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.
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.
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.
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.
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.
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:
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.
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.
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.
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.
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.
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.
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.
While the benefits are many, there are a few challenges of starting an SVOD service.
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.
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.
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.
Wondering whether SVOD is the right video monetization model for your OTT platform? Here are a few things you should consider:
Analyze the answers to these questions to help you determine whether SVOD is the right choice for your streaming service.
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:
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.
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:
Customer Lifetime Value (CLV or LTV): The CLV indicates the total revenue you’ve generated from the average subscriber throughout their relationship with you.
Monthly Recurring Revenue (MRR): This represents the monthly revenue you’ll generate from new and existing subscribers.
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.
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.
AVOD platforms have been gaining popularity among content publishers, advertisers, and viewers. Here are a few pros of this video monetization model:
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.
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.
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.
Here are the various cons of starting an AVOD platform:
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.
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.
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.
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.
Starting an AVOD platform involves:
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.
Building a successful AVOD platform involves measuring and tracking various metrics. These include:
It shows the total number of unique users who visit or engage with your OTT platform in a month.
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).
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.
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.
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.
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.
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.
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.
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.
Given that TVOD platforms have fewer users than other platforms, there are some cons that you should note.
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 paid a premium amount to buy the content.
On SVOD platforms, users pay monthly subscription fees to access the content library. This keeps them engaged on the platform, and they might try to see a variety of content on the platform. And this can improve your retention rate and recurring revenue.
But there’s no such incentive on TVOD platforms. Customers may not stick to your platform because it's a one-off transaction.
To understand TVOD in detail, let’s look at its various subcategories. You can then choose one (or more) of them for your platform.
This form of TVOD requires the users to pay a fee to rent the video title. And as the name suggests, they would be paying this fee to get a limited number of content views. Typically, it’s used for live sports or other events that you can only watch once.
In this case, users can rent the content for a specific duration in exchange for a rental fee. This is the digital equivalent of the traditional DVD rental model, where you pay a fee to keep the DVD for a few days.
This subcategory of TVOD is used when you sell content to your users in exchange for a one-time fee. It gives them lifelong ownership and access to the content as long as it’s available on your OTT platform.
Now that you know what TVOD is all about and which subcategories are available, let’s try to decode how you can start your TVOD platform.
Here are the key metrics you should monitor to determine where your TVOD platform stands.
This is the average revenue a user drives for your OTT platform within a given period. A higher ARPU indicates that your users are spending a good amount on your content regularly. To find this, divide your overall revenue by the number of users.
You also need to track this metric to determine the cost that you’re incurring to acquire new customers for your TVOD platform. To find it, sum up your sales and marketing expenses and divide them by the total number of new customers. This cost needs to be lower than the CLV.
This metric helps you understand how often your users have purchased your content within a given period. Tracking it regularly can help you understand if your content is engaging users or not.
By now, you've got a clear idea of how different video monetization strategies work. You must be eager to start using these techniques to generate revenue from your content.
But before getting started, it’s crucial to understand how you can implement each technique. Be it SVOD or TVOD — you’ll likely have to use some kind of paywall to restrict access to your content.
In this section, we’ll delve deeper into different types of paywalls. We’ll also understand their relevance in video monetization.
Let’s get started.
A paywall is exactly what its name indicates. Think of it as a gate that guards premium video content. If someone wants access to the content, they’ll have to make a payment.
Paywalls are the backbone behind video monetization models like SVOD and TVOD. They ensure that users have to subscribe to their platform or buy videos to get access.
Let’s say you’re a fitness blogger. You can make money through exercise tutorial videos. However, you’ll need to set up a paywall to ensure that only paid members can access these tutorials.
A paywall requires users to make a payment to access your content library. So, it finds applications primarily in SVOD and TVOD, as AVOD platforms provide free access to content instead.
Setting up a paywall can help you:
Paywalls can also eliminate the need to insert ads into your videos.
Typically, paywalls can belong to one of the following categories — hard, metered, and freemium.
A hard paywall doesn’t give users free access to any videos. If they want to watch something from your content library, they’ll have to make a payment. It’s the type of paywall Netflix uses — viewers have to take a paid subscription to access shows and films on the platform.
A metered paywall (or soft paywall) gives users a free preview of the content before asking for a payment. For instance, Disney+ Hotstar uses a metered paywall to let viewers in India watch five minutes of a live cricket match for free. They must pay for one of the subscription plans to watch the rest of the match.
Additionally, you can let viewers watch the first episode of a new show for free. You can ask them to take up a paid subscription for subsequent episodes. It’s an excellent way to attract new users and win their trust.
