The video industry today is fundamentally different to what it was in its early days when SVOD dominated the landscape. Subscription fatigue and over stretched budgets have caused churn rates to increase and providers have been forced to adapt monetization models in response to changing consumer preferences.
AVOD is surging in popularity, linear format services in the form of FAST are gaining traction, and data shows that viewers, particularly younger viewers, are increasingly open to TVOD (Transactional Video-on-Demand) and PPV (Pay-Per-View) options.
Hybrid business models combining subscription, advertising, and transactional elements have become popular as video services try to combat churn and offer audiences as much choice as possible in ways to watch content.
Another approach gaining in popularity is "freemium" tiers which aims to attract a wide audience by offering free content with ads, while generating additional revenue through premium content behind a paywall. With so many possible permutations in business models, it’s become increasingly difficult for video services to know which model or combinations of models is right for them individually.
Evaluating the Different Models with Audience in Mind
AVOD’s primary appeal to viewers is that it allows free or lower cost access to content. This is of course more appealing to some consumers than others which is why when you weigh up the merits of the different business models, it’s critical to do so with the target audience in mind. Viewers with higher disposable income often lean toward subscription services, while those with tighter budgets, or who are simply more tolerant of ads, may prefer ad-supported options.
So, when factoring in whether SVOD or AVOD is a better option, or perhaps a blend of the two with a premium tier offering ad free viewing and a reduced cost tier showing ad supported content, you first need to know your audience. Their income, age, and location all play a role in their viewing preferences and spending behavior.
More affluent viewers with higher levels of disposable income are more likely to be attracted to a subscription-based model, while older or lower income users are more likely to prefer ad-based services. Viewers in some regions such as the US are also much more willing to accept ads than others.
There’s an underlying problem in the video industry that at the highest level, most engaged users don’t necessarily pay any more than low engagement users.
The type of content being shown also helps determine which model works best. Exclusivity and high-profile series help justify a subscription, live events and blockbuster film releases can work well with TVOD/PPV, while repeat content and more casual viewing works better on ad-funded services. Viewers may well be happy to pay for one or two subscriptions for premium content then prefer to add some AVOD or FAST services to the mix for more relaxed viewing and to access old favorites.
Squeezing More Juice
There’s an underlying problem in the video industry that at the highest level, most engaged users don’t necessarily pay any more than low engagement users. By enabling providers to offer new types of monetization options on top of a free or basic subscription package, the hybrid business models that we’ve started to see emerging in the past year or two help to address this issue.
So, while services need to assess key factors such as current market and trends in consumer behavior, target audience demographics, and the type of content that will feature, to determine which business model is most suitable, it’s also important to consider which model strategy allows the maximum amount of money to be obtained from the most engaged users.
One way to do this could be to differentiate on release windows. Engaged viewers may be willing to pay extra for early release of a particular title. Another approach may be to determine release dates by pricing tiers: a viewer with a basic package is made to wait longer for new releases, while a premium package subscriber gets immediate access on the official release date.
The best way of monetizing a consumer base is to create multiple tiers that serve to maximize revenue from different user segments. This way, you can make the most money out of the consumers who are the most engaged and most interested in your service. Ultimately, monetization isn’t just about deciding which business model is best, but must also be about developing an upselling strategy. This mindset has got to be part of the long-term strategy for any video service.
Multi-Model Future
If it’s not already there, the industry is heading toward a multi-model future where video providers will need to continuously experiment with combining multiple models and strategies. If a particular method or blend of models isn’t paying off, providers will need to quickly switch tactics.
To succeed in this environment, video services will need to be flexible and modular in design. For providers willing to experiment and innovate, the blending of models opens the door to a more sustainable and profitable future.
