The rise of the OTT market has prompted many content creators and publishers to start thinking about video monetization and launching their own video businesses.
Launching an OTT platform helps you take your content to a global audience and generate substantial revenue. It’s also an excellent way to build a brand that viewers associate with specific types of content.
The business is booming too — the latest data shows that the number of users in the OTT video segment will reach 3.5 billion by 2027. That’s a whopping 44.1% worldwide user penetration. And here’s the interesting bit — revenue in the segment is projected to reach $476.6 billion by 2027.
Image via Statista
That means it’s high time you stop toying with the idea of launching an OTT video business and start building one. That said, generating revenue from your content isn’t straightforward.
Delivering outstanding content isn't enough. You must also identify the right monetization strategies to make money from your OTT platform.
In this guide, we’ll delve deeper into the OTT video monetization landscape. We'll also explore the available options you can choose from.
Let’s get started.
What Are the Different Types of Video Monetization?
Outlining a rock-solid OTT content strategy isn’t enough to build and grow a self-sustaining business. If you want your OTT platform to stand the test of time, you must use the right techniques to monetize your content.
Now, when you think about VOD monetization, you’ll come across various methods, such as AVOD, SVOD, and TVOD. But what do these terms mean? And how do they fit into your OTT platform?
Let’s find out.
AVOD
Advertising video on demand (AVOD) is one of the most popular video monetization models. It's also the one with the most users.
With AVOD, viewers get free access to on-demand video content in exchange for watching ads. OTT service providers make money by selling ad inventory to advertisers.
AVOD is like traditional TV advertising. Movies and shows on these platforms are interspersed with commercial breaks. It’s one of the fastest growing segments, with a revenue of $180.4 billion in 2022.
Image via Statista
YouTube is the most popular streaming platform that uses AVOD monetization. Other platforms that use this model include Peacock, Pluto TV, and IMDb TV.
This model is particularly valuable when you’re launching a new OTT service. It's especially helpful as you aren’t confident that viewers will pay for your content. It also works better for short-form content that appeals to a wider audience.
SVOD
Subscription video on demand (SVOD) gives viewers access to your content library in exchange for a recurring subscription fee. You can charge a monthly or annual subscription fee (based on your audience’s preferences).
Some of the world’s best-known OTT platforms use SVOD to monetize their content. These include Netflix, Amazon Prime Video, and Disney+. So, it isn’t surprising that more than 1.88 billion people worldwide use subscription OTT services. That figure is projected to reach 2.15 billion by 2025 (nearly half of the internet population).
SVOD helps OTT service providers build a recurring revenue stream. Once a viewer subscribes to your platform, you don’t have to worry about them returning to your platform. This is because they’ve already subscribed for a specific period. To make the most out of it, you should consider being flexible with your subscription plans and let your audience choose from them.
SVOD doesn’t guarantee recurring revenue though. You still have to work on your content strategy to minimize churn and retain subscribers. It’s particularly crucial in this age of subscription fatigue — even a behemoth like Netflix is losing subscribers.
TVOD
Transactional video on demand (TVOD) lets users sign-up on an OTT platform for free. But, they have to pay a fixed fee when they want to access a piece of content. You can let them purchase or rent it for a limited duration.
If you think of an OTT service as a restaurant, TVOD is similar to ordering food à la carte; your viewers pay for what they want to watch. That makes it more flexible and viewer-friendly. On the other hand, SVOD is like eating at the buffet section of a restaurant, which is more affordable.
Popular platforms that use TVOD include Apple iTunes and Sky Box Office. It works particularly well when your platform features a ton of premium content, such as classics and blockbusters. But, you might have trouble retaining viewers.
Which Is the Best Monetization Model?
All three monetization models we’ve discussed so far come with unique pros and cons. So, how do you choose the one that’ll deliver the best results for your OTT business? The key is to have a clear idea of the following things:
- Deep understanding of your target viewers’ preferences
- How the model of your choice can help you reach your business goals
- What type of content you’d like to feature on your platform
For instance, if you’re planning to distribute new releases on your OTT platform, TVOD is a great choice. It will help create a buzz about your content. But, if your target audience includes college students who prefer free, short-form content, your best bet is to use AVOD. Similarly, if you want a predictable influx of revenue, SVOD might be a better option.
Hybrid Monetization Models
The good thing about starting an OTT service is that you don’t have to restrict yourself to a single monetization strategy. The best OTT platforms use a combination of different techniques to maximize revenue, user retention, and audience engagement.
