Ever wondered how all these OTT platforms, that we are so addicted to, make money? With so much content coming up on a regular basis, how do they make the money to acquire them? (remember the Disney+Hotstar deal of acquiring films for direct OTT release recently). These questions often cross our minds but we are so engrossed in bingeing our favourites that we often neglect them. OTT’s have changed the way we view content, it has given us more control over what, when and where we want to watch something. These OTTs are moving fast and making their way up in the market of video content. The factors driving the adoption of OTT services include better internet connectivity, fall in data prices, increased smartphone penetration, a young demographic, growing affluence and the availability of content.
Covid-19 has accelerated this growth a step further. The growth that was potentially anticipated to happen somewhere in late 2021-2022, has been accelerated in 2020 itself. India saw a 55% hike in overall streaming traffic. The Boston Consulting Group report said the size of the Indian OTT market is set to grow 10 times to $5 billion by 2023 from $500 million (Rs 3,560 crore) in 2018. The global OTT market is forecast to grow 85% to $141 billion by 2022 from $76 billion in 2018, it said.
The two main strategies that OTT players use to gain more customers are – firstly, going more and more niche and secondly bringing more original content. By targeting a well-defined audience with hyper-targeted content, OTT service providers can build more brand loyalty, thereby spending less on customer acquisition and increasing revenue. OTT providers are investing more into original content, by either setting up their own production houses, by tying with other producers or by purchasing rights agreements with studios.
Apart from adopting these strategies there are a few revenue models used by various OTT platforms depending on the content offered, target group and the business strategy.
AVOD – Advertising Video on Demand
In this model, streaming video is delivered as a free service for end consumers. Advertisements are the economic engine for businesses that operate under the AVOD model. The ad revenue is used to offset production and hosting costs. Such ads are placed at the beginning, middle and end of the video. Although the service is free, the ads can be highly interruptive to the viewer’s experience. If not managed well, it can potentially irritate the consumers. Premium content owners rarely use AVOD as it generates lower amounts of revenue than other models.
The most prominent example of this type of revenue model is YouTube.
TVOD – Transactional Video on Demand
TVOD model is quite straight forward, here the consumers purchase content on a pay-per-view basis. It is also known by other names such as PPV (Pay Per View) or PPD (Pay Per Download). TVOD services typically retain customers by offering attractive price incentives, so they continue to return in the future. Consumers can access, by renting or buying, movie and TV series much sooner after their general release on a TV broadcast. Despite all this TVOD model has failed to capture market and consumer confidence.
Example – Google Play and iTunes
SVOD – Subscription Video On Demand
SVOD offers its users access to an entire library of video content by simply signing up for a subscription (monthly/ quarterly, annual). SVOD means watching with no limits – anything that’s on the platform is game for a watch. Netflix started using this model by acquiring content that wasn’t theirs, but this model proved so beneficial that they were later able to produce their own original content. Industry research has also shown that SVOD delivers higher revenue per user. The ability to choose different tiers of subscription in SVOD is also very enticing for customers. This model definitely takes the lead among others.
Example – Netflix, Amazon Prime Video, Apple TV+
Hybrid Model:
Hybrid models combine the best of worlds by bundling the services in different ways. In this type of model when the user signs up, he/she is provided with a library of content which often have ads. The user can also choose to opt-in for a paid pack to access certain exclusive content. This paid pack can be either in the Subscription or the Pay-Per-View model.
Example – Disney+Hotstar, SonyLIV, Voot, Zee5, etc.
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