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Selecting the right monetization model is important for any Video On Demand (VOD) platform, influencing not just revenue but also viewer engagement and retention. Whether it’s the subscription-driven approach of SVOD, the pay-per-view flexibility of TVOD, or the ad-supported accessibility of AVOD, each model brings its own set of opportunities, challenges, and unique requirements.
Choosing wisely can drive consistent income and cultivate a better user base, while the wrong choice risks high churn and missed revenue potential. In this guide, we’ll break down these three popular models, highlighting how each can support different types of content and audience expectations. With a clearer understanding, you’ll be equipped to choose the model that aligns best with your platform's goals and growth strategy.
Video on demand (VOD) gives users the freedom to watch video content whenever they choose, without being tied to a broadcast schedule. VOD platforms offer a diverse range of content, from blockbuster movies and popular TV shows to documentaries, educational series, and niche programming. This shift in content consumption has transformed viewer habits, allowing audiences to engage with media on their own terms. While VOD offers significant opportunities for sustained viewer engagement, the challenge of effective monetization remains central to the platform’s success.
Subscription video on demand (SVOD) is a popular VOD model where users pay a recurring fee, usually monthly or yearly, to access a large content library. Platforms like Netflix, HBO Max, and Disney+ use this model, where one payment gives access to the entire platform.
Netflix, a leader in SVOD, lets users pay monthly for unlimited access to its vast library. Its investment in original shows like Stranger Things and The Crown, making its content exclusive and valuable to subscribers. Netflix also has tiered pricing, offering plans from Basic (single screen and SD) to Premium (four screens and 4K). This way, it caters to different budgets while still giving everyone full access to all content after their payment.
When to use SVOD (Subscription Video On Demand)
SVOD works best for platforms that have a continuous stream of content to keep users engaged over time. If your platform offers a deep and growing library of content, whether it's entertainment, educational materials, or fitness videos, then SVOD is a solid choice. Subscribers will expect new and exclusive content regularly to justify their ongoing payments.
Example: Netflix
Netflix has a vast library of content that includes original movies and shows, documentaries, and licensed material. The key to Netflix’s success is its ability to release new, engaging content regularly, which keeps users subscribed over long periods.
Challenges of SVOD
While SVOD offers stable revenue, there are challenges. One of the most significant is churn rate, which refers to the percentage of users who cancel their subscriptions in each period.
For SVOD platforms, high churn is a constant concern. In the first half of 2024, 40% of U.S. consumers cancelled at least one subscription service in the past six months, making customer retention more critical than ever.
To combat churn, platforms need to continually engage users through new releases, recommendation algorithms, and personalization. Netflix’s recommendation engine has been crucial in reducing churn by keeping viewers engaged with tailored content suggestions.
Developer considerations for SVOD
Transactional Video on demand (TVOD), also known as Pay-Per-View (PPV), allows users to pay for individual pieces of content on a one-time basis. This model works best for high-value, exclusive content like movies, live sports, or premium events.
Users can either rent or buy individual movies or TV shows. Major releases like Avengers: Endgame gross millions through digital purchases and rentals, making this an ideal platform for movie studios to capitalize on the post-theatrical release window.
Challenges of TVOD:
Revenue volatility: TVOD’s biggest challenge is unpredictable revenue streams. Since income is based on one-time purchases, it lacks the stability that SVOD offers through recurring subscriptions. This can lead to revenue spikes during major releases but periods of decline during off-seasons.
User retention: Unlike SVOD, TVOD doesn’t foster platform loyalty. Once users have paid for and consumed the content they want, there’s little reason for them to return unless there’s another blockbuster event. Developers need to build strong user engagement strategies, such as offering exclusive early releases or integrating content bundles to keep users coming back.
Scalability and demand: TVOD platforms need to be prepared for large spikes in demand, especially during events like live sports matches or the release of a highly anticipated film. Handling millions of concurrent users is no easy feat, requiring a backend that can scale dynamically.
Developer considerations for TVOD
When to use TVOD (Transactional Video On Demand)
TVOD is an excellent option for platforms offering premium, high-value, or exclusive content. If your platform hosts content like new movie releases, concerts, live events, or exclusive sports matches, TVOD allows users to make a one-time payment to access the content.
