OTT Monetization Models

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Have you ever been in the covert where every glade looks almost the same and it is easy peasy to lose your way? Well, here’s one. It is called “OTT Video Monetization”. Let’s try to puzzle it out.

Introduction to OTT Monetization

Though VODs have been around for 15 years, it all started in the 2010th when the Internet became more accessible and people endemically began to get rid of their cords to move online for a more convenient content delivery method. It’s obvious that traditional TV providers followed their audience to the net as no one wanted to lose 33 million people who abandoned their cable subscription in 2018, as TechCrunch reports.

At first, they tried to bring their “linear” monetization models along with them but traditional strategies eroded in the new business realities. So, TV providers had to change them under new conditions. Quite a number of them have emerged as a result of such a mess. Here we will examine the major ones and see what the real difference is.

Subscription

If you’re experiencing deja vu right now, you are not alone. Subscription has been the major revenue source for TV companies for decades beginning with traditional Pay TV (cable and satellite mostly) through to the modern VODs that utilize the SVOD approach. And that’s our topic.

SVOD may be viewed as a traditional monetizing strategy that still works in the Internet but in a somewhat improved form. In general, that model is quite predictable, hence profitable. Let’s draw an example.

Take an abstract SVOD service with a $39.99 monthly rate. That service should somehow attract clients and it must spend a certain amount of money for it. If that amount is less than $39.99 (let us say $19.99), the business receives a particular profit. It can be spent on budget planning, investments, market expansion, and so on. The point is that the SVOD model can be easily assessed as the business here interacts with its clients on a contractual basis (“contract” is equal to “subscription” here).

However, there’s an important point. Viewers won’t really pay for more than two or three services, according to recent studies. That’s why existing SVOD services are tough competitors; their budget is limited and they have to fight for every dime of it. It is exactly what Netflix, Amazon, and Disney are doing. Streaming platforms are somewhat different. Here the user can view the streamer’s content without subscription but paying grants them more functions such as priority messages or VOD possibility (not all content makers allow their streams to be watched offline). Still, people won’t likely support a lot of them at the same time.

Advertising

Good old advertising that derives from Over-the-air TV: an ad supported strategy in OTT called Advertising Video on Demand (AVOD and ad-supported OTT). It allows users to watch programming without paying extra money the same way as OTA did. From the user’s point of view, it's basically the same soup just reheated up a little. But the OTA model and AVOD are very different regarding technologies and business.

A point of interest here is that advertising on the net can be very successful thanks to the targeting tools. This luxury is unaccessible for linear TV, so at some level AVOD/Ad Support OTT may be more appealing to advertisers. The question of media deal transparency is still acute, and large video platforms mostly apply advertising technologies such as Adoppler Trusted Marketplace that help them transact without any misgivings. Nonetheless, linear TV advertising still has some power and it is unlikely to give up so easily. Good examples of Ad Supported OTT are YouTube, Pluto.TV, Roku, Hulu, and many others.

There’s another model that touches on advertising. It is called Free Video on Demand. Don’t be fooled by the name, the model is not that chargeless. The word “Free” in the name indicates that the user doesn't have to pay their money to watch the content. The only thing is that some pieces contain on-demand advertising.

You may ask, what’s the difference with AVOD in this case? That’s a good question. The main difference is that not all content here has advertising spots whereas AVOD has ads regardless. It means you can still watch a movie or a show completely free with no interruptions but the majority of the available content supports advertising. Good examples of FVOD are Tubi, IMDb TV, and Vudu.

Streaming platforms use mostly the same approach as AVOD has. They have their own targeting tools and display advertising in pop-ups or via special insertions called "server-side ad insertion", or SSAI, as the stream goes on. The techniques are almost the same. Twitch is a good example of ad supported content. Well, it’s a good example of all the streaming monetization models actually as it has all of them implemented.

Transactional Models

Transactional Video on Demand is a somewhat different model but it still resembles another familiar activity. The model implies paying for every piece of video content the user wants to watch. It means that the user can buy or rent a particular show to gain access to. It brings back to the good old days when people went to the market and bought a material copy of their favorite movie to watch at night. Just no market now. And no material copy. But it’s not all that simple, of course, or this article simply wouldn’t exist.

TVOD falls into three categories:

- Electronic sell-through (EST, sometimes may also be referred to as “download-to-own”, or DTO), whereby the user must buy the programming piece

- Download-to-rent (DTR), whereby the user can rent the content for a limited time period

- Pay-per-view that stands apart a bit but still refers to TVOD allowing the user to purchase a broadcast of a particular event (mostly sports) and watch it via private telecast.

iTunes and Google Play represent the TVOD model whereas HBO PPV and UFC TV relate to its Pay-per-view division.

Premium

This one’s interesting. Premium Video on Demand (PVOD) may be considered an entirely different model that may be used together with the other ones mentioned above. The point is that the term “Premium Video” here refers to the movies that are released at the theaters and are made available through the services in a few weeks after the first night. Thus, premium users can watch the new movie at home when it is still on at the theaters, or at least shortly thereafter. It is a matter of exclusiveness as the movie is unlikely to appear on any other platform (SVOD or AVOD) in the short run.

Still, that strategy is not as widespread as the previous ones. What’s more, it is likely to experience a slight fall due to a couple of reasons. First, the largest content producer Disney stated it will probably not take part in the PVOD mess and will continue to cooperate with theaters and develop their own SVOD service. Second, the theater revenue is only increasing and is unlikely to be shared with VOD services. For example, it is way more profitable for cinemas to screen Marvel’s Avengers second time than to send it to VOD platforms.

Nonetheless, PVOD still exists and it may experience a large increase in popularity. It just won’t happen in the short run. Or in the distant one. Anyway, Curzon Cinema and Screening Room may be considered as PVOD examples.

Donations

Donations originated from the computer games and were mostly applicable to game streaming services. Any VOD is unlikely to have a donation option. That strategy involves free-will payments that come from the audience directly. It means that a person can support the content creator (streamer in this case) and donate any amount of money they want. The platform gets a cut of it in its turn.

Nevertheless, this model is used not purely by streaming services and not all streaming services really use it. For example, Netflix is a streaming service but there’s no donation possibility in it. YouTube is a partially streaming service as well but it provides a possibility for donations. Twitch was initially built around that function to support streamers. Maybe that is the answer. Donations are intended to give the audience the possibility to support their favorite content makers. So, donations are mostly relevant to the services that are centered around user generated content.

Conclusion

Gone are the times when everything was easy and understandable. Now it keeps getting more and more complex.

As for now, only two models have the greatest impact. It is SVOD, on the one hand, with its Netflix, Disney+, Amazon and some others, and it is AVOD, on the other one, with YouTube, Pluto.TV, Hulu and a few others (CTV applies it to the full extent). Other models are not so widely used, so the main tournament takes place between those two strategies.

And it’s unclear which one can win. Both strategies have their own pros and cons, so no forecasts can be made. It is still possible that we would see a synthesis of these two models and have something as “sub-ads” strategy, e.g. if Netflix adds yet another viewership model based on advertising.