How to Monetize: AVOD, TVOD, or SVOD?
Streaming Media and Unisphere Research often engage my company, Transitions, Inc., to assist with surveying the streaming industry about a variety of challenges and opportunities. Jointly, the Streaming-Transitions-Unisphere team has done about a dozen surveys over the past 2 years, ranging from over-the-top (OTT) to security to webcasting.
Surprisingly, one of the most challenging surveys centered on a topic that almost everyone in the streaming industry is intimately familiar with: monetization.
Having assisted in the creation and analysis of almost 50 surveys and test results in the last 20 years, including a number of bespoke surveys and test methodologies for key industry companies, I was surprised at the difficulty we had getting potential survey respondents to engage in a conversation around the idea of monetization.
Those who did, though, offered comments that sum up some of the challenges in deciding between the Big 3 forms of monetization: advertising, subscription, and transactional.
The video on demand (VOD) versions of the Big 3 are dubbed AVOD, SVOD, and TVOD, respectively. A few comments were added by those who offer live OTT services, but the vast majority of comments centered on VOD services.
In Their Own Words
If you're looking for traditional statistics around OTT VOD monetization, stop reading. We're not revealing the findings of the survey in this article, although that information will be available in a formal report soon.
Instead, we're offering a sample set of gut-level responses from a variety of survey respondents. Some are single sentences and others are paragraph-length quotes, but all are as close to the original as we can make them.
One word of caution about these quotes. The surveys hosted by Streaming Media are designed with anonymity in mind, in an attempt to gather honest and accurate assessments of the state of the industry. In other words, even if we wanted to, we have no way to identify and verify particular anonymous responses, unless a respondent opts to self-identify to join a prize drawing offered as thanks for completing the survey.
That said, the rest of this article will focus on a variety of monetization topics, in the words of survey respondents.
Fear of Cannibalization of Existing Business
Does OTT monetization negatively impact existing business? While this wasn't a direct question in our survey, the theme occurs frequently in respondents' comments.
It makes sense, especially when industry veterans are asked to define the challenges faced in choosing the proper mix of OTT service offerings. While a high percentage of respondents in our recent survey said that they offered OTT services as a way to attract new subscribers, a number of responses indicated a need to retain subscribers.
Yet the fear of subscribers shifting from a higher-paid subscription (such as a monthly cable TV package) to a lower-price streaming-centric package seems to be top of mind in choosing the proper mix of content.
- "Cost, time to market, cannibalizing existing business model" were the top three concerns of one respondent.
- "The main challenge is what partners to work with—players, CRM, and DRM, what billing/payment service provider to work with, etc.," wrote another survey respondent. "Then it is about maintaining customer interest without cannibalizing main channel center."
- "Avoiding cannibalizing one offering with another—e.g., ensuring they are complimentary and additive, not substitutional in their revenue potential," wrote a third respondent.
- "Clients and end users increasingly expect content the way they get it from other sources regardless of platform or device. There must be movement to meet that
demand to retain the business."
One challenge called out in several comments was the budget constraints of OTT services, which operate on much smaller margins than typical broadcasters. This issue manifests itself in everything from marketing budgets to production choices.
- "Creating content that has production value that is equivalent to broadcast TV on a smaller budget."
- "Do you possess the budget resources to wrestle away high content from PayTV and broadcasters? If not, don't launch."
This continues to be a major concern for OTT services. Some see scaling limitations as the byproduct of an improper content mix, where content that's not fresh won't continue to attract subscribers, while others see significant cost increases as infrastructure needs to be built out or purchased as part of an outsourcing agreement with a content delivery network (CDN) or online video platform (OVP) provider.
- "Every content provider and every content format is just different enough that the cost and complexity doesn't scale great as you increase your offering mix."
- "The more you scale, the more your overhead is. The CDN and bandwidth charges are getting very expensive, so making sure we have the highest possible CPM [cost per impression] on our ads and not serving empties is constantly a struggle we're maintaining."
- "Longer content costs more to distribute and is harder to monetize."
- "Growing market with varied specs causing additional Amazon Web Services costs."
- "Maintaining compatibility with older technology used by subscribers," one respondent stated as a primary challenge, "as well as cost increases as the service is
more successful, unlike broadcast."
- "User confusion about getting content. Also, face the challenge of upselling from TVOD to SVOD when the target customer has already purchased a number of titles that are also available through SVOD."
Total Market Opportunity
This topic might keep both the CFO and the CEO awake at night: What if you have the technical infrastructure to handle growth, but the market size itself is too small in terms of the number of users?
- "SVOD return on investment is too slow unless there [is a] significant number of subscribers," one respondent writes, adding that the "number of subscribers is too small for anyone other than Netflix/Hulu/Amazon. It limits the revenues to $70–$100 million. Moving to $1 billion revenue is very challenging with this subscriber growth."
- "How to monetize it enough to be more profitable for the content creator than the distributor."
- "OTT is more complementary to linear service; not yet a big revenue stream. Need to monetize in the long run."
- "Ultimately the increased revenue from subscriptions will always negatively affect our total viewership. We've seen significant drops in viewership (90%) when implementing SVOD."
Competing With the Big OTT Providers
A corollary to total market opportunity is the question about first-mover advantage. Is the market too saturated to enter in the foreseeable future?
- "If you're offering content like HBO or Netflix that's extremely valuable to the consumer, then the challenges are offering enough fresh content that's easy for the consumer to find with recommendation engines in the app," writes one respondent. "If you're not offering premium content, then the challenge is understanding how much consumers value what you have to offer. Enough to subscribe or only enough to sit through a few ads?"
- "Content needs to be niche enough to get attention but broad enough to bring in real revenue. Broad OTT plays must have exceptionally compelling content as they are then competing with Netflix, Hulu, Amazon, YouTube, etc."
- "SVOD competes with Netflix, Hulu & Amazon Prime, so [it is] hard to compete on content quality, have to wait for TVOD window which allows cheaper upfront costs."
What About Transactional VOD (Pay-per-View or Purchased Content)?
While the bulk of attention for VOD monetization centers on subscriptions or ad-driven revenue models, let's not forget that iTunes started as a transactional model, where music, movies, and TV episodes were available for purchase. To really grow, however, Apple realized its platform could be sourced to other content providers, for a price. Just ask Spotify.
- "TVOD challenge is getting new credit card on file or paying 30% to platforms Roku, Apple, iTunes, etc."
Bundling Content Between Multiple Media Services (Internal Cross-Bundling for a Media Conglomerate)
Media groups have traditionally clustered around newspaper and television stations, sometimes buying one or several of each within a geographic region. The advent of OTT, though, with its potential global reach, offers potential to bundle with other services. Why aren't companies taking advantage of this opportunity?
The following quotes may provide some insights.
- "We are foolish not to exploit."
- "Will cross-bundle with broadband."
- "Our market is highly focused groups with short shelf-life content."