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Mastering the OTT Monetization Maze There’s More to Navigating the OTT Landscape than Simply Providing Valuable Video Content WP56 Superguide 7: ADVANCED MEDIA, BROADCAST, & ENTERTAINMENT VIDEO NOVEMBER/DECEMBER 2016 SPONSORED CONTENT
The online entertainment industry Trying to navigate the complex maze Instead of paying high prices for has seen tremendous growth over of OTT monetization strategies and cable, consumers are flocking to OTT the past few years, particularly in the business models can be a real challenge. content services. They’re choosier about over-the-top (OTT) streaming video However, making the right monetization the programming they watch and would segment. The remarkable success of decisions will be critical in determining rather spend less money for specific online video subscription services whether your company’s OTT efforts titles. Viewers can now create their own such as Netflix, Hulu, and Amazon will be successful or will fail. mini-bundles by picking and choosing Prime have helped push the OTT Let’s begin with a little industry the shows, events, and services they market to new heights. Businesses are perspective. prefer, rather than be subject to the increasingly positioning themselves to bundles, schedules, and programs of capitalize on the growing population of SWITCHING FROM TRADITIONAL their cable or satellite provider. “cord cutters,” “cord shavers,” and “cord CABLE: CUTTING THE CORD nevers” who want their favorite movies, Let’s face it, consumers today are WATCHING MORE TV videos, and TV shows anywhere, increasingly questioning their traditional ON MULTIPLE DEVICES anytime, and on any device. cable or satellite subscriptions. The NPD’s research breaks down the Whether you’re a broadcaster, content average cable service costs $99 per connected devices into four categories: owner, media publisher, or content month, and that price is increasing. Blu-ray players, smart TVs, video game aggregator, you’re undoubtedly looking What’s more, research shows that typical consoles, and streaming devices such at OTT market strategies to leverage consumers watch only 17 of the 200 as Apple TV and Roku. While game your investments in content, reach new channels provided. They are frustrated consoles are still the most widely used, customers, and grow recurring revenue. because they are paying for a lot of streaming players are growing at a faster While your organization may be new to content that they never watch. rate. Amazon, Google, and Roku have OTT monetization models that rely on According to the NPD Group’s latest all released new boxes and adapters for direct end-user relationships (see “Popular “Connected Home Entertainment streaming content. OTT Monetization Models,” below), you Report,” more than half of U.S. homes Another study by Strategy Analytics are probably discovering that successful with internet access today have devices found that the most popular devices are video content monetization is much more that stream video directly to their the Apple TV and Google Chromecast. than just offering premium content while televisions. In fact, most households don’t Chromecast ended last year stronger making the traditional choice between stop at just one—the average family has than Apple TV, despite having lower ad-funded vs. subscription-based delivery. about three video streaming devices. sales overall. The Google product made up 35% of the 42 million streaming units shipped in 2015. Apple TV came in second place, followed by Roku and Amazon Fire. Ultimately, Apple leads POPULAR OTT MONETIZATION MODELS the pack with 37 million devices shipped since 2007. Chromecast sold 27 million • Subscription Video on Demand (SVOD). Subscription-based offerings, typically during the same time period, and it is providing unlimited access to a library of streamed film and TV content. quickly catching up. • Transactional. One-off payments for content, either in the form of digital ownership “Everyone keeps talking about how TV (DTO/EST) or rental with an expiration date (DTR). viewership numbers are going down, but these new connections and relationships • TV Everywhere. Services providing access to pay-TV content across multiple screens and technologies are allowing people and devices, made available exclusively for pay-TV subscribers. to watch more,” said Amy Young of CBS • Ad-Funded Video on Demand (AVOD). Free access to content, funded by advertising Networks in a recent Boston University that usually appears prior to the video content. interview. “Average viewership jumps 88 percent when you look at the full 35-day • Hybrid. OTT business models that combine various features from the models above. multiplatform window versus live and same-day viewership.” SPONSORED CONTENT NOVEMBER/DECEMBER 2016 streamingmedia.com WP57
AD-FUNDED OTT Nonetheless, advertising isn’t likely minimizing ads, you should focus on VS. SUBSCRIPTIONS to totally disappear from the OTT increasing your subscription base and As OTT popularity continues to landscape anytime soon. According to retaining your customers over time. grow, it’s no surprise that most viewers Business Insider, revenue from video ads You can do this in two key ways. First, prefer ad-free experiences such as is expected to reach almost $5 billion you should offer valuable content at an Netflix, Hulu, and Amazon Prime. this year. With a click-through rate of 1.8 agreeable price that still allows you to History points the way. The ability percent, video ads have the highest CTR be profitable. to skip commercials was a large part of any other form of online advertising. Second, you should consider using of TiVo’s original success. While the a subscription billing service that service allowed users to watch their HYBRID MODEL: COMBINING reduces customer churn resulting favorite shows at their convenience, ADS WITH SUBSCRIPTIONS from declined payments. The right many enjoyed the service for the ability Your organization may want to partner can be extremely helpful in to fast-forward through ads. When TiVo consider a hybrid model that provides resolving failed transactions and made some alterations and showed certain ad-funded content for free, offering back-up payment options. fast-forwarding viewers a pop-up ad, combined with subscription-based A good service can also reduce the the backlash was so great the company premium content. In so doing, it may friction that consumers experience was forced to rethink its strategy. be advisable to follow in the footsteps when attempting to update their With this in mind, your organization of broadcast networks like Fox and payment information. may be well advised to consider a Turner that are reducing total ad time Ads will undoubtedly continue subscription-based model for OTT (see sidebar). Sacrificing ads for viewers to be a source of friction between delivery. The benefits include: isn’t always easy, however. The trick viewers and OTT providers. However, is to focus on acquiring and retaining a pure subscription model or a hybrid • Predictable revenue streams. enough customers, thereby generating arrangement coupled with an aggressive Consumers who subscribe to your sufficient revenue to make up for the retention strategy to combat subscriber services pay for them automatically lack of ad revenue. churn will help your business minimize on a regular basis. If your business wants to provide or eliminate ads and thereby reduce • Less upfront commitment for a better customer experience by consumer friction. consumers. Many OTT subscription services start with a free trial and let subscribers cancel at any time.
