OTT content delivery has become highly sought after due to its wide range of applications, allowing users to:
- Send and receive messages
- Listen to music
- Watch videos
- Arrange video calls
These services are considered OTT solutions because the content—whether it’s music, videos, or messages—is delivered “over-the-top” via the internet. In this article, we’ll focus specifically on the business models of OTT platforms that provide video content, commonly referred to as Video-On-Demand (VOD) services. These business models vary based on the platform’s monetization strategy. There are multiple of them, from completely free platforms to a popular hybrid revenue model.
Key OTT Business Models Explained
AVOD (Advertisement-Based Video-On-Demand)
AVOD platforms allow users to watch videos for free, but in return, they watch ads. This model generates revenue for the platform owner through advertising, which helps cover platform maintenance and content creation costs.
Ads can appear at any time during the video, and in most cases, users cannot skip them—similar to traditional TV commercials. However, ads can be personalized, ensuring that viewers see content relevant to their interests.
AVOD is a popular model, especially among businesses. It is projected that AVOD platforms will generate around $260 billion in revenue by 2025. Additionally, 50.6% of U.S. consumers prefer AVOD platforms, according to recent studies, because they provide free access to video content.
SVOD (Subscription-Based Video-On-Demand)
SVOD platforms offer users access to a library of videos in exchange for a subscription fee, which can be monthly or yearly. Some SVOD platforms have tiered pricing, charging more if the content is consumed on multiple devices (e.g., a smartphone and a Smart TV) or if multiple users share a single account.
Netflix is a prime example of an SVOD service. This model ensures recurring revenue as long as the content and user experience keep subscribers engaged.
TVOD (Transactional Video-On-Demand)
With TVOD, users pay for individual videos or seasons rather than accessing the entire library.
There are two types of TVOD:
- DTR (Download to Rent): Users rent a video for a set period.
- DTO (Download to Own): Users purchase videos for unlimited viewing.
TVOD caters to viewers who want flexibility in choosing specific content without committing to a full subscription.
FVOD (Free Video-On-Demand)
FVOD services offer free content without even ads. These platforms often provide older movies or focus on linear TV programs, allowing users to watch scheduled programming. Some FVOD platforms even offer live TV. Many also feature a catch-up option, enabling viewers to watch programs after they’ve aired.
In addition to their extensive libraries, FVOD services can attract a diverse audience by catering to niche genres and interests that may not be readily available on traditional television. The absence of advertising enhances the user experience, allowing viewers to enjoy uninterrupted content, which can lead to higher user retention rates.
Moreover, FVOD platforms can serve as a gateway for viewers to explore subscription-based services, as they build trust and familiarity with their offerings.
Final Thoughts
While selecting the right business model is crucial, remember that viewers don’t choose a platform solely because of the model. Factors like price, available content, payment options, and multi-device compatibility play a major role in user decision-making. Ultimately, your business model must align with what your target audience values most. If your service is inconvenient or misaligned with their needs, you risk losing them.