Media consumption has taken on a dramatic evolution within the last decade. Currently, OTT streaming solutions seem to be at the forefront of media innovations. It is one of the most significant global media opportunities for delivering the Power of TV paired with scalability and agility across the global internet.
At its core, ‘Over the Top’ streaming services enable users to stream video content through the internet without satellite or cable subscriptions. Content creators and media brands can expand existing content to new audiences and heighten audience engagement through innovative video experiences.
Today, OTT platforms like HULU, Amazon Prime, and Netflix are taking the frontiers. OTT’s power lies in the seamless possibilities, accessibility, affordability, and convenience that it offers to users.
The rise of supporting technologies such as CDNs, mobile capabilities, 5G alongside the COVID-19 pandemic is further increasing the use of OTT platforms.
OTT Revenue Models in 2021
However, the success of any OTT business relies on the kind of revenue model it follows.
Whether you choose OTT or video-on-demand, the right video monetization model will ensure that you can dominate your market and maximize revenue on investment.
Global projections state that the market may hit $333.52 billion by 2025, growing at a CAGR of 16.7%. Therefore, OTT streaming solutions offer remarkable ways to drive up revenue. However, you must choose the right strategy suitable for your business.
To find the right business revenue model, you must first understand the benefits and drawbacks of each revenue model available for OTT streaming solutions.).
Considering the figures, OTT is a lucrative industry to make a fair amount of revenue as long as you choose the right monetization strategies.
1. Advertising Video on Demand (AVOD)
As the name suggests, AVOD relies on providing a free service to end consumers while driving revenue through adverts. This is the traditional YouTube strategy. So, while end-users will not be charged for accessing the video content library, advertisers will pay to reach these users. Under AVOD, you may choose to run ads at the beginning (pre-roll), in between video plays (mid-roll), or end of the video (post-rolls)
Depending on your settings, these ads can be fully-, partially- or non-skippable. The pricing on ads usually depends on your platform’s popularity, number of users, user engagement, and content type.
Advantages of AVOD
- AVOD is a powerful monetization strategy because of its free nature
- It allows content creators to acquire customers quickly and at a lower cost for the lure of a free service.
- Advertisements usually cover the production and hosting charges. This gives the content creator the leverage to create high-quality content while keeping their costs of operations low.
- AVOD also enables advertisers to reach highly customized and targeted demographic, psychographic, geographic, and behavioral points for higher impacts
Disadvantage of AVOD
Adverts significantly impact the user experience. If not managed effectively, it might hurt rather than help that channel. Nevertheless, to effectively serve customers, they require that businesses build complex and multitudinous revenue models. Content creators also need a high user base and impressive number of views and engagement for their AVOD strategies to drive revenue.
When is AVOD suitable?
AVOD OTT platforms are excellent for generic content, how-to, and comedy videos. This content type attracts huge viewership, especially the younger audience that is less likely to subscribe to regular entertainment content. AVOD will also require choosing the right ad network to maximize revenue benefits.
2. Subscription Video on Demand (SVOD)
SVOD models are favorites for average consumers. It is a strategy used by many prominent OTT businesses such as Amazon Prime and Netflix. In this case, viewers can enjoy unlimited subscription content (quarterly, monthly, or annual).
Advantages of SVOD
- Estimates suggest 3 in 4 US households use at least one SVOD service. Further research shows that the SVOD subscription base increases every year as it’s highly enticing to customers. In reality, SVOD OTT streaming solutions are growing so popular that they are sinking physical media and broadcast TV companies.
- SVOD is also associated with high revenue. Because consumers can pay an affordable fee to access the entire content library, many prefer these platforms.
- They also offer higher convenience than satellite TV packages as consumers can watch whatever they like at any time.
Disadvantages of SVOD
- SVOD requires placing an inflexible price on all content. Also, the cost of content creation and hosting may put undue pressure on SVOD businesses to increase their pricing to enable higher profit margins.
Where is SVOD most suitable?
Subscription monetization allows a wide variety of content from movies, TV shows, originals, etc. It is primarily the right choice for businesses focusing on entertainment, health, fitness, eLearning, and other content with long-term value. SVOD OTT streaming solutions will also require additional resources to position your platform in the right target audience. It also requires adopting the best security and encryption integrations to meet user’s needs.
3. Transactional video on demand (TVOD)
TVOD platforms are pay-as-you-view systems. In this case, users pay for the content they wish to access, either every single time or every single watch. Depending on the channel, it may also be called pay per download (PPD). Google Movies, Youtube Movies, and iTunes are popular TVOD streaming platforms. The model usually involves Download-to-own (DTO) or Electronic sell-through (EST) systems. Another option is renting videos for particular periods.
Advantages of TVOD
The most attractive reason why TVOD is a great choice is immediacy. Consumers can quickly access their desired content by renting or buying even sooner than after the general release of specific media content.
Disadvantages of TVOD
Consumer confidence is a huge problem to overcome for TVOD models. The lack of choice and stiff competition are also areas to overcome. Furthermore, a UK survey showed that only 21% of consumers ever purchased a movie or TV show online.
When is TVOD suitable?
Most brands do not use TVOD as a sole business model. They usually combine it with other seasonal strategies to offer holistic OTT streaming solutions to their users. Usually, they work with exclusive content deals and close release windows to drive customers to purchase them. TVOD is also best for live streaming in the entertainment and sports niche. It is also beneficial where combining different monetization strategies is advantageous.
4. Hybrid Video on Demand
A hybrid model usually combines AVOD, SVOD, and TVOD revenue models in one. In the highly competitive OTT landscape, this might be the best option to offer the best worlds. Usually, one of these revenue models is selected as primary, and the others are used for exclusive deals. Youtube is a prime example. Users can quickly signup to access free content powered by ads. They can further pay for subscriptions or leverage the pay-per-view model to access premium contents.
When is Hybrid Video on Demand Suitable?
Hybrid models allow the combination of the best of worlds. It is also highly beneficial when you have a diverse audience base and a vast library of content. Therefore, by leveraging the different monetization models, you can meet the needs of various users.
It is vital to know that there is no best one-size-fits-all revenue model. Your business must consider your content offering, target group, and core business strategy to leverage the right OTT streaming solution. Finally, although hybrid models may seem like the best option, it is still vital to refine your monetization strategy. That way, you can maximize revenue potentials and meet your core goals.
Not sure on the right OTT monetization model? Get in touch with the experts to choose the right OTT revenue model suitable for your VOD business.