The greatest secret of a successful video streaming business lies in its business model. A company’s revenue model is the way it makes money. When choosing a revenue model, most businesses wait until the very end of development and simply look at what industry leaders are doing, altering it slightly. But when considered carefully the revenue model can be a very powerful tool and it is highly important to shape it according to your business needs. If you want to create your own Netflix, you must choose the revenue strategy that compliments your streaming business.
Netflix’s annual revenue in 2018 has hit $15.8 billion continuing to secure the impressive figures Netflix enjoyed over the last decade. By the last quarter of 2019, Netflix generated total revenue of $5.2 billion which is over $1 billion up from what it earned in the corresponding quarter of 2018.
If you are looking to find out how to start a video on demand website, we will be briefing it in this blog. The business model of Netflix, popular revenue models to follow, costs involved in creating your own Netflix also comes under the scope of this blog. Let’s get started.
Netflix Business Model
What Netflix succeeds at is known as video on demand, by allowing users to access content like TV shows, movies, and other series instantly through Internet-connected devices like PC, laptop, tablets, smartphones, over the top box connected TV, Internet-connected TV, etc.
This video streaming on demand giant operates on a subscription-based revenue model where users pay for a monthly, quarterly, or yearly subscription plan and gain access to streaming movies, shows, originals and other content available on Netflix in the Standard Definition (SD), High Definition (HD) and Ultra HD quality based on what they pay for.
The primary revenue source for Netflix is subscriptions. That is, users pay to access content on Netflix and that is how the company makes money. Learning more about the Netflix business model will significantly help you in choosing the best revenue model for your VOD business. Netflix offers 3 different plans for users based on the streaming quality of the content provided.
Basic– This plan offers access to content in SD quality.
Standard– This plan offers HD content access to subscribers.
Premium– This plan allows users to access videos in ultra HD quality.
Popular Video-on-Demand Revenue Models
The very first step of learning how to start a streaming service like Netflix is to choose the right monetization model for your VOD platform. What is the best way to charge users to access your content? In this blog, we are going to break down common VOD revenue models so that it becomes easy for you to choose the best one that suits you. Let’s get started.
Subscription Video On Demand (SVOD)
The subscription video on demand business model is the one that allows users to access an entire library of videos for a recurring fee. This fee may be charged weekly, monthly or even annually. Once a user subscribes to the service, they can watch as many videos as they want until the subscription period ends. Netflix follows this model to monetize its services. Subscriptions are auto-renewable and users have the flexibility to cancel them anytime. This model suits platforms that have a huge variety of entertainment content like movies, TV shows, drama series, TV programs, etc. to engage their audience on a long term basis.
One of the biggest advantages of SVOD is the recurring revenue stream that ensures a steady income every month. It also gives you the chance to upsell your users to bigger packages getting more money for your business.
While SVOD offers great chances to upsell, it becomes hard to upsell from a cancellation. That means once a subscriber cancels the plan, it can be difficult to bring them back to your platform.
Advertisement Video On Demand (AVOD)
Advertisement VOD is the business model where viewers are allowed to watch videos for free but they must watch advertisements at different points throughout the length of the video. Ads are powerful and advertisers generally pay huge amounts for streaming their ads on your video on demand platform. You can also choose your ad pricing depending on your platform’s popularity and the type of content to be chosen for the ad.
If you are just thinking about how to start a streaming service, it is recommended to design your services based on the ad-based business model. As your VOD platform gains more users, you can expand to other monetization models eventually.
VOD ads are broadly categorized into pre-roll, mid-roll and post-roll ads. As the name suggests pre-roll ads refer to the ones that play at the beginning of a video. Whereas, mid-rolls play ads in the middle of a video and post-rolls play ads at the end of a video. These ads are generally skippable or non-skippable in nature depending on how the ad network chooses to keep them. YouTube works primarily based on this revenue model.