For instance, Hulu offers tiered pricing. Its users can watch ad-supported content for free. Alternatively, they can subscribe to a premium plan to watch ad-free content.
If you’re launching a new OTT service, you can use a similar strategy to attract a plethora of viewers and entice them with high-quality content. If they like what they watch, they’ll upgrade to a paid subscription.
Similarly, Amazon Prime Video gives users exclusive access to newly released content in exchange for a one-time fee. That’s in addition to the annual subscription fee they already pay to access the platform. The combination of TVOD and SVOD helps the OTT giant harness the benefits of both techniques.
Now that you have a basic idea of different video monetization models, let’s take a closer look at each strategy.
Subscription Video on Demand (SVOD)
As we’ve already discussed, SVOD is one of the most popular video monetization models. Leading OTT platforms like Netflix and Disney+ use it to generate revenue. Niche streaming services like American Kennel Club and Crunchyroll also use it.
A recent study revealed that 109 million US households use at least one SVOD platform. That’s 85% of the total households in the US, making SVOD’s penetration rate higher than that of cable TV.
With one in three Americans planning to cut the cord in 2022, SVOD’s market share will continue to grow. But it's crucial to weigh the pros and cons of SVOD before using it as your video monetization model.
Benefits of SVOD
Worldwide revenue in the SVOD segment will reach $80.83 billion in 2022. Also, the projected market volume will skyrocket to $139.20 billion by 2027.
That means now is a great time to start an SVOD streaming service. It offers the following benefits.
Recurring Revenue
With SVOD, you don’t have to worry about reaching out to advertisers and selling ad inventory. Instead, you get a steady revenue stream from repeat subscriptions, which helps you invest in better marketing campaigns to attract more subscribers.
You can use various strategies to increase revenue from SVOD. For instance, you can offer deep discounts on quarterly or annual subscriptions. It’ll lock in viewers for a longer time and cut customer acquisition costs. This can help you scale marketing efforts to grow your OTT platform.
Flexible Pricing
SVOD gives you full control over your pricing (and revenue). You can build a tiered pricing strategy to cater to different audience segments. It’s also possible to customize your pricing plans for different devices and locations.
For example, Netflix offers a subscription plan of INR 199 ($2.51) per month for smartphone users in India. It’s helped the platform tap into the growing trend of smartphone usage in India.
Enhanced User Experience
SVOD removes the need for viewers to sit through ads. Instead, they can watch their favorite shows and movies without any breaks. This creates a seamless viewing experience. It also encourages viewers to return to your platform.
Most SVOD platforms also offer high-quality and niche content as per their subscribers’ tastes, even providing personalized recommendations based on them. It boosts subscriber loyalty and amplifies your recurring revenue.
Limitations of SVOD
While the benefits are many, there are a few challenges of starting an SVOD service.
Subscriber Churn
Attracting viewers to your OTT platform doesn’t guarantee steady revenue. The main reason many SVOD services fail is that they struggle to retain subscribers. You have to regularly provide them with fresh and high-quality content. Otherwise, they’ll switch to other OTT platforms sooner or later, which could take a toll on your revenue.
Higher Costs
Convincing viewers to pay a monthly or annual subscription fee isn’t easy. As a result, your SVOD service will compete against other platforms that offer free video content. That makes it essential to increase your marketing spend to attract new subscribers and invest in customer retention strategies.
Subscription Fatigue
More content creators and publishers are launching SVOD platforms, showing the market is heading towards a saturation point. Also, not all movies and shows are available on the same platform. This means that users would have to maintain multiple subscriptions.
So, consumers will likely pull the plug on a few subscriptions when they’ve watched their movie or web series. In such a scenario, retaining subscribers will become even more challenging. The only solution is to amp up marketing and content creation. But that’ll increase costs.
How to Decide If You Should Go for SVOD
Wondering whether SVOD is the right video monetization model for your OTT platform? Here are a few things you should consider:
- Budget: Do you have enough money to promote your OTT platform and content? Can you afford to acquire new customers and retain existing ones?
- Content: Do you have a vast library of high-quality and niche content? Is it tempting enough for viewers to pay?
- Audience: Will your target audience pay to watch ad-free video content online? Or would they rather sit through ads if that means free access to content?
Analyze the answers to these questions to help you determine whether SVOD is the right choice for your streaming service.
