How to Make Money from VOD and OTT Platforms?

A key consideration when launching an OTT platform is monetization. It’s wise to consider this aspect early in the business development process. In this article, we’ll look at the pros and cons of the most common forms of monetization: AVOD (advertising video-on-demand) and SVOD (subscription video-on-demand). Although there are a variety of other monetization models, including TVOD (transactional video on demand), most OTT providers choose AVOD or SVOD. In this blog post, we’ll talk about the pros and cons of each and what Setplex advises many of its customers.

Why AVOD is the revenue-making VOD business model

AVOD Platforms – in which viewers watch free content in exchange for watching ads – dates back to the advent of YouTube in early 2005. The first YouTube video was posted by that platform’s co-founder Jawed Karim visiting the elephants at the zoo (it got 172+ million views).

An advertising-based model is probably the most popular model and is often used for platforms that host user-generated videos, some of which go viral. Free content draws in viewers, which in turn encourages marketers to advertise on the platform. Premium content drives higher CPMs – the cost an advertiser pays per one thousand ad impressions – as does niche programming. But a site that only gets 50,000 visitors a month, for example, is not as desirable to an advertiser as a site that routinely draws millions of visitors.

Most platforms using the AVOD model begin by utilizing programmatic advertising.. (low yielding ads generated by a marketplace like a google. But OTT operators can also rely on SpotX or PubMatic or similar supply-side platforms.  SSAI (service-side ad insertion), which sits between the online video player and the ad server to mediate the insertion of ads into the content. SSAI creates a buffer-less transition from content to an ad and back again, such as a viewer would experience on broadcast TV. More importantly, SSAI also helps to prevent ad blocking.

With SSAI, a manifest file is created whenever someone watches a video.  Without any user-specific data points, Ad servers track the IP address and device ( smart tv, Android iPhone etc) which can be used to target ads. The downside of the AVOD model is that most people don’t like watching ads, especially when they cut into the middle of a program. ResearchandMarkets, however, stated that AVOD expenditure for TV episodes and movies will climb by 144 percent between 2020 and 2026 to reach $66 billion across 138 countries.

What is SVOD Monetization?

Netflix, which is emblematic of the SVOD model, started as a video rental company in 1997 but began streaming in 2007. The SVOD model is usually easier to implement than an AVOD model and, better, subscriptions are a recurring revenue stream similar to cable. There are several – and growing – successful SVOD platforms besides Netflix including Amazon Prime, Disney+, Paramount+ and HBO Max. Viewers love the ad-free experience and premium programming can build word of mouth and brand loyalty. According to ResearchAndMarkets, the SVOD market will grow to over one billion subscriptions by 2025, up from 642 million at the end of 2019.

But SVOD also has its challenges. Churn is the most prominent downside; just as users subscribe to a channel, they can constantly shift their service lineup, unsubscribing from some to add others. Part of it is that, with such a large number of SVOD platforms, the viewer can find the amount of content available overwhelming.

According to Statista, chief among subscribers’ dissatisfaction is the effort required to find the content they want to watch. Recommendation engines are the best solution, but that also costs money per user per month, another cost in operating an SVOD model. The viewer can only afford only a limited number of subscription services, again encouraging churn.

Make Money with a Hybrid Model

Setplex recommends that OTT providers just entering the marketplace consider a hybrid model, which can be a mix of AVOD and SVOD.

Going hybrid allows the operator to take the most compelling features of each model to build a customized business model. One example of a successful hybrid model is Amazon Prime, which costs an annual fee for access to a tremendous amount of content for free, without ads.

But Amazon Prime also offers a wide variety of additional channels, which the consumer can try for free for seven days before deciding to subscribe via a recurring monthly fee. Amazon lets the consumer “try before you buy,” a model that has proven to be very successful. To watch free content for a trial period, the consumer enters credit card information, which has proven to successfully convert to a paid subscription 90 percent of the time.

For most publishers, the 7-day trial is not an option as subscribers do not like to commit a credit card to an AVOD site.

For marketers, promote the free content on Youtube or through social channels, drive users to download your apps and utilize AVOD with the upsell of offering premium content with the subscription as well as removing ads.

About Setplex

At Setplex, we specialize in offering the flexibility you need to build the right mix of business models. We support pure AVOD, SVOD, as well as a hybrid model. 

(Devdiscourse's journalists were not involved in the production of this article. The facts and opinions appearing in the article do not reflect the views of Devdiscourse and Devdiscourse does not claim any responsibility for the same.)