The increasing transition towards Over the Top (OTT) content is radically changing how video is being sold, produced, and consumed. As a result, companies and organizations across industries are making streaming a priority, aiming to extend the reach of their existing content and/or create new programming to engage with existing and prospective audiences.
In addition to engaging a target audience, the goal of OTT platforms is to monetize and identify earnings opportunities. Two of the most utilized OTT monetization services are Ad-based Video on Demand (AVOD) and Subscription Video on Demand (SVOD).
OTT Monetization Models
- AVOD services like YouTube are an ad-based VOD that consumers can watch for free.
- SVOD services such as Netflix, HBO Max, and Amazon Prime Video derive revenue from subscription payments.
Of the two, which is best? The answer is dependent on a variety of factors, such as the type and quality of the content, the power of the brand behind the content, and the overall objective of what you are trying to accomplish.
Let's take a closer look at the differences of each model.
SVOD drives revenue to publishers from subscription payments. The SVOD market is oversaturated now, with platforms like Netflix, HBO Go, Amazon and a variety of other options.
According to Statista, SVOD revenue in the states has reached $25.3 billion. The number of SVOD subscriptions is supposed to jump from 354 million to 458 million in 2027, according to Digital TV Research. In fact, about 86% of TV households will subscribe to at least one SVOD platform by 2027 with the average SVOD household paying for just over four SVOD platforms by 2027.
According to Lightshed Partners, SVOD subscribers will nearly double from 650 million worldwide at the end of 2020 to 1.25 billion by the end of 2024 - 16% of the human population.
The challenge that this model presents is creating exclusive content that viewers do not have the option to view anywhere else. It is also crucial to deliver new content on a regular basis, otherwise, the audience may lose interest and cancel their subscriptions.
AVOD services are driven by views and engagement and can be lucrative depending on the ability of the publisher to insert ads as part of the viewing experience. This could be displayed prior to or threaded in the content.
Because AVOD is free to consumers, the model can help attract and build a large audience, which is appealing to advertisers. There are currently 108.6 million AVOD viewers in the United States with Facebook Watch being the most used service in North America according to Statista.
Like broadcast television, ads are threaded into the programming experience to offset production and hosting costs. This is where Server-Side Ad Insertion (SSAI) comes into play. SSAI integrates video ads into the stream at run time, manipulating the video manifold, allowing for dynamically inserted ads on a per user level based on IP address, device and optimally based on content. Ad blockers are also eliminated, making it difficult to subvert the means to monetize the content experience.
Viewers can often be displeased with this model due to the frequency of ads. It is also possible for viewers to lose interest or get distracted in between and stop watching the content they selected.
Another challenge unless your platform has a large viewership and is generating a lot of views, the revenue might not cover the costs of content creation and platform fees. Not having enough ad impressions to get advertisers to take notice of your inventory can also hurt. An effective way to monetize is having advertisers buy with no commission payouts and higher cost per thousand (CPM). A significant amount of impressions and campaigns need to run for several months for this to take place.
Emergence of the Hybrid Model
SVOD and AVOD have their advantages and disadvantages. What if you can leverage the best attributes of both, such as a hybrid model?
A user can receive access to a free content library of a platform that works like AVOD. YouTube Premium is a perfect example, and as you know, it is free. However, YouTube Premium charges a fee and there are special features that come with it, such as no ads, playing videos when a user’s device is locked, and users can download videos to their device for offline viewing.
Another example of a hybrid model is charging a fee for a basic subscription and then also charging a plan that is a little more expensive. Take Hulu for example. Hulu charges a subscription, and viewers are forced to watch ads unless you pay a little more and then viewers can watch content without ads. Hulu also has plans that include live TV, Disney + and ESPN+. Each of these plans cost more but the user can have access to more content.
The benefit of this model is you can try it before fully committing and paying for a subscription.
Selecting the Right Model
Among the models and approaches, the first step for a publisher to consider is the type of content they have and/or want to create. Determining the frequency of publishing as well as budget to create content will play a role in choosing the best model—SVOD, AVOD, or hybrid.
The maxim—content is king—is still undisputed. High-quality content will drive engagement to the OTT platform. User experience is also key. Keeping it simple and easy for users to navigate through content to find what they are looking for and view across a multitude of devices is paramount.
Furthermore, security is critical. With the constant news in the headlines about security breaches occurring due to malware and ransomware attacks, you want to ensure your content and customers are secure.
Among the myriad features to consider when deciding on an OTT platform, making it imperative to find one that is comprehensive, reliable, and secure. Once a publisher has settled on a platform, they can then choose the best model that suits their objectives.
Which OTT Model is for You?
SVOD is a great way to bring in revenue because it is driven on subscriptions. For users to view the content, they must pay a fee. AVOD is also a good option for those looking to run ads on their platform in exchange for free content. The hybrid model is a mix between SVOD and AVOD, but there are opportunities to upsell by offering features or content at a higher price.
Marc Mulgrum is Senior Vice President of Sales and Marketing, Setplex and has over 20 years of experience selling streaming video solutions. At Setplex, Marc runs OTT/IPTV global sales solutions teams across Asia, Europe, India, LATAM, and North America including sales, sales engineering, marketing, and customer success.
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