A freemium paywall usually gives viewers access to free ad-supported content for a lifetime. Also, it offers the option to upgrade to a premium plan to enjoy ad-free content. It can be an effective way of attracting viewers to a new OTT platform.
This is the type of paywall Hulu uses for video monetization. Disney+ Hotstar also lets viewers watch specific films and web shows for free. Other content assets, such as blockbusters and new releases, are available with a paid subscription.
You can use Zype to implement different types of paywalls on your VOD platform.
Every video monetization model — AVOD, SVOD, or TVOD — has unique benefits and limitations. For instance, AVOD helps you build a large audience without splurging on customer acquisition strategies. But ads can disrupt the viewing experience and drive viewers away from your platform.
On the other hand, SVOD helps you build a loyal user base and offers a source of recurring revenue. But it involves high customer acquisition costs. TVOD offers a higher earning potential and gives viewers more freedom of choice. But it can be difficult to retain users and generate recurring revenue using this model.
Therefore, it’s wiser to use a combination of techniques to maximize the revenue potential of your content. In fact, most OTT platforms use hybrid monetization strategies to drive revenues.
Here are a few hybrid video monetization strategies to help you get started.
Let’s say you’re launching a new streaming platform. You can use AVOD to offer users free access to the entire content library. Viewers will be encouraged to check out your content as they won’t have to commit to a paid subscription plan.
With this, you can offer a premium plan that includes ad-free content and other perks (like new releases). If users enjoy the free content, many will upgrade to a paid plan for a more seamless experience.
A hybrid of AVOD and SVOD is ideal for platforms that want to target a wide range of viewers, from college students to working professionals. Cash-stripped students will prefer to watch your content for free. But people with a stable income won’t mind switching to a premium subscription.
Hulu is one of the most popular OTT platforms that use AVOD and SVOD for video monetization. Similarly, YouTube offers a premium subscription to let users watch ad-free content. Netflix is exploring AVOD with its new ad-based pricing tier as well.
A crucial drawback of TVOD is that it doesn’t guarantee predictable and recurring revenue. You can overcome that limitation by combining it with SVOD. For instance, you can offer a reasonably priced subscription to let viewers access your regular content library.
Whenever you launch a new movie or show, you can set up a paywall to restrict access. Users will have to pay an additional fee to rent or purchase the gated content.
It’s precisely the strategy that Disney+ used to build hype before the release of Mulan in 2020. The platform charged a premium rental of $29.99 for the movie (in addition to the regular subscription fee of $6.99 per month). It was made available to all subscribers only after three months.
Amazon Prime Video also uses a mix of SVOD and TVOD to monetize its content.
This hybrid monetization model combines the attractiveness of AVOD with the revenue potential of TVOD. AVOD ensures that you’ll get loads of new users who’ll be attracted to free content on your platform.
Along with all that free content, you can put up some premium content for renting or buying. The large user base built due to AVOD will help you drive more TVOD sales, thus driving up your overall revenue.
A strategic combination of AVOD, SVOD, and TVOD can help skyrocket your OTT platform’s revenue. You can use monthly subscriptions to generate consistent recurring revenue.
At the same time, you can provide some content for free in exchange for watching ads. This can help you attract more users. And if you’ve got some premium content, you can monetize it through TVOD. This can further help boost your revenues.
The key is to strike a balance between advertising and branded content so that it doesn’t disrupt the user experience.
When it comes to hybrid video monetization, your options aren’t limited to AVOD, SVOD, and TVOD. Depending on the type of content you publish, you can also accept donations from viewers. Similarly, you can create and sell merchandise for your platform's most popular films and shows.
If you’re using SVOD to monetize your content, you can offer a free trial for 15 or 30 days to accelerate customer acquisition. Netflix used this strategy to attract new subscribers after entering the Indian market in 2016.
It’s up to you to identify the right monetization techniques that’ll resonate with your target audience.
Video monetization is a crucial aspect of turning your love for content creation into a successful business. You can choose from a variety of monetization techniques, such as AVOD, SVOD, and TVOD, to drive revenues from your content.
While AVOD lets viewers watch ad-supported content for free, TVOD allows them to purchase or rent their favorite content. SVOD, on the other hand, delivers a seamless ad-free viewing experience in exchange for a monthly or yearly subscription fee.
Each monetization model comes with its own pros and cons. If you want to build a successful OTT platform, you must analyze the benefits and drawbacks of each platform. But the key to success lies in identifying the right mix of monetization models that’ll strike a chord with your viewers.
Irrespective of your chosen model, you’ll need a platform to manage your streaming video strategy and monetize it. Zype’s solutions for streaming video, app building and playout can do it all for you. So, check out our video monetization webinar or request a demo now to learn how Zype can help you scale your OTT platform.