The streaming TV ecosystem is growing rapidly, and the pandemic has only accelerated consumer adoption to OTT. There have already been over 1.4 million subscribers leaving cable in 2020 and counting. As experts in the OTT space, our team at MAZ only sees this growth going up in 2021 and beyond.
With the user adoption comes the question of monetization. If you’re a video business, how can you make money on OTT? What are the various modes available to content creators to monetize their content? OTT providers have a few key models to choose from. In this piece, we’ll break them all down, what they mean, and the pros and cons of each.
If you’re looking to launch your own OTT platform and make money, be sure to get in touch with our team for personalized support. Or to learn more about making money on OTT in 2021, read on through the full article below:
In the AVOD model (short for Advertising Vidoe on Demand), OTT providers stream their content for free to their end users. They then sell advertisements to make money on their viewership. Some examples of AVOD services are Youtube (the free edition), Xumo, Pluto etc.
The biggest advantage of using the AVOD model is in user acquisition. Since end users do not pay anything to watch your content, it’s easier to acquire them. It’s also most similar to the traditional TV and hence acceptable to the users, especially those who are price sensitive, and won’t pay for watching the content.
The disadvantage of using the AVOD model is delivering a strong user experience. The user experience is dependent on the ad experience, which is beyond the publisher’s control. You could be delivering a very crisp 4k stream HDR stream and could be filled by a completely pixelated ad by the ad server, ruining the viewing experience. This can lead to user churn.
Another disadvantage is that understanding your end user becomes a challenge. Because the user is completely dependent on the ads, there is no opportunity for users to sign-in. So you as a content creator will have very limited knowledge of who is watching your content. And as we know, we need to absolutely understand our users’ psyche to broaden our user base.
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In the SVOD model (short for Subscription Video on Demand), users pay a recurring fee to subscribe to a streaming service. In exchange, they get continued access to all of the content. This is one of the most popular monetization methods on OTT, attributed to the success of OTT services like Netflix, Disney+, etc.
The advantage of using an SVOD model (besides getting revenue per month) is the amount of data insights. You get to learn about your users, which you can convert into actionable strategies that drive scale and success.
Because users must sign into your platform, you can learn all kinds of information about your audience. Their age, location, what content they like to watch and more. This gives you the power to make intelligent decisions about your business. For example, what shows to invest in, how to structure your paywalls, how to market your product, etc.
The challenges are many, the biggest is the money. In the US household, people are already subscribing to at-least 2-3 streaming services already, and there is a maximum limit the users will go to. So, you as a content publisher needs to ensure that you’re a priority for your user by marketing to them appropriately. Your viewers need to choose to pay you for your content over other services. The content is eventually the king here, and they must believe in your promise of regular new content to justify the price.
The other challenge we see in the SVOD model is making sure that there is original content for the end user. If they can find the same content somewhere else for free or cheaper, it will cause huge discontent and they will eventually churn
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In this year, TVOD (short of Transactional Video on Demand) has gained a lot of attention. Since the pandemic cancelled most events and movie premieres, brands have rushed to bring those things online. TVOD lets users pay per piece, or pay per view (PPV). For example, renting a movie or watching a live event or show. Examples of this model are DirectTV or HBO PPV.
TVOD is a good model if you host blockbusters, live events or shows that sell as individual tickets. You also have the opportunity to re-market to your users with other similar content or shows. You have the ability to identify and know your audience directly once they have made a transaction with you.
The biggest challenge to the TVOD model is its transient nature. We are yet to discover users preference in a post-pandemic world. Will people continue watching live events and movies at home? Or will they want to return to live debuts, leaving TVOD businesses in the cold? Though this space has grown considerably in 2020, there’s no telling what lies ahead.
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PVOD (Premium Video on Demand for short) is the model that Disney+ recently used for the release of Mulan. In this case, Disney+ subscribers paid an additional $25 to get access to the new film on the first day. In the PVOD model, users pay an additional premium on top of regular subscription fees to access premium content before other subscribers.
PVOD is good for both publishers and end users if the content justifies its cost. Fans do want to get access to their most awaited content. Some are ready to pay a premium to get it sooner, and this simulated the first day first show experience. This is a worthwhile cost to see content before it is spoiled by social media, reviews, critics, etc.
The biggest cons is that PVOD needs to be used judiciously. The value of the content must be established before marking content as premium. the publishers need to understand the expectations of the usual subscribers and what commitments were made to them. The PVOD model may annoy the existing subscribers, and may lead to their churn if they expect the content to be available to them as part of their subscription. So for a blockbuster, maybe yes. But must not be used for every other new content that is released on the platform. You have a big risk of irking your existing subscribers.
Also again, as TVOD, we need to see this model evolve in the post-pandemic world to see its real impact.
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There is another model which is a hybrid of any of the above models. These models can be combined in so many ways, like using a freemium model. With freemium, a service is given for free for some time, and then becomes fully SVOD afterwards. There are also AVOD services that offer an ad-free experience until the user is willing to pay and then convert them to an SVOD model, such as Hulu.
Each of the above models have worked for some businesses, and failed for others. Though it may not be a satisfying answer, there is no clear winner or loser. Every publisher needs to assess their monetization goals and understand the segment, the demography and their target users to determine which model will work for them.
If you’re looking to launch your own OTT platform, be sure to get in touch with us at MAZ. Our team has worked with top video brands for over a decade, handling everything from video hosting and live streaming to building custom OTT apps, mobile apps and websites. Get in touch with us here.
Written by MAZ Founder and CTO, Shikha Arora.