OTT platforms have revolutionized the way we consume content. The era of binge watching has captured our collective consciousness – all thanks to the surge in the usage of the smartphone, people now can indulge in their favourite shows in just one click. The easy availability of high-quality content has gotten people hooked to their screens even when they are travelling in a metro, in a flight or waiting for someone.
As more people cut the cable cord and swiftly move towards OTT platforms, online video services such as Netflix, YouTube, Amazon Prime Video, Hulu etc have significantly transformed our viewing habits. According to a digital media trends survey by Deloitte, 80% of consumers in the Unites States have subscribed to at least one paid video streaming service. For newbies in the Media & Entertainment industry, it can at times get extremely tough to understand which monetization model might work best for them. Let’s take a deep dive into the three different types of video-on-demand models.
Which is the most preferred video content delivery model?
There are three types of video-on-demand (VOD) services – SVOD (Subscription video-on-demand), AVOD (Advertisement-based video-on-demand), TVOD (Transactional video-on-demand).
Subscription video-on-demand (SVOD) permits the usage of an entire library of content at a fixed subscription rate, typically on a monthly basis. This model falls under the “all-you-can-eat” buffet where viewers can consume unlimited ad-free content if they have subscribed to the service. SVOD currently ranks as the most successful monetization model, representing OTT market’s largest segment. As a matter of fact, the top players of the OTT market such as Netflix, Amazon Prime Video, Hulu etc., as well as new entrants like Disney+, Apple TV+, HBO Max etc utilize the SVOD model.
According to Forbes, almost half of the population of America (55%) has Netflix subscription contributing to more than 1 billion hours of consumption of video content per week, while subscribers of Amazon Prime Video stand at 52%. The upward growth trend of these OTT platforms isn’t halting anytime soon. According to a study by ResearchAndMarkets by 2025 the global OTT market is expected to reach $332.52 billion. However, few of the constant challenges that SVOD providers face due to absence of long-term subscriptions and freedom to choose another service at any time, keeps the service providers on their toes, making them deliver new and unique content constantly.
According to Statista, paid SVOD users in the US reached 125 million in 2019. This number is predicted to increase to 342 million by 2025.
This model is the absolute opposite of SVOD. TVOD (Transactional video-on-demand) permits viewers to pay for specific content they wish to watch. This pay-per-view system is similar to an online blockbuster platform where consumers have an option to buy or rent content. The two subcategories – ‘electronic sell-through’ (EST), where viewers make a one-time-payment to own the content for an indefinite period or ‘download to rent’ (DTR), where viewers pay a minimal fee to the distributors for accessing the content for a specific time period.
TVOD platforms generally deliver higher revenues as it offers customers with the latest video/movie releases/sporting events. Lucrative pricing offers and promotions entice customers to make repeated purchases. Some examples of TVOD platform are Sky Sports Box Office, Apple iTunes, Amazon video rent/buy store, Google Play.
Several TVOD players have been operating via set top boxes and not as full-fledged OTT service since many years. This is now changing.
AVOD (Advertisement-based video-on-demand) is nothing like SVOD or TVOD. One can access AVOD for free. AVOD is more like traditional TV where advertisements are interspersed with the content. Platforms such as YouTube, Tubi, The Roku Channel are examples of AVOD platform. AVOD is generally not a preferred platform for premium content consumers who are willing to pay to watch content without any ad-interruptions. However, many companies in the Media & Entertainment sector are bouncing back to this type of model. During the pandemic, 47% consumers in the US agreed to have used at least one free ad-supported video streaming service, as they searched for budget-friendly entertainment. (Deloitte)
In 2019, Hulu lowered the subscription rate of its base tier and introduced on-demand catalogue for the subscribers who were willing to watch commercials. Viacom also introduced Pluto TV, an ad-supported video streaming service. Amazon’s Free Dive was also announced, an ad-based service on IMDB platform that lets viewers stream almost latest releases for free.
AVOD models are one the least explored VOD models, especially for businesses where premium content takes the centre stage. With tremendous targeting opportunities based on viewer behaviour and content preferences, businesses can choose to go with AVOD model once they identify the right ad-network that will help then get the higher ad-generated revenue. Higher number of viewers mean that the ad-agencies will pay you more.
Types of pricing for SVOD models
As a part of new customer acquisition tactics, free trial has been one of the favourite offers that OTT companies follow. A no-obligation free trial provides the companies with an opportunity to showcase plethora of their offerings & best features. It is not about providing your content for free but stepping towards effective user acquisition. The potential consumers get a first-hand experience of the type of content and its relevancy. Also, consumers get more insights on the user experience and functionalities of the platform. The free trial is perceived as a valuable offering as it gives a feeling of ‘getting more for less’. After the trial ends, a significant number of users start paying monthly subscription rates. For example, Netflix had a 93% conversion rate after the free-trial period, according to an analyst from Merriman Capital.
Another way to attract your target viewer audience is the ‘freemium model’. While a basic version of the platform is free, certain functions and features of the service are a part of ‘premium content’. For example, several music streaming platforms such as Spotify works on freemium model. The incorporation of this model helps in eliminating the sign-up cost and persuade the customers to explore the platform before making a commitment to monthly subscriptions.
Disney+ Hotstar, an Indian video streaming platform also operates on the freemium model where viewers can watch videos for free with ads interspersed in the content. The audience watching the freemium content can be called as freemium subscribers – which are active users of the content on your platform but don’t contribute to the revenue. These subscribers have immense potential to get converted into paid subscribers in the future.
Irrespective of the video monetization model one opts for, it is crucial to formulate a strategy which can assure a consistent inflow of revenue. As the OTT market evolves and the competition becomes fiercer, there is a possibility that the business models might also evolve in the coming years. We are clear with one thing for sure – that viewers demand high-quality content, and that is something all video streaming platforms must focus on.