The OTT (over-the-top) market is one of the largest global media opportunities that successfully delivers the power of TV with the agility and scalability of the global internet. Media brands or content creators in general can extend existing content to a new audience and deepen audience engagement with new video experiences. OTT is changing their viewing habits as well, giving the audience more control over when, where, and how they access the content and also shaking up the existing pricing structure for consuming videos. The convenience, accessibility, affordable price structure, and a lot of other factors contribute to the acceptance and success of OTT platforms.
The COVID 19 pandemic has also contributed to increased use of OTT platforms like Netflix. However, the OTT platforms expect a slight decline in membership and growth after the virus has been contained. According to this report, there is a slight dip in the number of users in May 2020 compared to the previous months. This decline is linked to loosening in restrictions and as users were able to pursue normal activities again. However, this doesn’t apply to all services as the number of users of CBS and Apple TV+ saw an increase in both April and May.
Best OTT Revenue Models in 2020
The success of any OTT business greatly depends on the business model it follows. So if you are an OTT or video on demand service, which business model you must use for streaming business? By understanding the different types of video monetization models used for OTT service, you can choose the best one suited for your business. So, let’s look into the popular business models leveraged by market leaders.
Types of the Business Model Adopted by OTT Streaming Business
With the introduction of Netflix in the market, the scene was completely changed for the OTT model. Soon enough, a lot of new OTT players, including Amazon Prime, Disney +, YouTube, HBO Now, etc. joined the landscape. Each of these OTT services has a different business model. For example, Netflix is completely based on subscriptions, whereas YouTube business strategy is primarily advertisement based (though it follows a combination of other monetization models, which we will discuss shortly).
The business model of an OTT business is nothing but the strategy they choose to generate revenue. When choosing a business model, conduct detailed market research to analyze the OTT platform revenue model adopted by your competitors to choose the best-suited option for your own business. Digital TV predicts that the global OTT revenue will hit $159billion by 2024 which is almost double the revenue from 2019. Considering the figures, OTT is a lucrative industry to make a good amount of revenue provided that you choose the right monetization strategies.
Here are some of the different monetization models for video on demand subscription services that are thriving.
Advertising Video on Demand (AVOD)
Advertisement video on demand is exactly what the name suggests- Viewers get the content for free but along with the advertisements. A prominent example of the AVOD business model is YouTube. We are familiar with how YouTube works and how it makes money- It is advertisements. Advertisements are the fuel for businesses that operate under the AVOD revenue model.
How It Works
AVOD video monetization model allows viewers to watch videos for free but followed by advertisements. OTT ads are classified mainly into three types- Pre-roll, Mid-roll, and Post-roll ads.
- Pre-roll – Advertisements that are played during the beginning of the video.
- Mid-roll-Advertisements that are played during the middle of a video.
- Post-rolls- Advertisements that are played at the end of the video.
These ads can be fully skippable, partially skippable, or even non-skippable according to how the advertisers want them to be. Ads are powerful and advertisers might pay you a good amount of money for streaming their advertisements on your OTT platform provided that you have a good and consistent user base. The pricing of ads varies considerably based on the type of content you stream, the popularity of your platform, the number of users, and user engagement your platform facilitates.
Advantages of AVOD
AVOD offers a powerful benefit for businesses due to its nature. Users can quickly sign up for the services and then access the content library for absolutely free. Advertisers will be able to serve users with highly customized and targeted advertisements.
Is this model best for you?
AVOD revenue model works great for VOD business who have a huge user base and an impressive number of views and engagement. You must keep a check on the cost per thousand impressions (CPM) to make sure you generate a good amount of revenue from the ads you stream at your platform.
Here are some of the key factors you must consider when choosing an AVOD revenue model for your business.
- Content type
When your content library is relatively small and generic, it is recommended to leverage an ad-based OTT platform revenue model as there is less chance that your audience would be willing for generic content. If your content library mainly consists of how-to or comedy videos, it is the best to monetize through AVOD as this type of content attracts huge viewership in less time and caters to a younger audience who are less likely to subscribe to regular entertainment content.
- Video views and engagement
You will only generate as much revenue through ads as much your advertisers are convinced of the reach and engagement of your videos. If you have a massive amount of viewers your advertisers will be willing to pay more. For example, at a CPM of $3, if your OTT platform successfully generates over 5000 daily viewers, you can decently earn $15 every day and amount to $450 a month.
- Choice of ad networks
When you want to offer your content library to your audience for free and generate revenue through ads, it is important to choose the best ad network that can offer you the ads that match your content and budget. It is important to leverage an ad strategy that serves your audience the best and offers you the maximum revenue benefits.
