The Main Monetization Models Available to OTT Companies
The media consumption pattern has undergone a dramatic evolution over the previous decade. OTT, short for ‘Over The Top’ streaming services allow the user to stream video content over the internet, without the requirement for cable or satellite subscriptions.
OTT platforms such as Netflix, HULU, Amazon Prime have become household today. Netflix alone has over 150 mn subscribers worldwide. It is estimated that in the US, OTT users spent 17.5 hours with these services every week in 2019. OTT delivers seamless possibilities to viewers who can watch it from anywhere and at any time.
The rise of supporting technologies in 5G, CDNs, mobile capabilities have provided a massive push to the OTT service providers and have heralded an unprecedented level of success and popularity.
Today, OTT has become a dominant channel for video consumption alongside PayTV & traditional broadcast services. With a 28% Year-on-Year growth in total time spent streaming on OTT, the media revenue is expected to reach 158.84 billion dollars by 2024, more than double the 67.8 bn generated in 2018 ( source: Statista).
The battle is on, and it is growing even more fierce among the service providers to capture maximum subscriber wallet share and viewing time. OTT players are adopting and innovating with strategies to become the choice for their customers by
- Going more and more niche – By targeting a well-defined audience with hyper-targeted content, OTT service providers can build more brand loyalty, reduce churn and customer acquisition costs, thereby increasing their wallet share and Return On Investments
- Original content – OTT providers are investing more into original content, by either setting up their own production houses, by tying with other producers or by purchasing rights agreements with studios.
Main Revenue Models that are available to OTT companies
- AVOD – AVOD stands for Advertising Video on Demand. In this model, streaming video is delivered as a free service for end consumers. A prominent example of this service is YouTube. We are all familiar with how YouTube works. Here, we are asked to create an account for personalized video experience. But, we are not charged for accessing the video content library. So, can you guess how does YouTube make money? Yes, you are right! It is advertisement! Advertisements are the economic engine for businesses that operate under the AVOD model. Such ads are placed at the beginning, middle and end of the video.
Advantages of AVOD:– AVOD offers a powerful advantage for businesses because of its free nature. Customer acquisition costs are low compared to other models. Users can quickly sign up for the service, often by just logging in with their Google or Social media accounts. The advertisements, often are sufficient by themselves, to cover up for the production and hosting charges. Advertisers can utilize valuable consumer demographic, geographic, psychographic and behavioral data points. Advertisers will be able to serve highly personalized and targeted advertisements to their target audience. AVOD can also be bundled with the offer for the consumer to upgrade their services by paying a monthly, quarterly or annual subscription amount.
Disadvantages of AVOD:– Advertisements can be highly interruptive to the viewer’s experience. If not well managed, it will irritate the consumers. Hence, they need to be served well, and they require businesses to come up with a complex and multitudinous revenue model.
Examples – YouTube, Yahoo Screen, AOL On, FilmOnX
- TVOD – TVOD model is quite straight forward. Standing for Transactional Video on Demand, in TVOD, businesses charge users for every single watch, every single time. It is also known by other names such as PPV (Pay Per View) or PPD (Pay Per Download).
Advantages of TVOD – The Unique Selling Proposition of the TVOD model is immediacy. Consumers can access, by renting or buying, movie and TV series much sooner after their general release on a TV broadcast.
Disadvantages of TVOD – TVOD models have failed to capture the market and consumer confidence like other revenue models have. With SVOD ( short for, subscription video on demand which we shall cover next) providers rising in colossal popularity, they are actively working to close release windows and to sign exclusive content deals. Stiff competition is stifling the growth of TVOD models. A survey by Mediabug in 2014 of UK online consumers reported that 21% of them had ever purchased a TV show or movie online.
Examples – iTunes, Amazon Instant Go, VUDU, CinemaNow
- SVOD – Short for subscription video on demand, SVOD models are the clear favorites among consumers. SVOD offers its users access to an entire library of video content by simply signing up for a subscription (monthly/ quarterly, annual). It is estimated that 3 in 4 US households have an SVOD service. And, the number of households with more than 1 SVOD subscription is rising. Netflix is the leader of the pack, with Amazon Prime and HULU among other top OTT services. Together with YouTube, these three services account for 79% of the total time spent viewing OTT in the US.
Advantages of SVOD – The popularity of SVOD services is on an ever-upward trajectory. More than 64% of adults in the US report using SVOD services monthly. And outside of the US, the subscriber base and popularity is increasing. They take up huge chunks of bandwidth, and they are sinking physical media and broadcast TV businesses. Industry research shows that SVOD delivers higher revenue per user. The ability to choose different tiers of subscription in SVOD is also very enticing for customers.
Disadvantages of SVOD – Well, not exactly a disadvantage, but a weakness is that their pricing tends to be inflexible. With the increasing cost of content creation, this creates pressure on the profit margins for SVOD businesses.
Examples – Netflix, Amazon Prime, HULU, Curiosity Stream, HBO Now
- Hybrid Model – Hybrid models combine the best of worlds by bundling the services in different ways. An example of how that might work out is when the user signs up, he is provided with a library of content. The user can also choose to opt-in for a paid pack to excess certain exclusive content. This paid pack can be either in the Subscription or the Pay-Per-View model.
Example – Hotstar
- Multi-Screen Model – Multi-screen models allow OTT providers the option to their customers to subscribe to a service which enables them to access streaming content on multiple devices so that they can watch anytime, anywhere.
How to choose the monetization model that’s best for your OTT platform?
Primarily, three factors should determine the model that you should choose for your business
- The Content Offered
- The Target Group
- Your Business Strategy
If you have a powerful content library with a well-laid roadmap for adding more shows shortly, then SVOD is a compelling model with a high customer lifetime and low recurring cost. However, SVOD providers need to keep up with their customer demand who may overgrow the content if not updated frequently. However, for content with short relevance, such as Sports Tournaments, TVOD will be an excellent option to monetize during the short window of opportunity, by offering consumers pure Value-for-Money experience.
AVOD models offer the lowest customer acquisition costs, while also the potential to earn significant revenue from advertisements. Going hybrid can be the best solution, however, by combining the best of all worlds. Content is king, and a solid content strategy will lay the essential groundwork for any model that you choose.