The OTT industry is growing year by year, and as more and more viewers are leaving traditional TV and opting for streaming platforms, the gap between the two industries will rise even more. According to a report made by Grand View Research, the global OTT market size was valued at USD 62.03 billion in 2020 and is expected to grow at a compound annual growth rate (CAGR) of 18.7% from 2021 to 2028.
However, with the increasing competition and ongoing fragmentation in the streaming market, the most important question for streaming providers is how to generate revenue and also retain customers. In this article, we will explore some of the successful and proven strategies for monetizing content in the industry, but also the challenges.
Subscription-based model
The most common and popular way of monetizing content in the OTT industry is the subscription-based model. This model involves charging customers a fixed monthly or annual fee to access a library of content, usually with no ads or interruptions. Some of the leading examples of this model are Netflix, Amazon Prime Video, Disney+, and Max.
This model has advantages such as:
- Providing a steady and predictable stream of revenue for the platform.
- Encouraging customer loyalty and retention, as subscribers are more likely to stick with the service they have already paid for.
- Allowing the platform to invest in original and exclusive content, which can attract and differentiate them from competitors.
However, there are some challenges:
- High churn rate, as customers can easily cancel or switch to other services that offer better value or content.
- Requiring a large and diverse catalog of content to satisfy the varied tastes and preferences of customers.
- Competing with the growing number of free or ad-supported streaming services, such as YouTube, Pluto TV, and Peacock.
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Advertising-based model
The advertising-based model is another common and effective way of monetizing content in the OTT industry. This model involves offering free or low-cost access to content but with ads inserted before, during, or after the content. Some of the prominent examples are Hulu, Tubi, and Roku Channel.
The advertising-based model has a few benefits:
- Attracting a large and broad audience, especially those who are price-sensitive or reluctant to pay for multiple subscriptions.
- Generating revenue from both advertisers and customers, as some platforms offer premium or ad-free versions for a higher fee.
- Using the data and analytics of the platform to deliver targeted and personalized ads, can increase ad effectiveness and customer satisfaction.
However, the advertising-based model also has some shortcomings:
- Lower customer engagement and retention, as customers may skip, block, or ignore the ads, or switch to other ad-free services.
- Not-so-high ad revenue and inventory, as advertisers may prefer other platforms that have more reach, scale, or quality.
- Ad blockers can reduce ad impressions and clicks.
Transaction-based model
The transaction-based model is a relatively new and emerging way of monetizing content in the OTT industry. This model involves charging customers a one-time or pay-per-view fee to access a specific piece of content, usually a movie, show, or event. Some of the notable examples of this model are Apple TV+, Google Play Movies, and ESPN+.
This monetization model has several strengths:
- Flexible and convenient option for customers who only want to watch certain content or occasions, without committing to a long-term subscription.
- High margin and profit for the platform, as the content is usually premium, exclusive, or in-demand.
- Allowing the platform to experiment with different pricing and strategies, such as offering discounts, coupons, or bundles with other services.
But there are limitations like:
- High customer acquisition and marketing costs, as the platform has to constantly promote and persuade customers to buy the content.
- Relying on the quality and timeliness of the content, customers may not be willing to pay for content that is outdated, inferior, or available elsewhere.
- Widespread piracy and illegal streaming of content can erode the value and revenue of the content.
Conclusion
The OTT industry is a dynamic market, but also a challenging and competitive one. To succeed in this market, streaming platforms need to adopt and adapt different strategies for monetizing content, depending on their goals, resources, and audience. By doing so, they can create a sustainable and profitable business model, while delivering a satisfying and enjoyable experience for their customers.
If you need help or assistance in choosing the right monetization strategy for your business, schedule a free call today so we can explore integration possibilities with our new product Velvet.
