Chances are, you’re familiar with the video monetization models AVOD, SVOD, TVOD, and PVOD in one form or another. If you are a TV service provider, I bet you’ve found yourself trying to decide which one is most suitable for your service or channel. “Will subscriptions work better than advertising?” “Can it be more profitable for consumers to pay for each content separately?”
In most cases, a combination of two or more of these monetization approaches will increase the chances of your service becoming a winner. That’s why many successful video businesses are turning to hybrid monetization these days. Two-thirds of OTT brands plan a transition to a monetization mix.
This article reveals what it takes to embrace hybrid monetization business models and how to find the right one for your TV service. For those unfamiliar with these acronyms, we’ll start explaining all concepts one by one before getting to the nuts and bolts of hybrid revenue models. I hope that this post will give you some food for thought to set up your first hybrid strategy and start making some green from your content.
- SVOD – Subscription Video on Demand
- AVOD – Advertising-based Video on Demand
- TVOD – Transactional Video on Demand
- PVOD – Premium Video on Demand
- Hybrid TV models explained
- How to choose the right video monetization model for your TV service?
What are SVOD, AVOD, TVOD, and PVOD?
SVOD – Subscription Video on Demand
The SVOD or subscription-based model works like traditional pay-TV packages. SVOD services charge users a monthly or yearly subscription fee for unlimited access to an entire library of series, movies, TV shows, and even live channels and podcasts. Examples of SVOD services include Netflix, Disney+, or HBO Max.
The SVOD model is the dominant of the four and probably generates the most profits too because of its ongoing revenue stream. Currently, a staggering 955.7 million people are subscribed to an SVOD service worldwide– in the US alone, it accounts for 52% of all streams– and the figure is expected to cross the 1 billion mark by the end of 2021.
As for the consumers, it is also very convenient thanks to the freedom of choice it offers. Viewers can enjoy any content they want without interruptions. Even better when it’s a collection of titles tailored to their specific interests and delivered in a personalized way – that’s how SVOD services create a loyal base of subscribers.
Speaking about personalization, the SVOD model has additional subsets that can accommodate different needs depending on the content type. Some common subsets are the freemium model, with limited content at no cost and expanded premium content available under subscription-only access. Another example is boxsets offering a subscription to bundled theme-based content. Looking at verticals like sports, options are even greater, with alternatives varying from seasonal passes to subscriptions to a particular team or even archive-only subscriptions.
The major drawback for all types is that consumers also have far greater freedom to opt out because these models don’t tie them into long-term contracts. Not to mention that they must also have a solid and large subscriber base to guarantee enough revenue stream. Thus, SVOD providers are continually challenged to retain their subscriber base to maintain stable earnings. Providing exclusive original content and competitive pricing schemes has been successful in dealing with potential churners so far.
AVOD – Advertising-based Video on Demand
AVOD or Advertising-based Video On Demand is a model viewers are “paying for” with their eyeballs – it includes free content funded by advertisements. Much like in broadcast television, the revenue comes 100% from selling ads on videos. Some examples of AVOD platforms are YouTube, Roku, Pluto TV, or Dailymotion.
AVOD is most beneficial for those TV services with a large audience since individual ad views require large volumes for real revenue. Moreover, its low barriers to entry also make AVOD ideal for a broader audience.
Those are some of the reasons why this model has been growing in popularity in recent years. Experts forecast AVOD will climb by an astonishing 144% until 2026 across 138 countries.
TVOD – Transactional Video on Demand
Also known as Pay-Per-View, the TVOD model sells or rents individual videos to customers, just like video stores did in the old times. As a result, it’s an excellent model for rights holders looking to sell a specific set of videos – think of a distribution company that wants to sell the rights of its latest blockbuster, for instance. Examples of TVOD models include Amazon Prime Video or Movies on Google Play.
Under the TVOD model two sub-categories can be found:
- The Electronic Sell-Through (EST), where users pay once to get permanent access to the content.
- The Download to Rent (DTR), where viewers spend a lower fee to access content only for a limited time.
The key for this model to be effective lies in offering attractive prices and content that viewers will be willing to pay for. Only this way larger audiences will continue to purchase or rent viewing rights in the future. However, audiences may not be incredibly consistent due to the timely nature of the offer. That’s why TVOD models usually come as a supplement to an SVOD or AVOD offering.
PVOD – Premium Video on Demand
The premium model is a variation of TVOD where end-users can pay to access content sooner than others. Like with movie premieres, they can be the first to watch the release of content months before it hits the mass market, at a higher ticket price, of course. Disney’s Mulan is a great example of this. The film was available only to Disney+ subscribers who paid an extra $30 for premier access.
