Between 2015 and 2021, the percentage of Americans who solely view streaming content has risen from 24% to 44%, a significant jump in the span of a few years. Quite a few companies have emerged as the giants in streaming, with many more on the way.
These companies follow one or more of the OTT business models. Each of these models offers a chance for success, but the forecast for the future shows that one model has risen above the others and is here to stay.
OTT Business Models Breakdowns and Examples
Below is a breakdown of four of the most popular OTT business models and some examples of companies excelling with these models.
SVOD, or subscription video on demand, is a model that lets users pay a monthly subscription for access to their library of shows and films. Most of these companies serve up a mix of original and licensed content. This model allows users to watch what they want when they want it without a fixed programming schedule.
Some SVOD services employ tiered pricing. Like with Netflix, it's usually based on the number of devices used simultaneously on one subscription. In some cases, SVOD hybrid models offer a higher subscription rate option for ad-free viewing.
Though the traditional SVOD model doesn't have advertisements, most companies are moving towards the hybrid model and are offering both ad-supported and ad-free subscriptions. According to a study by Hub Entertainment Research, 48% of consumers preferred watching for free with ads, 33% preferred paid subscription without ads, and the rest would opt for a lower fee for limited ads.
Netflix was the pioneer of the SVOD business model. The company already followed the subscription model with their DVD mailing service and then began offering streaming video in 2007. Hulu, originally an ad-supported service, made the switch not long after. While the company offers some ad-supported subscriptions, it now focuses on tiered subscriptions.
Today, there are many SVOD companies, including Amazon Prime, Disney+, HBO Max, Apple TV+ and more. In recent years, many niche SVOD platforms have emerged. For example, Crunchyroll is an SVOD model that serves anime fans, Shudder offers horror exclusively, and Britbox serves British drama.
TVOD / PVOD
TVOD stands for transactional video on demand. It's essentially the opposite of the SVOD business, in that instead of a subscription that covers an entire library of videos, users pay a fee for each video watched.
TVOD is usually split into two sub-categories: EST (electronic sell-through) or DTR (download to rent). With EST, customers pay a one-time fee for unlimited access to a video. Though this is contingent on licensing restrictions. Unlike downloading the file on your device, the streaming service holds access to the video so you don't completely own the file like you would if you purchased a physical DVD.
DTR works more like a traditional video store. Customers pay to rent a video and are given access to it for a specified amount of time. Most DTR companies see success when they can offer access to premium content, such as a film that's just been released or a live sporting event.
Similar to TVOD, premium video on demand (PVOD) allows users to pay a one-time fee for premium content. PVOD is becoming increasingly popular as consumers are more inclined to purchase debut films within weeks after they come out at the theaters.
TVOD / PVOD Examples
Pay-Per-View is one of the earliest examples of TVOD. The company offered films that had either just left the theater or were new to video and offered sports exclusive, such as boxing matches. Amazon, YouTube, and Apple have TVOD options. Users can rent or buy a film, TV episode, or series through their platforms. Vudu has also done well with the TVOD business model.
Some SVOD companies have started to serve up PVOD offerings, especially since the pandemic when movie theaters were closed and new movies needed a way to make more money when released. For example, Disney+ allows users to access new Disney films by paying a premium fee on top of their subscription fee. While they include some movies for free, others come at an additional cost. Mulan, for example, was a new release that came with a $30 additional fee to access, regardless of having a paid subscription.
AVOD, or ad-supported video on demand, allows users to access a library of content free of charge. Since users aren't paying a subscription fee, they are required to watch ads during their content. Many platforms run ads much in the same way that television does, intermittently through the program.
With AVOD, ads cannot be skipped. Users either have to watch an ad all the way through or watch at least a portion of the ad before they can access the content. Ads can occur at the beginning, middle, and end of the content.
Some AVOD services are trying to distinguish themselves from traditional television, but making their ads a little more innovative. For example, YouTube allows users to choose their ads or take a survey in place of an ad. Services also use targeting to show viewers ads that may suit their interests.
