Money, money, money; Streaming media and OTT

Whilst some video entertainment channels might justify spend under a market budget (Brand Entertainment or Brand Awareness) most streaming media channels (or OTT services) need to be financially self-supporting. Here’s a look at some of the challenges and how to overcome them.

The three principle ways to bring in Video-on-Demand (VOD) revenue are subscriptions (SVOD), transactions (TVOD; rental or pay-per-view), or advertising (AVOD). Income is not limited to these commercial models or silos (indeed we would encourage using multiple commercial models), however it helps to understand the commercial dynamics by looking at each in turn.

Costs

First a quick look at costs.

A streaming media service has many facets with associated costs. Cloud-based service tools are required to editorialise, package, price and publish content, users need to be registered, monitored and managed, and all the detailed data analytics processed and presented. Cloud-based costs also include formatting, storage, protection and distribution of the content. Add to this the building and support for a set of consumer apps on all desired devices and the cost per stream starts to mount up. The biggest single cost within this eco-system is usually content delivery or CDN costs.

CDN costs are charged per Gb delivered, so it makes sense that a low-quality 2 min video is going to be a fraction of the cost of a high-definition 90 min film. To get some sense of the difference, the 2 min standard definition video might consume about 0.042Gb and the 90 min HD film about 4.4Gb; the film consuming over 100x more, and by definition running up over 100x more CDN costs. Whilst CDN costs might look like an insignificant cost per Gb this can mount up if your consumers start continuously streaming.

Subscription (SVOD)

Subscriptions and rentals are the easier business models because they are based on the consumer paying for the streaming video consumed. Subscription has an element of risk because a consumer could run up streaming video costs that exceed their monthly income contribution. On average however (which is the important variable) this is unlikely to happen if the subscription fee is set right.

The right subscription fee will depend upon several factors. For example, kids constantly streaming low quality 30min TV shows on repeat might actually run up a lot more costs than a sports channel streaming 90min UHD videos only when a major sporting event is on (providing there aren’t too many events per month!).

If everyone streamed 24×7 for 30 days a month then it would have to be a huge subscription cost to make the business case work. And whilst CDN costs might be the chief protagonist, they are only one of several costs. That said most TV and film streaming subscription services tend to price between £5-£10 suggesting the average usage per consumer for most services is probably below 100 hours/month to allow good margin to be made at this level.

Rental or Pay-Per-View (TVOD)

Rental, or TVOD, is a model where each stream has a direct charge. It therefore simply has to bring in more income per stream than cost. Providing the stream is no more than a few hours long the income to cover the streaming cost is never likely to be a difficult business case.

Whilst subscription (SVOD) and pay-per-View (TVOD) might have relatively easy business cases, they have one big problem; the pay barrier. If your goal is numbers, i.e. you want as many consumers as possible to get hold of your service, then you’ll likely want to give it away free.  And unless you have a marketing budget set aside for it, this will probably mean advertising (AVOD).

Advertising (AVOD)

Providing you can get a decent audience SVOD and TVOD are not particularly sensitive to costs. On the other hand, AVOD will need a big audience and even then, it is very sensitive to cost. Think about it this way. If your advertising income (CPM = cost per 1000 ads) was £12, then you’ll get 1.2p per video ad played. Now if you have one video ad slot before a 2 min video that’s one thing, but one ad before a 90min HD film is a completely different thing. Right now the total streaming costs of a 90min HD film are likely to exceed 1.2p, so the income won’t even cover the CDN cost. And over and above CDN costs come all the other costs noted above, plus you’ll have marketing and administration costs for running the service, and that’s before acquiring any content if you don’t own it yourself. Quite a challenge, and although advertising can work you’ll likely need quite a few advertising slots (pre-roll and mid-roll) in a 90min HD film to do so.

If advertising is your preferred commercial model it may be good to look at other ways to bring in money.

Making margin

Sponsorship (as well as advertising) can apply within a free-to-use service. Sponsorship can be applied to a film, TV show or series, or to collections, menu genre or the whole service.  Product placement could also be incrementally used with sponsorship and advertising. Further to these possibilities are banner ads as overlays on navigating the menu, these could be applied for individual shows or across the whole service and used over and above video advertising slots.

Start using multiple commercial models. Whilst consumers may get free access to the ad-based service, they are unlikely to get upset with in-app offers to buy digital or other goods associated with the main video event (books, music and other merchandising). Upselling ad-free, UHD or premium events could also bring in further income.

Streaming media or OTT service platforms have matured, and these ideas and mixed commercial models are viable options. A subscription service, plus some advertising, plus in-app purchases or up-selling of say a live event or early film release can all be used in unison.

Whilst AVOD can represent a challenge, with the right streaming media service there should be no reason not to being able to make your OTT business case stack up.