The Monetization Dilemma in OTT
Selecting the Right Business Model for OTT
The OTT industry witnessed a growth of epic proportions over the past year and a half. According to statistics from PwC’s Global Entertainment & Media Outlook 2021–2025, global OTT revenues skyrocketed to $58.4 billion in 2020, a growth of 26.2 percent. The trend isn’t halting anytime soon, and a continuous climb is on the cards. But intense competition and a highly saturated market bring the dilemma and the burning question of monetization.
OTT providers have a couple of choices when it comes to selecting a business model. Each caters to a specific audience and the type of content that is served.
The OTT Monetization Arsenal
Subscription video on demand (SVOD)
An SVOD monetization model charges viewers a recurring subscription fee (monthly, quarterly, or annual) for unlimited ad-free access to an entire library of on-demand content.
It’s the most popular streaming model among consumers, with forecasts indicating that global SVOD subs are set to hit 1.5 billion within five years. However, the industry has noticed the onset of subscription fatigue and a highly selective audience due to the surge in OTT offerings. In order to retain subscribers, providers would need to regularly deliver exclusive and engaging video content to justify commitment.
Advertising video on demand (AVOD)
In an AVOD model, platforms offer free access to video content and generate revenue by displaying advertisements. This method is typically used for content that viewers would not be interested in paying for.
The biggest benefit of using an AVOD model is the lower customer acquisition cost and effort compared to other models, due to the lack of financial commitment. However, a major drawback is the disruption to user experience caused by advertisements, which can irritate viewers. User experience can be uplifted through personalized ads using dynamic server-side or client-side ad insertions.
Transactional video on demand (TVOD)
TVOD, also known as pay-per-view streaming, is a model in which a platform sells or rents individual pieces of content for a single fee. What TVOD is good at is, creating a sense of immediacy and is perfect for blockbuster movies and live events.
The TVOD model consists of two subcategories, an Electronic Sell-Through (user pays a one-time fee to get permanent access to the content) and a Download To Rent (where a viewer pays a lower fee to access content for a limited time). A drawback of a TVOD based platform is it falls short in retaining viewers. Most of them leave after purchasing a piece of content until the next interesting release comes along. Combatting this requires additional marketing spending on retargeting campaigns.
Premium video on demand (PVOD)
PVOD is a variation of TVOD; the difference is that it deals with highly in-demand premium content. Usually, the latest blockbuster releases, which viewers don’t mind paying an additional premium price on top of their existing subscription to access sooner than others.
The PVOD model can be a win-win for both platforms and subscribers but needs to be used cautiously. The content needs to justify its price, and it shouldn’t be a model of choice for every other new content lest it annoys subscribers.
A hybrid strategy bundles the models mentioned above in different ways to bring in the best of all options. For instance, a combination of SVOD and AVOD makes streaming more affordable without the provider having to sacrifice revenue.
Hulu and YouTube combine AVOD and SVOD to offer free content with sponsored ads, with a paid subscription option that opens up more content along with an ad-free viewing experience. Another mix we see with Disney+ and Amazon Prime is the combination of TVOD with SVOD.
Factors that Determine the Ideal Monetization Model
OTT providers look at two elements when determining their monetization strategy.
The Target Audience
Understanding the audience you serve is the key to a successful OTT monetization strategy. Each segment and demography will not only have their unique preferences towards content but also differ in their spending capacity. For instance, if your target audience is less likely to pay for your content regularly, an AVOD model makes the most sense. If price sensitivity is not an issue, you should definitely look towards SVOD, TVOD, and PVOD.
The Content Being Offered
An SVOD model is the perfect choice for a sustainable revenue strategy, if you intend to roll out an extensive library of premium content with regular new releases. However, if your content is more seasonal like major sporting events or a much-awaited blockbuster release, a TVOD or even a PVOD approach allows you to make the most out of a short time frame. On the other hand, if you’ve just started off and you’re slowly picking up on your content library while looking to amass subscribers, AVOD is the perfect business model.
A Flexible Digital Backend
Being an experienced digital solutions provider in the media industry, Axinom understands that each company is different, each content piece is unique, and every market needs an individual monetization strategy. Therefore, the Axinom Mosaic platform offers highly flexible digital backend solutions for not only setting up monetization models but also carrying out their adjoining workflows.
Through our Monetization Service, you have the flexibility to create business models for each content piece, different markets you serve, and the targetted audience. For each business model, you then have the supporting services that go with it. For instance, our Billing Service comes in handy for any business model where a subscription or a transaction fee is necessary. It is capable of integrating with payment gateways and handling user entitlements.
On the other hand, for content that runs on an AVOD model, you can configure personalized advertisements for each content piece through our Media Service. Such as stitching video and advertisements for server-side ad insertion or setting up ad preferences for client-side ad insertion. The end-to-end architecture enables numerous other possibilities (e.g., marketing promotions) through integrations with customer systems like your CRM.