By Shraddha Pednekar
As OTT platforms grow prolifically, so does the number of viewers who are “cutting the cord.” It’s estimated that, by the end-2022, 55.1 million people will migrate from traditional pay TV. However, OTT brands so have a challenge before them. First, they must attract new viewers in a crowded market with hundreds of rivals. Next, they need to turn these new viewers into loyal customers who boost the platform’s profitability, with monetisation models that work.
OTT monetisation models: the basics
The diversity of OTT platforms lends itself to multiple monetisation models, each with pros and cons.
Ad-based monetisation (AVOD):
This is the most prevalent model. Accounting for 50% of OTT revenue, AVOD remains a mainstay thanks to its low customer acquisition cost. As an entry-level monetisation model, it allows viewers to sample an OTT platform for free, making it popular with new OTT services to attract viewers. It is also popular with advertisers, who have quickly appreciated the vast markets that OTT platforms address.
Although interruptive, AVOD creates a low entry barrier and is scalable for OTT platforms with a large or rapidly growing viewer base.
Subscription-based monetisation (SVOD):
SVOD requires users to pay a monthly fee to access the content. Though less prevalent than AVOD – accounting for 40% of total global OTT revenue – SVOD yields the highest revenue-per-user of any monetisation model. SVOD also makes financial forecasting easier since users are locked in, and incoming revenue can be easily tracked.
While SVOD is lucrative, the challenge is to get users to sign up. A vast collection of exclusive content helps with this. With a paywall for exclusive content, OTT platforms attract subscribers who cannot access that content anywhere else. It makes SVOD a highly effective model for large OTT platforms like Netflix. Conversely, a smaller OTT platform with less content may struggle to sustain an SVOD model because viewers are less likely to commit to a subscription for limited content offerings.
Viewers want to maximise the value they get out of their OTT expenses and would therefore choose to subscribe to a limited number of OTT platforms. One way of getting around this is to offer them content on a one-time basis. Instead of a monthly commitment, viewers can decide what movie they want to watch and purchase it for a fixed fee. TVOD is cost-effective for viewers who consume less content but are picky about what they watch.
Again, TVOD favours OTT platforms heavy on exclusive or seasonal content, such as sports or movies. Pro-boxing, for example, was a pioneer in pay-per-view broadcasting even in pre-OTT days. However, smaller providers may not find TVOD beneficial because it requires a large user base to generate consistent profits across seasons.
TV everywhere (TV-E):
In a way, TVE is the old guard striking back. Faced with increasing migration to OTT platforms, TV-E gives traditional broadcasters the option to cross-platform their services. With TV-E, subscribers watch their favourite TV channels on an OTT platform for a fee or as part of a package. Rather than staying on cable TV, authenticated users can access their favourite TV channels anywhere, and on multiple devices.
While in its infancy, TV-E allows OTT brands to offer third-party content without producing it. The model works on AVOD, where revenues are shared between the OTT provider and TV channel, and on SVOD, where the channel’s content becomes part of the subscription.
Hybrid OTT models: making the most of monetisation
Clearly, each OTT monetisation model has its strengths and drawbacks. As the OTT industry matures, a single pure-play model is proving to be inadequate. Brands are increasingly adopting multi-tiered OTT models – a hybrid of two or more models – fine-tuned to maximise their revenue.
This hybridisation can be done in different ways. The most common is the AVOD+SVOD model, where free content is interrupted by advertising but becomes ad-free for subscribers. Many platforms, however, are adopting new hybrid models to suit them.
Disney+ and several sports platforms, for example, blend SVOD with TVOD. New releases or live events are offered on a pay-per-view, but existing catalogues are available to all subscribers.
On the other hand, Discovery has a two-level AVOD and an SVOD model. Viewers can watch ad-supported content, pay an intermediate amount to get served fewer ads or watch ad-free content by opting for a full subscription.
Which hybrid model is right for you?
Selecting a hybrid OTT monetisation model is as much an art as a science. It’s crucial to remember that these models must evolve with the platform’s lifecycle. You could start with AVOD at launch, gradually shift to SVOD when your content library is extensive, and then offer TVOD when your platform has matured enough to offer exclusive or time-sensitive content.
That said, the most significant asset when selecting a hybrid OTT model is data. The more you know about audience demographics, preferences and pricing sensitivities in different markets, receptiveness to advertising, and seasonality, the sharper will be your understanding of which model is suitable for you.
Partnerships with content providers may also influence how a platform monetises its content. Many sports franchises, for example, see OTT streaming as a supplemental source of income, with sponsorships and merchandising raking in the bucks. So, a sports OTT channel may be well advised to stick to AVOD, letting many viewers watch their content.
Finally, platforms need industry experience to implement hybrid models, as they are intricate to set up and must evolve over time. There are also more third-party linkages, such as payment gateways, content partners, and content security providers for hybrid models to work seamlessly.
All these require not just technology providers but partners with extensive experience developing monetisation solutions for OTT platforms of all sizes and maturity. Working with such companies lets you benefit from their insights and the challenges they have overcome in the past.
That being said, hybrid OTT monetisation models are your platform’s best bet to stay profitable in the long term.
The author is the chief experience officer at ViewLift