The Economics of Subscription Video

The continued migration of cable TV subscribers to streaming services has caused ripples among even the mightiest media empires. Content owners are no longer forced to rely on TV service providers to distribute video content to a global audience. This democratization of video has created a unique opportunity in today’s marketplace for early-stage content owners to engage with their audiences directly using subscription, transactional, and advertising strategies to make money and expand their reach.

The majority of content owners capitalizing on this opportunity have launched a subscription-based (SVOD) service. Large companies like Netflix have proven that a subscription model is not only enormously profitable, but it’s also what consumers demand. There is no lack of opportunity with a market that shows no sign of slowing down. Digital TV Research forecasts that the number of U.S. subscribers to SVOD services will increase by 53% in the next 5 years.

Video Platforms like Zype are empowering content owners with the technology to easily launch their own direct-to-consumer service and gain ownership of their revenue, content and audience. The majority of Zype’s customers have seen the most success with SVOD. Customers who start out monetizing their video with advertising or transactions, often end up being discouraged by the amount of time it took to generate significant revenue.

SVOD generates more revenue, delivers results faster, and requires a smaller audience than transactional or advertising-based models. That said, success is never a guarantee. Before jumping in head first, It’s critical for content owners to understand the economics of SVOD —How it works, what makes it so powerful and (perhaps most importantly) what makes it challenging.

Power of Recurring Revenue

The motivation to launch a subscription video business is clear. It is arguably the best way to build a sustainable recurring revenue stream and it offers consumers flexible options they’ve come to expect and demand. Subscribers pay an upfront fee for a set period regardless of their viewing activity. Subscriptions are also convenient, for they will continue to renew automatically until the viewer cancels.

Ultimately it’s the recurring revenue from subscribers that drives an SVOD service’s bottom line. That’s the beauty and power of automatically renewing subscriptions. It’s also the reason why it’s critical to focus your strategy on acquiring new customers AND retaining your customers longer.

Customer Lifetime Value

Customer Lifetime Value (CLV) is an invaluable metric for measuring the health of your existing customer base and forecasting future profits. CLV is calculated by analyzing the performance of your current customer base. Simply, multiply your average profit peruse by their average lifetime as a subscriber. Using CLV as a baseline, you can forecast your potential subscription revenue over the next twelve months.

As a service grows, it’s important to closely track key subscriber metrics – average revenue, average cost, and average lifetime. They’re dynamic so you must continually monitor, measure, and improve each as they impact your CLV.

Subscriber Churn

The fickle nature of customers is and always has been the cause of uncertainty and challenges in running a subscription business. Your subscribers can, and will, cancel their subscriptions.

Subscriber churn will erode your monthly revenue and higher rates of churn will drastically reduce your average customer lifetime. That’s why smart subscription-based businesses focus on driving as many paid subscribers as possible AND retaining as many paid subscribers as possible.

Building Future Growth

In order to mitigate subscriber churn, customer acquisition must always remain a priority for SVOD services. Think once you have a sizable base of subscribers it’s time to relax? This is actually when it’s most important to keep your foot on the gas pedal and ramp up your marketing efforts.

Social media and email marketing are the most efficient and impactful marketing tools at your disposal to acquire new subscribers. It’s important to have a steady stream of communication with your customers focused on promoting new content and using incentives to drive new subscribers. It’s also important to leverage the insights you gain from your video analytics. Knowing what is and isn’t working helps you make smarter marketing decisions and build up your subscribers quicker.

Importance of Ownership

Distributing video to endpoints that you own-and-operate is key to maximizing revenue for your video business. You own the IP on your website and OTT apps, which allows you to eliminate any middlemen and keep the majority, if not all, of the revenue from your content.

What does it take to build, launch and grow your own subscription service?

Download this complimentary case study that uncovers how three unique SVOD services paved their way to success. Read about the unique challenges they overcame, what they learned along the way and where they hope to take their services in the future.