How to Start an SVOD Platform
Launching an SVOD service requires proper planning and a deep understanding of your audience, so start by getting a clear idea of your target audience. Focus on their content preferences, aspirations, and pain points. Dig deeper into their socioeconomic background, location, age group, etc.
Also, make sure you’ve figured out the following things:
- Content strategy: Build a concrete plan to regularly produce fresh and unique content. Make sure it resonates with your target viewers.
- Marketing strategy: Identify the right channels to reach your target audience.
- Pricing: Create a tiered pricing structure. Make sure it addresses the needs of different audience segments.
The next step is to choose the right platform to build your SVOD service. Find a platform that lets you host and manage your content, such as Zype. Check whether it lets you track content performance and set up paywalls and ensure it delivers a smooth viewing experience that justifies the subscription fee.
Important Video Monetization Metrics to Track
Building an SVOD service isn’t just about launching your OTT platform. You must monitor your content and audience to help you understand whether your video monetization strategy is working.
Here are a few metrics you should track:
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Customer Lifetime Value (CLV or LTV): The CLV indicates the total revenue you’ve generated from the average subscriber throughout their relationship with you.
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Monthly Recurring Revenue (MRR): This represents the monthly revenue you’ll generate from new and existing subscribers.
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Annual Recurring Revenue: It’s an indicator of your streaming business’s annual revenue and overall financial health.
Are you looking to understand these metrics in detail? Refer to our Subscription Video Business 101 guide.
Do you want to measure the revenue potential of your SVOD platform? Feel free to use our revenue forecast model. It’ll give you a clear idea of the financial viability of your SVOD platform.
Advertising Video on Demand (AVOD)
AVOD is a widely used video monetization model that gives viewers free access to a VOD platform’s content library. But they have to watch ads along with their favorite content. Ad breaks on AVOD platforms appear at the video's start, during, or end.
AVOD services make money based on the number of people who view these ads. You can also generate revenue from brand overlays and sponsored content.
When you think of AVOD, YouTube is the first platform to come to your mind. It’s the world’s most widely-used AVOD platform, with more than 2.2 billion users. But the use of AVOD isn’t restricted to platforms that rely on user-generated content.
Many platforms featuring professionally-produced content also use this video monetization method. These are Hulu, Pluto TV, Roku, and Tubi.
Benefits of AVOD
AVOD platforms have been gaining popularity among content publishers, advertisers, and viewers. Here are a few pros of this video monetization model:
Growing Viewership
Many content publishers assume that viewers don’t want to watch ad-supported content. But that’s far from true. In fact, more than 80% of viewers are willing to watch ads in exchange for free content.
That’s why AVOD adoption has been growing among end users. There are more than 138 million AVOD viewers in the US, and that’s about 50% of the total internet users in the country. The number of AVOD users will also increase to 164 million by 2025.
What’s more, the use of AVOD services increased by 29% in US households between 2020 and 2022. On the other hand, the use of SVOD platforms grew by only 21% during the same period.
AVOD’s rising popularity makes it one of the best video monetization models for OTT platforms. You don’t have to convince new users to pay a fee to watch your content. That makes it great for new streaming services.
Low Initial Investment
Video monetization techniques like SVOD and TVOD need regular investment in content creation. You have to deliver content of a certain quality to compel viewers to pay. Also, you have to launch costly marketing campaigns to attract paying users.
AVOD saves you all that trouble. You don’t have to worry about consistently producing high-quality content. Instead, you can invite content creators or users to upload videos on your platform. You can pay them a share of ad revenue if their videos attract a lot of views. As AVOD platforms are free, the cost of acquiring new customers isn’t very high either.
Better Ad Targeting
AVOD platforms let you collect a variety of data and analytics about viewers. These include their demographics and viewing preferences. You can use this data to deliver more relevant ads to each viewer.
It improves ad performance and enhances the viewing experience. That creates a win-win situation for advertisers and OTT platforms.
Drawbacks of AVOD
Here are the various cons of starting an AVOD platform:
Low User Retention
It’s difficult for AVOD platforms to retain viewers due to the lack of a recurring subscription. New users might check out your platform, watch a few videos, and never return. This can make it tough to sustain your video business in the long run. If you want your platform to stand the test of time, find ways to combine AVOD with other revenue models.