YouTube is the biggest of the AVOD platforms. It's different from many of the other platforms in that the content is user-created. Anyone can upload to YouTube, giving it a much larger (but not always as high of quality) than other services.
Tubi is one of the most popular AVOD examples. The company offers access to over 15,000 films and TV shows with no subscription fees. They've directly targeted SVOD platforms like Netflix and Hulu. Plex is another platform that has been around for a while and has recently added AVOD offerings.
FAST stands for free, ad-supported streaming TV. Channels serve up a mix of film, television shows, and LIVE TV. Most FAST options are older content that's been passed up by the larger streaming services, but the platform is beginning to see some traction.
FAST platforms have a lot in common with AVOD, as many serve up on-demand options. FAST differs in that it's also like linear TV. Some FAST platforms offer live TV. Many also have curated channels that follow a linear TV format. Users should expect to watch ads intermittently similar to traditional TV programming.
While many FAST platforms have scheduled programming, some also give users the option of catching up, so even if they come in late, they can watch from the beginning. FAST channels will often create a lineup of short-form videos centered around a theme or genre.
Pluto TV is one of the most prominent FAST platforms. It offers a mix of on-demand and linear content. In 2019, Viacom purchased Pluto TV and has since added content from many of its channels like Nickelodeon, MTV, and Comedy Central. Pluto TV often runs temporary channels centered around a theme or genre.
Some other examples of FAST platforms include Tubi, The Roku Channel, Samsung TV+, Xumo, and Peacock.
More recently, SVOD platforms like Amazon are also considering offering FAST channels to generate more revenue. Since most of the younger generation do not own cable, there's an opportunity to provide linear TV and establish a platform to direct ads for the particular demographic.
What Is the Best OTT Model?
The OTT market has boomed in the past decade, with a large spike in the past few years. Covid-19 has led to a surge, as more people were at home and there were no movies released in theaters.
Netflix is still the leader of the OTT platforms, with 208 million subscribers and an ARPU of $14.25. Disney+ and Hulu aren't too far behind, with 103.6 million subscribers at $3.99 ARPU and 37.9 million subscribers at $12.08 ARPU, respectively.
When looking at numbers, it's apparent that SVOD is still the best-performing model. However, it is worth noting that some of the SVOD platforms also employ strategies from the other models. For example, Hulu shows ads to offset subscription costs and HBO Max has also adopted this model after many subscribers found the service too expensive. Disney+ has premium offerings beyond their SVOD service.
Beyond the OTT Model: Why People Choose a Streaming Service
It's obvious from looking at the top OTT services that the SVOD model is still the most popular. However, people aren't choosing a streaming service necessarily because of the model. The cost and how they pay is a factor, and it's highly tied to the appearance of ads.
For many people, part of cutting the cord is getting rid of ads while viewing content. However, as seen with platforms like YouTube and Hulu, ads don't deter users entirely. In fact, 39% of ad-free subscribers of HBO Max will consider switching to ad-supported streaming to lower their costs by $5 a month.
(Original) Content Is King
The main thing that draws people in is original content. Netflix started the OTT model for original content in 2013 with House of Cards. The show was a hit and the streaming wars were on. Netflix and other platforms started creating original films and series and putting their energy there instead of licensing other companies' programming.
Users don't sign up for a service based on their library - unless that content is exclusive. There's no reason to subscribe to a service for a movie or tv series that can be rented on iTunes, Amazon, and a dozen other services.
However, people will choose a service based on their original content. Netflix brings in viewers because they're known for their highly-rated, binge-worthy series. Disney+ has done well by serving up exclusive content in the wildly popular Marvel and Star Wars universes.
The importance of original content is evident because most SVOD platforms have put all of their resources into creating great content. Original content attracts subscribers, and once they are subscribed, the extensive library of content keeps viewers interested in staying for more.
No matter which OTT you choose, you can find success if you're willing to make strategic decisions and innovate. Zemoga has the technological insights and experience to help media companies build apps to support any OTT model. Contact us today to discuss your goals for your OTT service.