What are the Main Monetization Models Available to OTT Companies?

The outburst of Coronavirus has surged the demand for OTT streaming platforms like Disney plus, Netflix, HBO Now, Hulu, and Amazon Prime. OTT platforms are transforming the world of entertainment by offering excellent services to users. Netflix added nearly 16 million audiences during the last few months of 2020, which is almost double the number of signups it received in the final months of the past year. Not just Netflix, other OTT streaming platforms including Disney plus, HBO now, and Amazon prime have seen a huge spike in the number of lockdown audiences.

Monetization models of OTT platforms

Considering the statistics in the spike of OTT audiences last year, it is no wonder that the global OTT streaming market is expected to reach $169.4 billion in 2023. What this means for content creators or entrepreneurs who want to enter the streaming industry is extraordinary- You have more control over the revenue you generate.

Launching an OTT platform opens up a wide world of business opportunities and streaming continues to gain popularity. If you are planning to build your own OTT platform, there are 3 main avenues to make money with your OTT content: AVOD, SVOD, and TVOD.

1. Advertising video on demand (AVOD)

AVOD is one of the common OTT platform revenue models, where you offer free content to your audience. Free in a way that there is no money put upfront. But you convert the time your viewers spend on your OTT platform into money. You are basically selling the time of your audience by making money through sponsored content, ads, and commercials through your free content.

How it works

If you choose AVOD as your revenue model, you are allowing your audience to view your OTT content for free, but along with the advertisements. You get paid from the sponsors and advertisers who pay for the number of views and engagement with the content. This works when you are starting out and as you grow free content is always a big draw for the audience. But the downside to it is that to capitalize on this opportunity, you must have a huge audience who regularly tune in to your content. As advertisements can be highly interruptive to the viewing experience, they must be properly executed.

Examples: YouTube and Roku channel

• Subscription video on demand (SVOD)

Subscription video on demand is a popular monetization model that is similar to traditional pay-TV packages that allow the audience to access ad-free content for a fee, typically paid monthly or yearly. With easy-to-unsubscribe policies, SVOD is one of the most lucrative revenue models and makes up the largest segment of the OTT industry.

How it works

In SVOD, you allow your audience to access your OTT content for an auto-renewable subscription fee. Viewers can access the entire library for free as long as they pay for the subscription- Unlimited content anytime, anywhere, and on any device. To make a good amount of revenue, you can offer multiple plans with various perks that attract your viewers. The freedom to unsubscribe anytime presents a big challenge for SVOD OTT providers but it can be balanced well by adopting strategies to retain users. SVOD works great for OTT platforms that offer great quality exclusive content.

Examples: Netflix, Disney plus, Amazon Prime, Hulu, and a lot more.

• Transactional video on demand (TVOD)

TVOD is another OTT platform revenue model where the audience pays upfront for the content they are interested in. TVOD also witnessed huge popularity due to the fact that viewers can enjoy the ad-free experience without paying a subscription-free.

How it works

If you implement this revenue model you can allow viewers to pay for the individual videos they want to watch. Users can either buy or rent movies and shows. Buying allows people to own the content indefinitely by downloading it. Whereas, renting allows accessing the content for a limited period for a small fee. TVOD works great for both evergreen content like classic movies, series, and seasonal content like sports events. Offer attractive prices and promotions to users so that they will be back for repeated purchases.

Examples:  iTunes, YouTube Movies, and Amazon’s Rent and buy store.

• Hybrid revenue model

Many OTT platforms follow a hybrid approach when it comes to monetizing their services. It can be a combination of revenue models by combining AVOD and SVOD, TVOD and SVOD or all three. For example, YouTube offers a hybrid combination of all 3 revenue models by offering free and ad-supported content (AVOD), YouTube Premium (SVOD), YouTube movies & Shows (TVOD). Amazon prime also uses a combination of SVOD and TVOD where users have to pay for a subscription to access Prime video and can also buy new releases of sports events by paying an extra fee.

Which is the best OTT monetization model?

Now, you want to build your OTT platform and you know the three major OTT monetization models, which one you must choose? Ultimately, the best monetization model that you must adopt is the one that best suits your target audience, their needs, and your intended budget. If you think one strategy might not work well for you, you can also go for the hybrid approach to cater to a diverse range of audiences. No matter what monetization model you choose, make sure you implement compelling pricing schemes to attract and retain users. Offering a free trial is also a good strategy if you are adopting a subscription model to successfully attract users to your OTT content.

Conclusion

The OTT platforms have grown rapidly over the past couple of years with billions of beings invested and there are no signs of slowing down anytime soon. Ultimately, the future of OTT companies comes down to creativity and innovation. To remain in the mainstream in terms of popularity and monetization, putting out the best calibre in generating quality content that the audience wants to see will help. Adopting one of these monetization models or a hybrid approach will help you engage a wider audience and maximize your revenue.

Now that you’re familiar with the basics, it’s likely that you’re going to start your own OTT business soon! And this Netflix Clone might be a good place to start – comes with all the monetization models mentioned above!

So, get started then!

Cheers!