• Price and promotion flexibility. You can continuously refine the way TV Networks Are Reducing Ad Time. you price and promote your offering Should OTT Follow Suit? to maximize customer acquisition This year, Turner Networks delivered an upfront presentation revealing their plan to cut ads and retention. on certain programs. Two new series, “Animal Kingdom” and “Good Behavior,” will have • Long-term relationships. Once 50% fewer ads, with that time instead offering an additional 10 minutes of the show in question. A few months after the announcement, Entertainment Chief Kevin Reilly said the consumers have subscribed, they experiment resulted in more viewers. are less likely to switch to competing offerings, provided that you maintain “We’re finding good results with that,” Reilly said at the Television Critics Association press a high-quality user experience and tour in Los Angeles. “Not only is commercial viewing higher, we’re seeing a nice ratings lift.” continue to deliver appealing content. Other networks have followed suit, including Fox who announced plans to reduce advertising during shows on FX and the National Geographic Channel. Randy Freer, Fox • Control over the customer president and COO, stated that his network needed to better engage viewers rather than experience. You can build stronger increase revenue through ad spending. relationships by improving the way Should your OTT strategy follow this ad reduction trend as well? subscribers access your content across their various devices. WP58 Superguide 7: ADVANCED MEDIA, BROADCAST, & ENTERTAINMENT VIDEO NOVEMBER/DECEMBER 2016 SPONSORED CONTENT
CASE IN POINT: YOUTUBE RED “Consumers are embracing paid recurring billing service to help Last year Google’s YouTube entered subscriptions for ad-free content at monetize your content while growing the OTT subscription fray by introducing an incredible pace,” said Robert Kyncl, and retaining your subscribers. its own subscription VOD service called YouTube’s chief business officer. Payment issues can seriously disrupt Red. While YouTube Red certainly won’t “[This] marks an evolution in our the customer experience and lead to replace the ad-supported free version of desire to give fans more choice and involuntary churn, so it’s critical to YouTube that consumers know and love, features that they love.” work with a subscription billing vendor it does provide an opportunity for users What’s next for YouTube? Multichannel that offers agile payment facilities and to stream content without ads. News reports that Google is getting ready sophisticated subscriber retention In the past, YouTube made most of its to launch a skinny bundle pay TV service technology. This will allow your revenue from advertising. However, even for the YouTube platform and already has customers to continue their services as with its much-boasted 1 billion viewers, at least three major broadcast networks long as possible, thereby maximizing YouTube doesn’t turn a profit, though it on board. Stay tuned. customer lifetime value. does manage to break even, according Consumers can quickly become to the Wall Street Journal. Offering a A FRICTION-FREE EXPERIENCE frustrated when their service is subscription-based streaming service now As OTT offerings continue to evolve disrupted for reasons that could be easily enables the business to earn additional and improve, consumer expectations avoided, for instance, exceeding their revenue and reach new audiences. are on the rise. Along with a seamless credit limit. Utilizing a subscription What’s more, YouTube Red has joining viewing experience, consumers also billing solution with robust transaction Netflix and Amazon in creating its want uninterrupted content and easy resolution logic can greatly reduce this own scripted content. In addition to its payment facilities. If your OTT platform friction and substantially increases the original murder mystery series “Escape fails to provide this, you risk disrupting success rate of your OTT transactions. the Night,” Variety reports that YouTube the viewing experience that customers In the future, more consumers will is developing a new action series with are trying hard to achieve. be able to benefit from OTT viewing on Dwayne “The Rock” Johnson and a new If your company is planning to connected TVs, computers, and mobile sci-fi thriller series from Hollywood navigate the OTT maze, you should devices with easy access to all the director and producer Doug Liman. consider utilizing a high-quality content they desire, when they desire it. To be successful in navigating the OTT landscape, your business will need to make sure that you keep up with the growing competition by offering user- friendly, accessible, and reliable services.
ABOUT VINDICIA Vindicia brings enterprise-class innovation to consumer-facing subscription billing to help OTT providers and other online companies acquire and retain more customers by making payments seamless, secure and easy. Vindicia keeps consumers connected to the subscription services they love, and businesses connected to the subscription revenues they need. Vindicia has processed more than $21 billion globally and generates over $90 million in annual incremental revenue for clients. Vindicia clients include the BBC, Lionsgate, Comic-Con International, TransUnion Interactive, Allrecipes, IAC, Vimeo, and Next Issue Media’s Texture service. For more information visit www.vindicia.com. 2016 VOLUME 3•NUMBER7 see For moreinformationaboutCastlabs, castlabs.com USA Los Angeles,CA90028 WeWork Building 7083 HollywoodBlvd. CASTLABS go2sm.com/castlabs
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