In our series of blog articles on OTT monetization models, we are exploring the different monetization models for content providers launching an OTT service. This second article on content monetization will be covering one of the most established and popular OTT Revenue Model: the Subscription Video-On-Demand model, called SVOD.
SVOD, is when a customer pays a single recurring fee for ongoing access to a library of content accessible at viewer’s convenience. This fee may be charged on a daily, weekly, monthly, or annual basis.
Once the user has paid for access to their service, they can watch as many videos as they want on any device with Internet access. Very often the service providers allow the option of multiple users at a time, as well.
In the fragmented, highly competitive, and fast-paced world of content, SVOD is often go to-monetization model for new OTT entrants, as it ensures a steady recurring revenue and has a lock-in effect on users. In fact, Digital TV Europe’s annual survey reported SVOD as being the top choice of business model for OTT services, with over 53.2% of respondents agreed it was the most promising.
The stability of subscription revenues makes it the preferred model of OTT players and allows them to leverage massive content libraries to keep customers happy as they work to produce the next big hit.
On the users side, the number of SVOD users worldwide is expected to skyrocket from around 283 million in 2018 to 411 million in 2022. Younger generations are the ones driving demand the most, with 18-24 year olds spending an average of 39 minutes per day using SVOD service.
Research and Markets are also confirming the market trend – SVOD continues to grow and by the end of this year it is estimated that 161 million homes worldwide will be using SVOD. They estimate that by 2020, this figure will reach 306 million, with a revenue of $26,794 million.
Needless to say thay SVOD is well and truly here to stay, so providers need to stay on top of their game in order to benefit from its growth.
In this article, we’re going to explain why SVOD is the preferred revenue model for most OTT providers and breakdown the different benefits of using the SVOD revenue model for OTT / Online video businesses.
Why SVOD as a Revenue Model?
Monetization through SVOD makes the most sense for ongoing, regular content released on a schedule. This includes entertainment, talk shows, news, sports leagues/teams etc. As a popular model for online content purchases, SVOD stands to play an increasingly important role as more and more companies embrace content distribution over the Internet.
Monetization options already range from content protection to user management on platforms that offer a large number of users who are there for one reason: to buy premium digital content.
Every SVOD business solution is based on the same premise of a supplier making a regular charge for a product or services offered. Digital subscriptions are tied to services without the exchange of physical products, so the entire account is managed online allowing the content provider to manage it as a service. The cost and schedule are predefined together with time frequencies over which subscriptions are paid.
For instance, a provider may offer a freemium service whereby people can access a certain level of content free of charge, or choose to pay a subscription for premium content, so the provider may charge subscriptions on a monthly basis, whereas another may charge six-monthly.
It all comes down to users’ needs and content’s quality.
The Benefits of SVOD
SVOD is often the preferred OTT business model because it can deliver higher average revenue per user (ARPU) than AVOD. The potential to lock-in subscribers on monthly or annual packages makes SVOD a predictable and relatively secure revenue stream.
Here are the main advantages:
–Long-term and predictable revenue stream;
–No price restrictions;
–More committed customer base;
–Customer inertia is greater when moving from purchase to opt-out decisions;
–Greater potential for up-selling and cross selling;
–Exclusive, premium content lends itself to a SVOD model because there are limited consumer alternatives to access and watch elsewhere;
–Ability to access real-time, web-enabled analytics to effectively monitor the service;
Successful SVOD Model
A successful SVOD model will typically include:
1. Automated operations – ideal in order to manage the logistics of customer accounts, billing plans (product, price and billing frequency, which can grow exponentially as revenues scale). Manually performing these tasks is not scalable and can be tedious, error-prone and overwhelming.
2. Understandable customer terms and conditions – easy communication ensuring customer terms and conditions clearly explain the purchase details and cancellation options. Including the contact information for customer support is a guarantee for customer retention.
3. Value proposition – critical to the success of a SVOD revenue model. The customers must feel they are receiving more than they are paying for the value of the product or service.
4. Easy payment options – payment options should be as easy as possible. This goes for any additional actions that require more steps from customers to enable recurring billing. These additional options, more often than not, result in lower conversion rates.
The OTT Churn Rate
All subscription models share the same key metrics – the Average Customer Lifetime Value (ACLV) and the Monthly Recurring Revenue (MRR). Acquiring new customers means getting a recurring revenue. However, the challenges OTT providers are really facing is customer retention and churn rate management.
But what is the OTT churn rate?
Churn rate is simply the number of OTT service subscribers that purposefully cancel their subscription and/or the subscribers that have let their subscription lapse unintentionally, whether their payment method has expired or a transaction is declined.
According to new research from Accenture Strategy (based on a survey of 24,877 consumers across 33 countries), 14% of consumers globally have switched online entertainment service providers in the past year. SVOD users are now strategically adjusting their subscriptions based on the relevancy of the content available.
Stay-at-home moms have a different content needs than pro-athletes, same as the binge-watchers and Netflix-and-chillers user experience. The most successful OTT providers know everything about their viewer demographics and have them sorted into audience segments.
Advanced solutions like InPlayer can help OTT providers embrace churn reduction and optimise subscriber retention to become the leaders in their respective market. Standing out from a growing pack of competitors is demanding full integration of data-driven retention and acquisition technologies.
To sump up, when launching an OTT service, one of the first major decisions you must make is determining how you will monetize your content. While some more established revenue models as SVOD continue to be popular choices for OTT content providers, a few newer options are also becoming increasingly prominent.
Some OTT services have begun to adopt the hybrid approach—providing both a free, ad-supported service and a premium subscription offering in order to create a soft transition for converting an audience over to a subscription model. This hybrid approach combining advertising and subscription, is likely to become more popular with the overall uptake of OTT.
More importantly, today’s OTT service providers seek flexibility in their go-to-market: Transactional Video on Demand (TVOD) that allows users to sign up for or download the service at no cost, but requires the purchase of content on a per-title basis. TVOD is popular for long-form movie content but also for live pay-per-view (PPV) content, such as sporting events and other live events.
As another flexibility requirement, the Authenticated VOD (AuthVOD) model which requires users to log in using credentials from another platform, service, cable (TVE), or cellular subscription in order to access content. For this reason, AuthVOD is valuable when coordinating with InPlayer’s paywall solution.
In today’s competitive OTT marketplace, viewers value choice and seek an attractive value proposition. The real challenge for any content provider is to build and scale their offerings with their target viewers’ interests in mind.
Regardless of which approach you choose, it is important to have full access to robust watch/users data to inform business decisions and fine-tune the appropriate monetization mix.
A powerful paywall and subscriber management platform like InPlayer will also allow flexibility to experiment with pricing, packaging and bundling in localized markets. Stay tuned with our next OTT blog post series, which will cover all the nuts and bolts of TVOD/PAY-PER-VIEW revenue model and OTT Live Streaming Monetization.
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