The video-on-demand (VOD) industry has grown considerably in the last few years. VOD is considered a mainstream platform alongside traditional broadcast services. The competition is fierce though, and the battle hardens for new VOD entrants.
It can seem overwhelming for entrepreneurs who want to launch their own VOD service, especially if they don't follow the right monetization strategy. This means VOD services must focus on producing quality content and devise smart strategies to keep the viewers subscribed to their services.
Let's explore some of the most common monetization models followed by VOD services.
Subscription video on demand (SVOD)
Subscriptions are one of the most common monetization models followed by most VOD services. This VOD revenue model allows users to access the service for a fee paid for a certain period of time. SVOD is a flexible monetization model that is auto-renewable and can be canceled at any time.
SOVOD is often a good revenue strategy for new VOD entrants as it brings in steady recurring revenue. However, it suits video-on-demand services with rich ongoing content. However, this model possesses the long-term risk of non-active users eventually subscribing to the service.
This is the reason why it is important to update your VOD service with new fresh content regularly, and the objective must always be to engage users.
Example: Netflix, Amazon Prime, YouTube Premium
Pros:
One of the major advantages of SVOD is that it brings in recurring revenue, which ensures a steady income flow. As users must sign in, you get more information about your audience, which you can convert to actionable strategies which drive success.
Cons:
The challenges are many in SVOD services; the biggest is user retention. As your users are paying a recurring fee every month, your VOD platform must host exceptional content and provide a great user experience to retain users. Ensuring that there is original content for your target audience is really important. If your audience can find similar content for free or for a lesser price, it will increase the unsubscription rate considerably.
Transactional video on demand (TVOD)
VOD services using the TVOD monetization model charge users a one-time fee either for rent or purchase. Users pay a one-time fee to view the content they like with no long-term commitments. This revenue model provides VOD services with better monetization opportunities for unique on-demand content. It works excellent for VOD content like live sports events, popular shows, movies that have a short relevancy window.
Even though the viewing fee is small, it can add up to a decent amount when promoted to the right audience. However, unlike SVOD, getting new users and retaining them on a TVOD platform can be challenging. Hence, it is really important to find ways to encourage users to continue using your video-on-demand streaming service.
For the long-term success of your VOD service, regularly update your library with new on-demand content. Offering exclusive discounts and promotions is one way to retain existing users.
Pros:
TVOD is a great model to follow if you host blockbusters or special events that can be sold as individual tickets. As you deal directly with the user, you get to identify and know your audience better. The type of content is also important as it must compel the user to make a one-time purchase.
Cons:
The major challenge of this monetization model is its transient nature. It becomes difficult to understand the behavior of users.
Examples: Youtube Movies, iTunes
Advertising video on demand (AVOD)
AVOD is another business model most free VOD services adopt where they offer free content to users. In this monetization model, advertisers pay, not the users, making it easier for VOD services to acquire new users.
However, for the AVOD revenue model to succeed, you need a large audience to generate significant viewership and advertising impressions. If you plan to run an AVOD only VOD platform, it suits short-form content with mass audience appeal the best.
Example: YouTube
Pros:
User acquisition is the main benefit of the AVOD model as users get to watch the content for free, it's easy to make them your regular users.
Cons:
Understanding users is a challenge on the AVOD platform as some of them might indulge in the content without signing in.
This offers content creators less opportunity to know who views their content. Earning significant revenue from this business model might take a little longer as it depends on the viewership.
Hybrid monetization model
The hybrid model is a common term for the approach that merges any of the above-mentioned revenue models. For example, a VOD platform can offer some content free to users and premium content. If you have a diversified user base who have different preferences, it is great to follow a hybrid approach to cater to them.
A hybrid monetization model is great to maximize content monetization opportunities. AVOD, when offered with TVOD or SVOD, works the best as AVOD helps attract more users, and it is easy to convert them to paying subscribers.
Which is the best model to make money in VOD
Each of the above-mentioned monetization models might have worked for many and failed for some. Yes, we know it is not a satisfying answer, but the fact is there's no one-size fit model for your VOD business.
Every VOD service must assess their revenue goals, target audience demography, ISPs, etc., to determine which is the best revenue model that works for them.
Conclusion:
For video-on-demand providers, choosing how to monetize the service is a critical decision that is associated with their success. In this modern age of streaming war where VOD giants like Netflix, Prime Video, Hulu, etc., are ruling the industry, it is important to have a strong business model to face the fierce competition.
With the right content, target audience, and revenue strategies, VOD holds the potential to make money significantly. Now that you know about the popular monetization models, you can choose the revenue strategy that suits your goals and strategies the best.