The premium model has become extremely popular during the COVID-19 pandemic. With theaters closed and viewers stuck at home, the world’s major studios quickly found in it an effective digital alternative to release their movies. And the trend keeps moving forward nowadays! Subscription-based video services, for example, are using it for new movie releases as a hook to acquire and retain customers. According to Deloitte, 45% of US subscribers already reported in 2020 selecting a specific streaming video service because of this exact reason.
These are, in a nutshell, the basics of each profit model. Still, they aren’t exclusive or immovable, as we’ve seen at the beginning of this post. So, let’s understand how these can combine and merge in new hybrid models to suit every taste.
Hybrid TV models explained
In practice, this one is a catch-all term for anything that merges any of the above-mentioned monetization models. Let’s review a few examples of SVOD, AVOD, TVOD, and PVOD combinations for the sake of clarity.
Starting with the well-known Amazon Prime Video, audiences pay a fixed subscription per month to access its content library. Still, new movie releases and premium channels command an additional fee to watch them. Do you see how SVOD and TVOD merge here?
Another great example is Peacock, which some already claim, has a smart new streaming strategy. The Peacock offering consists of 3 tiers; each meant to appeal to a different demographic. The first, 100% ad-supported, can be accessed for free. The second, including live and early access content, combines a reduced subscription ($4.99 per month) with some advertising. Finally, the premium option with unlimited access to over 20,000 hours of content and no ads costs $9.99 per month. Here is another successful example of how an AVOD and SVOD Freemium model can combine forces through a tiered pricing strategy.
As you can imagine, these multi-revenue models can be endless. TV providers can also add different pricing schemes to their hybrid revenue model to attract indecisive or casual viewers, such as free trials, coupons, discounts, or tiered pricing like Peacock’s model.
With the right technology and business knowledge, these hybrid models are the most effective way for video businesses to maximize their revenue. But most importantly, everyone benefits. Consumers can view a wider variety of content on their own terms. Advertisers can pay for a targeted ad inventory across platforms. And finally, media companies are empowered to leverage the true value of their content to generate more revenue – clearly a win-win-win situation.
Of course, deciding on the optimal hybrid mix is not an easy task. Even seasoned managers and executives at the world’s best-run media companies struggle to develop a consistent strategy sometimes. So, now that we are all aligned and familiarized with the concepts, let’s break down the main points you need to evaluate before deciding on your perfect monetization mix.
How to choose the right video monetization model for your TV service?
Choosing the right revenue model for your service depends on the circumstances of your business, your content resources, and how you approach your audience acquisition strategy in the medium and long term. Here’s what you should keep in mind.
Understand who your target audience is.
How big is your potential audience? Where, when, and how do they typically watch videos? Are they willing to pay for it? Or would they rather watch ads in exchange for content?
You can’t compare apples with oranges. Niche content fans might be willing to pay a premium price to access coveted titles. In contrast, broader audiences probably won’t stick around month after month. And parents, as an audience subsegment, may prefer an affordable subscription for their kids to find the content they like without risking them buying movies with the remote control (true story. If you have kids and a transaction-based service, make sure to keep an eye on your monthly invoice).
Collect and analyze as much information as possible about your audience. This data will influence the depth and breadth of your TV offering. Knowing your target customers and understanding their needs will help you establish a baseline behavior to predict what monetization strategy will suit them best.
Evaluate your business goals based on your content.
Not all content is equal and your profit model will largely depend on it. If it’s premium content that you’re offering, pay-per-view can be a safe bet. For sports, a seasonal pass will make more sense, as we’ve seen before.
What are your revenue and content goals? What model do you think is best suited to hit them? Do you plan to offer a small, well-curated collection of niche titles or become a multichannel aggregator?
As a rule, providers with an extensive collection of videos and a solid audience base can opt for any strategy. Deciding on one or another will be a matter of testing their assumptions and basing their choice on the outcome they get.
However, suppose you are a new streaming provider starting with a few titles. In that case, it may be better to opt for free access through an ad-based model to get started. Once you gain traction and have a growing viewer base, you can then experiment with additional approaches to expand your revenue potential. Some could be committing to the full subscription, others to a combination with pay-per-view, micro-transactions, or even monetizable content bundles.
Get the right technology solution.
Everything we have discussed so far requires a powerful and flexible tech solution to maximize revenue and experiment with different monetization approaches with the click of a button. Cloud TV technology providers can allow TV services to test different business models, combined with multiple marketing actions, price schemes, and promotions until they find the winning combination that leads their services to success.
Now that you are all set to start defining your monetization strategy, keep in mind one last recommendation. The media industry is audience-driven, so always listen to your viewers to find out what they want. Markets and customers change all the time, and your job, as a TV service provider, is to change with them.
Best of luck in your monetization journey from your friends at Kaltura!
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