AVOD works the best if you are new to the business as it brings in additional revenue with very little investment of your money and effort. This is one of the most common and easy ways to generate passive income.
As ads are everywhere online, too many of them can annoy your viewers.
Transactional Video On Demand
The transactional VOD business model allows you to buy content on a pay per view basis. It is exactly the opposite of what SVOD is. Instead of paying for the entire content, viewers are required to pay for only the content they want to view, buying a piece of individual content also facilitates users to keep it with themselves either on your VOD platform or download to their personal devices. Alternatively, TVOD can also allow users to rent a piece of content from a video streaming platform for a period of time and once the period expires, they will not be able to access the same content again. The transactional model works with live programming where users purchase a particular piece of content to view it. WWE streaming service is an example.
In TVOD, there is no confusion in understanding what your users prefer. You can easily understand whether there is a great demand for a particular video or a type of content. It also brings in better revenue opportunities for new content releases.
In the TVOD model, user retention is a common problem as users have a tendency to pay for particular content and then go off the platform. For the same reasons, it is difficult to push users to purchase new content.
Hybrid Video-On-Demand Model
When you have a vast library of videos and your platform is getting popular day by day, you can implement a hybrid of different revenue strategies to monetize your videos. You can choose a hybrid of AVOD, SVOD, TVOD, or any combination that works for you. If your audience base is deferred and you want different monetization models to target to suit the needs of different types of audiences, it is best to opt for a hybrid VOD model. You might have a large set of audience who don’t want to pay for accessing content but won’t mind watching ads in between and vice versa. YouTube is one of the best examples of a Hybrid VOD platform. It doesn’t just rely on advertisements to monetize. YouTube Premium is an example.
Is SVOD the Best VOD Model to Make Money?
Subscription video on demand is the most common type of VOD service offered by streaming platforms. In 2017, 55% of Americans were using Netflix and 31 % were using Amazon Prime video service. By 2022, it is estimated that over 568.4 million users would be using these platforms. While SVOD is not the only realm of streaming giants like Amazon, Hulu, and YouTube, many new VOD businesses are using subscription models to grow their income and audience.
If you are looking for different ways on how to start a company like Netflix, it is not mandatory to follow the exact path of Netflix. Choosing the revenue model that suits your business and your target audience is the ideal way to go for it. Next, let’s look into the popular revenue models in the market and understand what suits your business the best.
Costs Involved in Running a Streaming Business
The question of how to make money using a live streaming app and how much you can make cannot be answered without learning about the cost of expenses and expenditure a streaming business has to incur to get these profits.
To stream popular shows and movies in a legal manner, video streaming websites have to bear a cost to license and acquire content which differs for different types of content. For instance, Netflix reportedly paid $100 million to keep the popular series “Friends” on its service for 2019, almost three more than its previous licensing fee of $30 million.
Unless you are planning to acquire content from content creators, you have to bear production costs for creating your own originals. Offering original series is a great way to evade licensing costs and offer exclusive content to your users. However, the production costs can go higher when producing your own content.
Once your platform is up and running on the internet, you have to compete with N number of streaming platforms including giants like Netflix, Amazon Prime, Hulu, etc. Beating the competition involves a lot of marketing expenditure. Marketing costs primarily including the expense for advertisements, payments to affiliates and device partners, and the trial month fee of every user.
Research and Development Cost
Every popular streaming website invests in the research and development department. For example, Netflix focuses a lot on research and development and that is one of the reasons why they are pioneers in the market with just a subscription-based business model.
Technology and Development Cost
From the moment you create a movie streaming website and have users visiting your site, you must ensure a seamless and lag-free viewing experience to all of them. Netflix has partnered with hundreds of Internet service providers to localize a substantial amount of traffic. Technology and development costs make up a major portion of the overall cost you have to bear.
