Streaming media is expensive!
OTT companies have more than the cost of acquiring new content, and bandwidth, to provide streaming services to customers. There are a myriad of other daily operational costs to contend with, including:
- New content acquisition
- Monetising existing content
- Attracting new subscribers/customers
- Retaining existing subscribers/customers
- Combating OTT upstarts (challengers)
- Content distribution
- Enhancing competitive profile/ increasing profitability
- Talent acquisition & wage costs
- Platform operational costs (including encoding, networks, storage, user authentication and security)
- Day-to-day outgoings
In order to cover the above, and hopefully make a profit, OTT providers have several revenue models to choose from.
Advertising video on demand (AVOD)
Similar to traditional TV, the AVOD model provides streaming services to end users for free. With advertisers paying (streaming providers) for the privilege of inserting their adverts into the video content.
This model allows companies that typically advertise on broadcast and cable channels, to also reach people who watch shows using VOD. Another benefit of this model is that people can watch programs without paying subscription fees.
AVOD ads are broadly categorised into three categories:
- Pre-Roll (Ads inserted prior to the video content starting)
- Mid-Roll (Ads inserted within the main video content)
- Post-Roll (Ads inserted after the video content has finished)
Subscription video on demand (SVOD)
SVOD is the most commonly used global streaming business model, largely due to the popularity, and success, of Netflix.
The SVOD model is based on users ‘subscribing’ to a streaming service, for a predetermined amount of time (typically monthly, quarterly, half yearly or annually).
One of the main advantages of this model, is that it provides a recurring revenue stream for the OTT provider. However, it also adds an additional layer of complexity, in that the organisation must focus not only on subscriber acquisition, but also subscriber retention. One way to do this, is to regularly refresh their content offerings to justify ongoing subscriptions – this in itself adds an additional challenges.
Churn management is another key key challenge for SVOD providers. Which requires careful development of brand and customer loyalty, whilst maximising revenue, and navigating the spikiness of user churn.
Transactional video on demand (TVOD)
TVOD is based on the model of customers paying for each individual piece of video content they view.
TVOD has two sub-categories: electronic sell-through (EST), by which customers can permanently access a piece of content once purchased via Internet (also known as download to own – DTO); and download to rent (DTR), where customers can access the content for a limited time upon ‘renting’ (similar to the old video/DVD store model).
Pay Per View (PPV) can also be categorised as a sub-category of TVOD, but is generally reserved for large live events (i.e. sports, concerts, or entertainment).
Premium video on demand (PVOD)
Premium video-on-demand is a relatively new business business model, that allows consumers watch feature video content only a few weeks after it debuts in theaters.
Companies such as Fox and Warner Bros. are experimenting with this model, by offering debut films to rent (similar to TVOD) only 15-20 days after they preview in cinemas, for $30-$50. Currently, most major movies are only made available to rent 90 days after their release (although a handful of studios offer EST roughly 70 days after their theatrical appearance).
The two main challenge with this model, are the anti-trust laws – which vary widely from studio-to-studio / geography-to-geography, and the theater owners – who run the risk of their exhibition window being shortened, and potentially losing revenue.