investing in.
• You can build your calculations into your suggested valuation of the business, should you decide to sell it.
• You can make a stronger case for investing in content – one that’s based on the best evidence available rather than anecdote, gut feeling or opinion.

It’s important to remember that your value calculations may rest on estimates or subjective evaluations. But this approach is still far better than regarding content as nothing more than a cost. To understand its the true value, we have to treat content as an asset.

• Some of the ideas in this post are adapted from the paper Valuing Information as an Asset by Chris Higson and Dave Waltho.

Tags: asset turnover, asset valuation, assets, content, deprival value, ecommerce, economic value, expenses, IFRS, intangible assets, proxy measure, return on assets, return on investment, ROI, value added, valuing content as an asset, white papers