Example: Amazon Prime Video
Amazon Prime Video uses a hybrid model that includes both SVOD (subscription-based) and TVOD. With TVOD, Amazon offers a pay-per-view option for movies and shows that are not included in the regular subscription. Users can either rent or buy the latest blockbuster releases or premium titles that are available earlier than in the subscription library. This gives Amazon the flexibility to offer exclusive content while also generating additional revenue from premium content outside of the subscription.
For instance, when a new movie is released, users might pay a premium fee to either rent it for 48 hours or purchase it to watch anytime. This is particularly effective for highly anticipated films that viewers want to see as soon as they are available, without waiting for them to be included in the subscription offering.
In the Ad-Supported video on demand (AVOD) model, users access content for free but are served advertisements before, during, or after the video. This model thrives on large-scale audiences and generates revenue by selling ad slots, making it highly effective for platforms that target a broad demographic.
YouTube is the most recognizable AVOD platform, generating billions in ad revenue by allowing users to access free content while serving ads. Its ability to target ads based on viewer data has revolutionized the digital advertising space, making it highly attractive for advertisers.
Challenges of AVOD:
Lower revenue per user: AVOD generally generates lower revenue per user compared to SVOD or TVOD, as ads do not command the same premiums as direct content purchases or subscriptions.
Ad blockers: One major challenge facing AVOD platforms is the increasing use of ad-blocking software. Globally, 31.5% of internet users use ad blockers at least sometimes when online as of Q1 2024. This causes a huge impact on the revenue of the platforms working on AVOD model.
User experience: While AVOD is free, it can suffer from user dissatisfaction due to excessive ads. Platforms need to carefully balance ad frequency with content enjoyment. YouTube, for instance, has integrated skippable ads to offer a better viewing experience, but this can reduce ad impressions and, consequently, revenue.
Developer considerations for AVOD
When to use AVOD (Ad-Supported video on demand)
AVOD is the best choice for platforms that aim to reach a wide, price-sensitive audience who may not want to pay for subscriptions or one-time transactions. AVOD makes your content accessible to a larger audience by making it free, with ads as the revenue driver. This model is ideal for content that attracts a mass audience and can generate substantial ad impressions.
Example: YouTube
YouTube is a prime example of AVOD, where users access content for free, but creators and the platform earn revenue from ads shown during videos. It appeals to a broad audience, ranging from educational content to entertainment and tutorials.
Selecting the right monetization model SVOD, TVOD, or AVOD requires a deep technical understanding of each platform’s needs, from seamless payment systems and content protection to personalized user experiences and content delivery. Developers must not only build scalable infrastructures but also ensure real-time performance optimization to meet the demands of fluctuating traffic and user engagement.
FastPix offers a comprehensive solution for developers tackling these challenges. With features like DRM capabilities for TVOD, on-demand scalability for SVOD, and seamless video delivery optimized for low latency, FastPix supports secure, high-performance streaming. Additionally, advanced analytics tools allow for deep insights into user behavior and engagement, empowering developers to refine their platforms and enhance monetization strategies.
Yes, many platforms, such as Amazon Prime Video, use a hybrid model that combines both TVOD and SVOD. This allows the platform to offer a subscription for a general library of content while giving users the option to pay for premium or early access titles through TVOD.
AVOD works best when there’s a large, general audience that will drive substantial ad impressions. For niche content, however, SVOD or TVOD may be more viable, as users in a niche market may be more willing to pay for specific content rather than relying on ad-supported models, which might not generate enough revenue due to a smaller audience.
Answer: Ad blockers can significantly impact AVOD platforms by reducing the number of ads shown, thus cutting revenue. To mitigate this, some platforms use Server-Side Ad Insertion (SSAI), which integrates ads into the video stream itself, making it harder for ad blockers to remove them. Offering ad-free tiers through subscription plans is another strategy AVOD platforms use to offset revenue losses.
FAST stands for Free Ad-supported Streaming Television. It refers to a streaming model that allows users to access a wide range of television content for free, supported by advertisements. Some of them are Pluto TV, Tubi and The Roku Channel
FAST services offer a complementary option to subscription-based models. While subscription services like Netflix and Disney+ provide ad-free experiences and exclusive content, FAST services attract users who prefer free access to a variety of content supported by ads.
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