Poor User Experience
Ad breaks can be intrusive. Irrelevant or repetitive ads can disrupt the viewing experience. The result? It could drive users away from your platform and adversely affect your revenue. You can offer a premium ad-free subscription to overcome this problem.
Rise of Ad Blockers
Many users install ad blockers to ensure a smooth viewing experience. It can take a toll on your revenue and make it difficult to sell ad inventory. You can use server-side ad insertion or SSAI to counter ad blockers.
SSAI ensures dynamic ad insertion by selecting an ad based on a user’s behavior. Then, the ad is stitched with the video content to help it override ad blockers.
AVOD and FAST Channels
Free ad-supported streaming TV (FAST) channels and AVOD platforms use similar monetization strategies. Both involve generating revenue from ads while providing free content to viewers.
But unlike AVOD platforms, FAST channels are linear. They feature pre-programmed content with ad breaks, much like TV channels. Viewers don’t have the freedom to choose what they want to watch. Instead, if they want to watch a particular film or web series, they have to tune in at a fixed time.
Popular FAST TV services include The Roku Channel, Peacock Channels, and Xumo.
How to Start an AVOD Platform
Starting an AVOD platform involves:
- Finding a video content management system (CMS) to upload and manage your content
- Using an OTT app builder to create your OTT platform
- Selling ad inventory through platforms like Google Ad Manager
You can use Zype to do all of the above activities.
Additionally, you have to outline a content strategy. Decide whether you’re going to create content in-house or publish user-generated content.
Also, you have to choose the right ad monetization options for your platform. If you want to personalize the ad experience with dynamic ad insertion, use SCTE 35 signals.
Lastly, monitor content performance and user behavior as it’ll help maximize your platform’s earning potential.
Important Metrics to Track
Building a successful AVOD platform involves measuring and tracking various metrics. These include:
Monthly Active Users (MAU)
It shows the total number of unique users who visit or engage with your OTT platform in a month.
User Engagement
It’s a measure of how viewers engage with your content and platform. It includes metrics like the average session duration and click-through rate (CTR).
Abandon Rate
It measures the percentage of tasks a user abandons before taking the desired action. For instance, you can track the percentage of viewers who exit your platform before playing a video.
Inactive Users
It represents the number of users who were active in the past but no longer visit your platform. Tracking this metric will give you an idea of how well your AVOD platform is retaining users.
Transactional Video on Demand (TVOD)
This is yet another prominent monetization strategy that video-on-demand platforms use to generate revenue. It’s pretty similar to AVOD in the sense that users don’t have to pay any subscription fee to register.
But the main difference here is that they have to pay a fixed fee for buying or renting individual content pieces. This essentially gives users control over where they want to spend their money and how much.
Typically, the content you rent is available to you for a limited number of days (mostly 48 hours). There may also be a limit on the number of times you can watch it within that duration. But the content you purchase remains yours for life (until it’s available on the platform).
The best example of TVOD platforms is undoubtedly Apple iTunes. But there are others like Amazon Prime Video as well.
Benefits of TVOD
Currently, the global TVOD market has over 698.5 million users, which is lower than AVOD and SVOD.
That said, there are several advantages that TVOD has over other monetization methods. Let’s take a look at them.
Drives Better Revenue
A TVOD platform has the potential to drive a lot of revenue if you get great content on it. And that’s because a user would be spending a significant amount on renting or buying individual titles.
Let’s understand that with an example. A user would pay about $7.99 to subscribe to Netflix and get access to all the content on the platform. On the other hand, if a user purchases a single title on Apple iTunes, it’d cost them $9.99.
Provides Content Choice
If users head to an AVOD platform, they’ll be bombarded with ads. This leads to a disrupted viewing experience. Similarly, on SVOD platforms, they would have to pay the subscription fee to access the entire content library for a month.
Both these options would be undesirable if a user just wants to watch a single movie or web series. But with TVOD, they have the choice to rent or buy the content they want. They also have an ad-free viewing experience.
Gives Content Ownership
Unlike SVOD and AVOD, users have the option to truly own content on TVOD platforms. They can watch it as often as they want without paying subscription fees or being interfered with by ads. In essence, they own the content until the TVOD platform owns the license to the content. And this makes TVOD attractive to users.
Drawbacks of TVOD
Given that TVOD platforms have fewer users than other platforms, there are some cons that you should note.
Content License Expiry
As mentioned earlier, users can only own content until the platform has its license. When the license expires, the users won’t be able to access it. This can hamper the user experience as they would have pa