Monetization Model Dilemma for OTT Service Providers

Monetization Model Dilemma for OTT Service Providers

Posted by Lilach Dekel Wed, Aug 21, 2019

The media consumption patterns have undergone a drastic evolution, and with it the video OTT industry has reached an unprecedented height of popularity and success. Let’s start with exploring the USPs of video OTT that makes industry professionals bet big on this format…

Customers are attracted to the seamless possibilities video OTT (Over-the-Top) content seems to offer. They can go ultra-granular on the content selection with the option of watching it anytime, anywhere and on any device. Plus, they don’t have to bear the cost of unnecessary channels, just to be able to have their favourite ones included in the bundle. The cookie-cutter models do not cut into the modern professionals’ busy lives, and hence OTT is an important format for sustaining the businesses of the future.

Now that we have established the popularity of the technology, it’s time to explore the OTT monetization models that offsets your endeavor and help you earn a profit. 

AVOD model

Standing for Advertising Video On Demand, the AVOD model is a free service wherein the consumer gets to watch content at no cost. The content however is supplemented with advertisements, which are the primary financial engine-drivers for your business. The ad revenue generated pays off for the hosting and production expenses that you’d incur while following this model.

A typical example would be YouTube.

How does it work: A video ad is inserted in a form of pre, mid and post rolls, and in between content streaming sessions which ultimately generates revenue for the business. Banners are also being used.

Advantages: AVOD model is good for fast users’ onboarding and for wooing them with a ‘try it before you buy it’ offer, while not losing out on the revenue. 

Disadvantages: Video ads hinder the customer experience by disrupting the flow of the content, extending the watch time and repeated buffering.

TVOD model

The Transactional Video On Demand model is a simple pay-per-view service. The consumer has to pay for every single watch, every single time.

A good example is iTunes.

How does it work: The consumers pay for anything they consume. In tech terms, it is a pay-per-view (PPV) or pay-per-download (PPD) model.

Advantages: TVOD is a no-strings-attached model, wherein the end-user doesn’t leave any digital footprint, except paying for exactly what they want, whenever. This works best for live streaming events and special broadcast programs.

Disadvantages: A major drawback is lack of customer retention, which results in high customer acquisition costs. 

SVOD model

This refers to the Subscription Video On Demand model, wherein consumers need to pay a recurring amount to enjoy access to a whole library of content. In most cases, this allows multiple users to enjoy access simultaneously as well.

Example: Netflix

How does it work: Pretty simple! In this scenario, the consumer pays a weekly/monthly/yearly subscription fee and gets access to the video library. Though this model is the best revenue generator in today’s times, it holds the distinctive potential to game up your marketing plan as well.

You can use hyper-targeting to bring in specific consumer segments and offer them the best quality content and videos. For example, if a consumer is an avid sports fan, you can come up with specially targeted sports packages to delight and earn a devoted subscriber.

Advantages: SVOD model is ideally crafted for premium/highly targeted consumers who generally consume exclusive content. By industry estimates, this model delivers higher average revenue per user.

Also, this model allows for price-tier options, wherein consumers can pay the required subscription fee in accordance to their budget, without offsetting the entertainment quotient.

Other variations of the above OTT monetization models are as follows:

Hybrid model

As you might have guessed, this is a fine bundle of paid and free services – customers who subscribe to your services are offered access to an exclusive library, however, they still require to pay for certain specific content as well.

For example, a consumer has subscribed to the movies in your bundle offerings, but if a new hyped movie hits the theatres or an oldie is making a huge upgraded comeback, then you can tap into the opportunity by offering them a watch-with-pay option.

Multi-Screen Subscription model

Ideal for tapping into the dedicated consumer segment, where they can sign up for carrying around their chosen content across multiple devices.

So how to formulate the perfect OTT monetization strategy?

Primarily, three factors determine the type of monetization model that’s best for your OTT platform:

  • The content offered 
  • The target group
  • The strategy undertaken for the business

If you are confident about your content and can look forward to steady upgradations with even more engaging shows, then SVOD is the best model you can offer your customers. SVOD is generally alluring due to its recurring cost model, minus the risks of a one-time payment framework. But, it is somehow proven ineffective if the consumer outgrows the content; hence better and smarter content plans in the pipeline are a must!

Plus, with increasing mobile users and Gen-Z making a foray into meaningful content consumption, this format with its flexible payment plans is always an appealing option to further your business goals.

But, what if your content has a short longevity span? Like, for example, sports content. We all love watching a good game of tennis or enjoy those World Cup matches, but such content is consumed for only a fixed and short duration of time. So, if your content falls under such categories, you are better off with the TVOD model to encash in on the short relevancy window of your content with pay-on-demand offers.

The drawback here is that since you are not aiming for customer retention, customer acquisition from the correct target group is an expenditure you’ll have to bear. We suggest marketing TVOD models as pure value-for-money experience for end-consumers.

However, if you’re aiming for low customer acquisition costs, nothing works better than the AVOD model, where it is the advertisers who’ll pay you, and you can actually attract users who are hesitant to pay a fee for your content.

The ads that show up at regular intervals might turn out to be irritating for the consumer, so ideally go for this model only if you are supplying mass-appealing content like a popular drama series, a super-successful movie and similar products.

So, where’s the sweet spot?

A perfect blend of the above three models would give you a delicious revenue generation model. Yes! Going hybrid is the need of the hour.

Attract new consumers with the ‘freemium model’ wherein you offer good content without subscription fees, but with ad-based revenue pumping your cash inflow. Then gradually switch over to SVOD to make your customers stick to you. This can only be possible if your content is making all the right noises at all the right places. In fact, do not be weary of spending big on good content, for that is indeed the king in this format.

While these models are already in place, OTT offers huge scope for innovation. What remains to be seen is how changing consumer behaviour influences this framework and the subsequent business associated with it.

Lilach Dekel

Director of marketing at Vimmi
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