It also includes streaming delivery technology costs and the costs involved in designing new applications and other infrastructural costs. Regarding the video streaming server costs of Netflix, it uses its own content delivery network (CDN) called Open Connect, but also depends on the service of top tier CDN Akamai. Data is stored in Amazon Web Services (AWS) where terabytes of storage can be deployed to a thousand servers quickly. It is important to leverage the services of a good content delivery network even if you are not planning on growing fast because you are eventually going to scale.
CDN offers guaranteed delivery of content to users through a geographically distributed network of servers. It transforms your streaming website into a scalable system to meet any major viewership spike in demand for your content.
General and Administrative Costs
These costs include the payroll and other expenses on the human resources of the business as well and the partnership fee needed for the administrative purposes of the company.
Besides all of these costs, there can be other miscellaneous costs like payment processing fees.
How To Price Your Content The Right Way?
Behind any successful revenue model stands a well-designed pricing scheme. It is one of the most critical elements of any business strategy, especially for SVOD services. If you are looking for how to make a movie website like Netflix, pricing your content is one of the important aspects to consider.
Pricing video will always be a work in progress and with the constant changes in the market, you need to experiment with different approaches. You will get to know your customers and their spending habits as time goes by. To help you with this, here are some tips to choose the right pricing scheme.
Consider Value and Customer Satisfaction
Building a pricing model based on the value and customer satisfaction will help you make your VOD platform as sustainable as possible. Additionally, offer your users enough choices that will help you to retain existing users while attracting a new audience. Approaches including tiered pricing, freemium, or consumption-based pricing will help your viewers commit to a plan that suits their personal preferences and needs.
Analyze Your Revenue Goals
It is significant to understand how much would your video on demand business be making in monthly revenue. Make sure to include overhead costs to your goal.
Consider The Size of Existing Followers
Once you have created a movie streaming website and gathered in a few users, analyze the size of your audience. How big is your current audience and measure the number of followers you have on social media? How many contacts you have on your email list.
For this formula, use the total number of followers from each individual platform. Your existing audience or the ones you are currently not monetizing is the main revenue potential you are going to focus on as they are our biggest supporters.
Start With A Low Price Window
If it’s your first time monetizing your services, aim for a low pricing formula. The most successful customers offer monthly subscription prices anywhere between $2-$50.
Industry and Genre Must Be Considered
The nature of your content will have a direct impact on how you price your content. The best thing is to start with basic market research to see what other subscription video services with niche similar to you are charging their customers. If you are planning to charge higher than your biggest direct competitor, you must be sure that your services are with a significant difference and offer more value to your users in terms of the quality of services. The next thing to consider is your Content type and genre. Each type of content has an industry price average that you must consider unless you offer content that’s obviously more valuable.
Niche and Specificity Matters
Niche content or micro-niche content to be specific is valued high due to its ideal audience. While small and limited, if a service is very focused on a particular niche, users usually won’t mind paying for that extra bit.
How to Start a Streaming Service Like Netflix?
You are on the right track of building a streaming solution to create a movie streaming website customized according to the preferences of your audience. The goal is to delight media consumers and ensure all-time technology support to keep your users happy at all stages.
To build a fully functional streaming website to cater to your global audience, it is best to choose Netflix clone open-source that comes equipped with all the essential features and functionalities. Clone scripts are readymade website script that comes equipped with powerful admin dashboard, web app integration options, Android and iOS native apps to get started in the video streaming industry.
You can choose the best video on demand platform providers to build your VOD platform who will customize their solution to match your preferences and business goals including the revenue model suited for your business.
Choosing A Revenue Model For Your Business
In an increasingly complex digital world. You can build profitable video on demand business by choosing the best revenue models that generate more money than you could ever think. The secret is to find the business model that serves both your customer’s needs and your business goals. Some of the best in the world are listed above and you need to pick the one that suits your requirements. We understand how difficult it gets while choosing the right revenue model when creating your own Netflix and the doubts that come bundled with it which is why we help consult on you the same. Get in touch with us now.