February 20, 2017

OTT Monetization: Charting Your Course

New over-the-top (OTT) video destinations are launching with such regularity that it must be an easy voyage to the promised land, right? The answer is no – it’s hard work. When it comes to monetization strategy, course correction and adaptation are the norms and not the exceptions. Success is out there for the companies able to deliver a truly differentiated experience, but once you’ve got an audience’s attention, is there a golden compass that keeps you on a path to profitability?

What do YOU pay for and why?

Think about your own viewing habits for a minute. Let’s say you’re exploring an inviting new service and you’re finding plenty of stuff you’d like to watch:

  • What makes you want to actually spend money for it?
  • What makes you want to keep paying for it?
  • When is advertising okay for you, and when is it bothersome?
  • How often do you just find something else to watch?   

For the purpose of this exercise let’s just pretend that performance isn’t an issue (although of course it is). Great content and an extraordinary playback experience over any device are critical metrics, but they don’t automatically translate into viewers eager to throw money at the screen. The value proposition for an OTT brand is as personal as the answers to the above questions. And, if the trend towards personalization and more localized content continues,it’s going to have a profound impact on how your service is valued.  

Flexibility is key to long-term health

Providers and advertisers will continue to come up with new ways to monetize; but the only real constant in the equation is the need to move your service and your audience into a more meaningful dialogue with each other. OTT providers have a delicate balance to maintain if they want to build a profitable brand without making viewers feel like guinea pigs. Everything hinges on staying relevant and engaging to consumers. The constant push to compress time-to-market and maximize ROI means that monetization strategies need to demonstrate a keen awareness of where your service sits on each viewer’s priority list – and respond accordingly.

There are currently three primary monetization models, each with their own challenges. Keeping engagement high and churn low are obvious and constant assumptions across the board.

Subscription-based (SVOD):

As we know from our domestic market, the subscriber-based model rules the roost – think Netflix, Hulu, Amazon Prime, or any number of others. With so many new video services, the days of being valued solely on library depth are gone. Original content that keeps subscribers glued to the screen is expensive to create, and the big players are spending billions to either make it themselves or coax popular programs into jumping ship.

A standalone SVOD destination – especially a niche-focused one – might have an entirely different mission than one that exists to augment a larger brand. Does your long-term strategy hinge on gaining a rapid ROI? Are you opening up an SVOD destination as a way to expand viewership, or to establish a new delivery platform? Does your operating capital provide the flexibility for heavy experimentation with introductory pricing? A large company that’s diversifying might be able to afford a negative margin while it works the kinks out, but a shiny new brand with an unknown fan base needs to get it right the first time. Unless it has the leeway to ignore profit as a success measurement, an SVOD offering needs to enter the fray with eyes wide open and an agile, efficient direct-to-customer (D2C) operation.

Advertising-based (AVOD)

Ad-based services are not just here to stay – they’re getting better on every front, and consumers accept them as long as they don’t over-encroach. Technology and process improvements are improving the industry’s ability to determine the true value of a piece of content across platforms, channels, and time-shifted consumption.  At the same time, targeted and localized campaigns are further personalizing the user experience. Still, AVOD services need to be attractive to advertisers who have a lot of options for their media spend – and those options increase with every new OTT service.

Transaction-based (TVOD)

Simply put, a TVOD service puts content out there for consumers to purchase or rent by the slice. On one hand, it’s a less complicated way to set up an OTT shop, but there are a lot of places out there to buy content. Aside from the costs of using an established platform and managing the day-to-day transactions, the big challenge (outside of playback quality) is pretty traditional: you’ve got to sell enough to stay in business.

A “blended family” of xVOD monetization models

A mature OTT monetization strategy will likely emphasize one of the above “big three” models, but a creative hybrid approach can really pay off. Strong content is an awesome revenue generator that can hold up to some interesting new combinations.  Subscribers might be fine with the judicious use of advertising in some instances. TVOD has demonstrated value as an effective first-tier relationship, leading into a more reliable subscription payment. Maybe your audience will respond to a hybrid “metered” approach where the lines between transaction and subscription are blurred, with access purchased in time-specific chunks.

A successful monetization strategy is anything but static. It has to be built on a foundation that allows for scalable quality and highly informed trial-and-error. More than just “price,” the decisions made on how to organize and monetize content have an immediate impact on how your audience relationship develops. The word “holistic” gets thrown around a lot in business, but in this space it’s crucial. OTT destinations need to understand their audiences, and build their revenue strategy with a concerted effort of innovation, best practices and rapid response.