Subscription Video On Demand (SVOD)
SVOD is one of the successful business models leveraged by many OTT businesses. Some of the prominent examples are Netflix and Amazon Prime. In this revenue model, viewers can enjoy unlimited content for a subscription fee until the validity allows.
Advantages of SVOD
The popularity of video on demand subscription services is immense. Over 74% of US households are subscribed to SVOD services like Netflix, Hulu, and Amazon Prime. Not just the US, the subscription base of SVOD services across the globe is increasing every year.
Industry research shows that SOVD is associated with high revenue as well. The ability to access the entire content library for an affordable price than satellite TV packages along with the convenience of watching whenever they like is also very enticing for users.
How does it work?
Viewers pay a subscription fee, monthly, quarterly, or yearly and gain access to the content library unlimited. Viewers can also play and record the programs according to their convenience on the devices of their choice. Subscriptions are generally auto-renewable and offer users the flexibility to cancel it whenever needed. The subscription VOD model can be easily clubbed with other models to further monetize your content.
Is the model best for you?
Subscription monetization model suits OTT platforms that feature a wide variety of popular content like Movies, TV shows, drama, originals, and other programs that are capable of entertaining the users in the long term. This model is the best for VOD businesses that focus on content, including entertainment, health, fitness, eLearning, or anything engaging with a long term value.
Here are some of the key factors you must consider when choosing the SVOD revenue model for your business.
- Content Type
SVOD works best for VOD businesses that have long-form of recurring content like entertainment series. This can be a large collection of movies, drama series, or even original series that aligns with the interests and viewing habits of users. There will be users who want to binge-watch their favorite series and if your content matches these types of users, the subscription model is your best bet.
- Marketing Efforts
SVOD is the best for you when you have adequate resources and tools to position your platform in front of your target audience. If you are not leveraging the right marketing strategies, chances are that your target audience might never hear about your service.
- Platform Integrations
When you choose to be a video on demand subscription service, it is important to integrate the right software and tools to offer smooth services and better experience to your subscribers. You must also have to adopt the best security and encryption integrations on your OTT platform as your users would be paying for their subscriptions on your platform.
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Transactional video on demand (TVOD)
Transactional video on demand popularly called as pay-per-view is a video monetization model where users can pay just for the videos they want to watch. iTunes, Google Movies, and YouTube Movies are some of the popular streaming services that follow this business model.
How it works
It works just like a DVD store where users pay just for the DVD they rent or buy. The model works either on the Electronic sell-through (EST) or Download to own (DTO) basis. Users can either choose to buy the video they want to watch and keep it with them by downloading it to their personal devices or on the OTT platform. Another option is to rent videos to watch it for a specific rental period.
Is this model best for you?
TVOD or pay-per-view works great when you have exclusive content to offer. Mostly, VOD businesses don’t use TVOD as a sole business model, but it works great when combined with other business models if you just offer seasonal content to your users.
Here are some of the key factors you must consider when choosing a TVOD revenue model for your business.
- Content Type
If you have seasonal content like live streaming in a niche like sports or entertainment, TVOD will work great. It works excellent for entertainment content like sporting events where users get the content for an attractive price compared to other platforms.
- Diversity in Offerings
TVOD suits you the best, when your VOD business can either create or acquire a wide range of diverse content so that you can combine different monetization strategies when the seasonal content is not available.
Hybrid Video On Demand
In the highly competitive and fragmented OTT landscape, VOD businesses cannot rely on a single business model. That gives way to the perfect VOD model- a hybrid model that combines two or more business models discussed above. A strategic combination of AVOD, SVOD, and TVOD monetization models can help you make money with your OTT content.
If you want to monetize your content in more than one way, make sure you choose video on demand platform providers who offer the flexibility to use a combination of revenue strategies.
How it works
YouTube is a perfect example of a hybrid monetization model as it combines AVOD, TVOD, and SVOD models, all in one. While its primary monetization strategy is AVOD, YouTube also offers a premium version which is a subscription model and offers content on a pay-per-view model as well.
Is this model best for you?
If you have a diverse audience base and a vast library to cater to them, the hybrid model suits you the best. By offering a combination of different monetization models, you can suit the requirements of different sets of users.
Selecting the best revenue model for VOD businesses can be challenging. By following a strategic approach, you can choose how to make money from your OTT offerings. For any OTT platform, the type of content is a great influence when choosing money making methods. It is recommended to choose a video on demand service provider who offers a couple of monetization options so you can choose your best bet.
There is no best one-size-fits-all business model, you need to customize the monetization model according to your unique business requirements and goals. Do not hesitate to take expert consultation if you’re looking to start VOD business and struggling to pick the best OTT revenue models that suit your needs. Get in touch with us to get expert assistance.