When it comes down to it, a video streaming service is a business. The sole reason why networks are turning to OTT to distribute content is monetization. Killer content is essential, but only because it brings an audience with buying power. The fact of the matter is that great content is simply a commodity; content owners want to maximize the earning potential of their videos. On OTT platforms there are two models for generating revenue that networks prefer; AVOD and SVOD.
OTT AVOD:
Advertising on OTT platforms is swiftly approaching the immense value that was formally only reserved for TV commercials. With the ability to effectively reach target markets across mediums that receive high engagement, marketers are eager to advertise on OTT. Currently in the land of OTT there is a deficiency of ad inventory. Lack of opportunities to deliver ads, combined with tremendous demand, has resulted in rocketing CPM’s (The amount marketers will pay for their ad to be shown to 1,000 people).
There are two reasons why OTT content is so valuable to marketers; the viewing habits of users on OTT devices and the precision to target demographics on such devices. The level of engagement with video advertisements on OTT platforms rivals that of cable. Across desktop and mobile, YouTube reports that millennials watch a staggering 29% of skippable ads, purely out of interest in the content.[1] Google determined that OTT ads provide a greater ROI than Television ads for over 75% of businesses that pursue both.[2] On OTT, advertisers can set their ads to be shown only to viewers who fit their target market. This is why engagement and ROI is so high, the right products and services are being shown to people who are most likely to be interested in them.
Calculating Potential AVOD revenue:
To estimate the potential monthly ad take of your video streaming service you must predict how many views your content will receive and then factor in your expected CPM. Putting a number on your monthly views can be done by examining the size of your current fan base and the level of marketing effort you intend to put in promoting your new OTT offerings. Keep in mind; unlike YouTube or cable, you cannot rely on organic discovery to fuel your OTT audience size. The majority of viewers you receive will be sent to your apps by your own efforts!
Optimistic outlook
Take the average view count for a video on your current distribution channels, and multiply that by the number of videos you intend to release per month. That number of views would be a very optimistic scenario, close to the ceiling of total views you can expect from your OTT apps for the first months.
Conservative outlook
Multiplying the number of dedicated fans you have (subscribers to your distribution channels and newsletters) by the number of videos you intend to put out in a month will give you a conservative scenario for total number of monthly views.
Expected CPM’s
Once you have the number of expected views you want to use, you will have to break it down by the platforms you will be on. In general on Unreel powered apps, SmartTV CPMs are $20-$40, Mobile app CPMs are $5-$10, and Desktop/Mobile CPMs are $2-$7.
Plug your estimates into the equation below to get a feeling for what your monthly revenue from ads could be:
(CPM(# of views))/1000=Total revenue
OTT SVOD:
At first glance, Subscription video-on-demand appears the most lucrative business model for a video streaming service. There is a reason it is the preferred monetization strategy for the largest names in streaming. The reliability and revenue potential that comes with monthly payments from users is the stuff digital distribution dreams are made of. With a subscription model, there are very few variables. It is easy to calculate monthly revenue to budget around. For the most part, SVOD provides unrivaled security, delivering cash flow into a business at a consistent rate.
SVOD comes with a caveat however; it only works for some types of content. Generally, subscription services have a supremely dedicated following; either because their content is uber-premium, or it fits a niche with a highly engaged fan base. SVOD services also need large libraries of content that update consistently and frequently. Netflix and HBO are winning with SVOD because they mix massive and constantly updating collections of major Hollywood films with frequent and new quality content. Lesser known brands pull SVOD off because they provide great content for a specific genre, be it fitness, comics, humor, horror etc.; they have dedicated fans. Even these smaller subscription services are only able to make SVOD work because among their niche’ they are popular and they consistently put out interesting videos.
Calculating potential SVOD revenue:
To calculate the optimal revenue from subscriptions requires putting on your guestimation cap. It all starts with determining the elasticity of your offering.
Elasticity is a measure of costumer sensitivity to a change in price. The more elastic your service is, the higher the price you can charge without experiencing a significant drop-off of users. Elasticity for OTT apps is based on several factors including, dedication of fan-base, quality of content, type of content, and frequency of new content. All of these factors make your service appear to be good value for users. It is up to you to know what price for your subscription will be received as solid value to your target users and what price will drive them away. Price too high and no one will pay it; price too low and you leave money on the table.
Use this table to get a feel for subscription prices for some of the top OTT services:
Once you’ve determined a price that won’t send your fans running for the hills, you will need to anticipate how many users will actually sign up. This number should be based upon the size of your current fan base (subscribers to your current distribution channel and newsletter) and the extent of your marketing efforts. Assume the percentage of current fans that subscribe to your service will be between 5%-25%.
Now that you have a price and the number of users you expect to sign up, simply multiply them to come up with your SVOD estimated revenue.
(# Of users) X (Price of monthly subscription)= SVOD monthly revenue
Comparing SVOD to AVOD:
Now equipped with two numbers, you have a very rough estimate to compare what your revenues could be. from AVOD and SVOD. These figures are not financials to bank on, rather, are more of a wake up call to ensure you truly consider if SVOD is the correct avenue for your streaming service to pursue.
A Final Word:
Choosing between Ads and SVOD is a vital decision that will shape your video streaming business. Unless your fans are many and extremely loyal, relying on AVOD is the safest way to generate revenue. The decision is not easy, and you need to reflect inward, just how dedicated are the people who love your content? Is there enough of them to sustain your business if the only revenue you receive is their monthly payments? You can always choose to do SVOD and Ads. Keep your subscription rate low, and supplement it with the revenue from ads. This is a way to guarantee yourself a monthly revenue stream, with the opportunity to significantly increase profits from high views counts. Do not be afraid to experiment to find what works best for your content.
Unreel is powering video streaming services for some of the largest networks in the world, monetizing with several different business models. If you are ready to take your content OTT, or looking for an upgrade, lets talk.
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