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Single or Hybrid Revenue Model? Which is Better?

• Nov 01, 2021

OTT_Streaming

Video on-demand services are big business in 2021. With the global lockdown a year earlier, more people are snacking away on all the best content available online. With the year’s projected revenue to reach $1,207 million and a projected CAGR growth of 12.2% over the next 5 years, the industry is looking very healthy.

However, before jumping onto the OTT streaming services gold rush, a strategy needs to be in place. Having the wrong plan will cost you lots of potential customers, revenues and even your reputation.

In this industry, one of your most important decisions to make will be deciding which revenue model best suits your OTT video platform.

Revisiting the 3 Major VOD Revenue Models – SVOD, TVOD and AVOD

By now, you should have either done enough research on such revenue models or have already implemented one and are looking at changing or even merging the models. There is no single suitable revenue model which should be adhered to by all VOD platforms to maximize their returns. Each model has its strengths and weaknesses. What you need is to figure out which is the best match for your content and the audience that consumes them.

A quick recap, these are the 3 major VOD revenue models:

  • Subscription Video on Demand (SVOD) – This model makes revenue through the user’s subscription. In return, the users get unlimited access to the platform’s content for a specific time. Some examples of SVODs include Netflix, Amazon Prime and Disney+.
  • Transactional Video on Demand (TVOD) – Instead of accessing a smorgasbord of content, users pay for a single piece of content, such as a single episode or season. Some examples of TVODs include iTunes and Google Play.
  • Advertising Video on Demand (AVOD) – Unlike SVOD and TVOD, platforms that use this model earn revenue through advertisers placing ads before or during the content. Some examples of AVODs include Xumo and Crackle.

Hybrid Revenue Model

VOD services that use the hybrid model infuse monetization elements from all 3 major revenue models. For example, a platform can adopt an AVOD model, with ads placed throughout various stages of the content, while offering an option for users to pay a premium to bypass all ads with an SVOD model.

According to a Juniper research paper, the hybrid revenue monetization model would reach 273 million users by 2025. Several OTT services are starting to adopt this revenue model. NBCUniversal’s streaming arm, Peacock, is one of them. Peacock offers three tiers of service, Peacock Free, which offers premium content with targeted user advertising, Peacock Premium, which provides the complete collection of content with advertising and Peacock Premium Plus, which provides the complete collection without the ads.

Just like the 3 main VOD revenue models, the hybrid model comes with its pros and cons. This model, especially when including AVOD, allows quicker user acquisition (in the case of YouTube), providing them with a “try before you buy” experience of the platform’s content. It’s a win-win situation for all. Advertisers can reach a vast audience, while users enjoy a spectrum of content. The OTT streaming services platform, in return, gets to earn from both the advertisers and subscribers. On the flip side, as this model is a mixture of revenue-earning streams, it can be tough to maximize its earnings from each stream. For example, in a cash-tight economic climate of 2021, many may be content to put up with the ads and not upgrade in order to save money.

Should You be Using a Single or Hybrid Revenue Model?

In determining which revenue model to use, size matters. Knowing how your platform’s limitations will determine how much money you will make.

Hybrid models are excellent for OTT streaming services platforms that already have a wide variety of content that gives users an incentive to upgrade from free to premium. Additionally, you have to ensure that your content is something people will pay money for, not some random viral or cat videos easily found on social media.

For newer OTTs, the single revenue model will be a safe bet. It allows your small team to focus on getting good at generating revenue optimization from one single model before expanding.

Other Revenue Methods for VOD Businesses

Aside from the 4 major revenue models, there are other unconventional ways OTT streaming services platforms can monetize. One strategy to maximize revenue from your loyal subscribers is the premium video on demand model (PVOD). The selling point of this model is immediacy. Users pay a premium fee to enjoy early access to specific content. Disney+ adopted this model, where users pay an additional $25 to watch Mulan on the first day of its release.

Newer players to the game can even consider donations, similar to PBS’s revenue model. However, you need to ensure that you offer quality content that can instill loyalty among your audience.

Sponsored content is another opportunity to make money. This strategy is very similar to what several YouTubers are doing. Yet, bear in mind that you need to cultivate a strong following for brands to work with your platform.

As you better understand and engage your consumers over time, don’t be surprised that you would need to change your revenue optimization software system.

Creating a revenue model is no easy, snap-of-the-finger task. OTT streaming services should engage in A/B testing and make their decisions with qualitative analytics tools. The Evergent Revenue and Customer Management Platform offer a comprehensive, carrier-grade solution that helps companies reduce time to market for products and services, minimize subscriber churn, simplify complex monetization models, and run back-office processes more efficiently. To learn more about how to reduce involuntary churn, please go through the Evergent’s eBook.

Kapil Chaudhry
Kapil Chaudhry
kapil.chaudhry@evergent.com

Kapil Chaudhry, Evergent’s Chief Technology Officer, has more than 15 years of engineering management experience, holds an MBA from the University of California, Irvine, and is a technical award recipient, and was formerly with DIRECTV.