More and more streaming video services are turning to a hybrid ad-supported, subscription-based monetization model for OTT video. Success in this new environment will depend more than ever on data-driven insight.
SVoD has dominated the industry conversation in recent years. But it’s not the only monetization model in town. AVoD has seen a resurgence in recent months. In fact, according to Ampere Analysis, 2020 will be the year AVoD makes its lasting mark in developed markets like the US.
The reason for this is two-fold. As consumers encounter subscription fatigue as a result of too much choice, and as advertising spend continues to shift from the traditional linear and pay-TV market to OTT alternatives, AVoD services are expected to become more widespread in deployment and adoption.
Yet, the most interesting thing about this trend is what it means for SVoD’s evolution. Especially as several major service providers have embraced a hybrid SVoD/AVoD approach, raising questions about future subscriber acquisition, retention, and pricing models in today’s increasingly crowded market.
What does a hybrid approach do to the OTT business model?
As we all know, SVoD pricing is relatively simple: a subscriber gets access to the entire library in exchange for a flat monthly fee. Some services, like Netflix, offer additional pricing tiers based on video quality. But generally, when it comes to SVoD, what you see is what you get. It’s predictable too, which makes SVoD more secure.
For an AVoD/SVoD hybrid, however, pricing is more fluid. Take NBC’s Peacock as an example. Peacock’s entry tier offers about two-thirds of its content catalog for free, albeit supported by ads. For users who want more, there is a $4.99 a month subscription to access the entire catalog, but the ads stay. Reach the $9.99 a month tier and the service returns to a traditional SVoD model – the full catalog is available, and the ads are gone.
Straight off the bat, there are two notable benefits to adopting a hybrid model like this: easier acquisition and new ways to monetize content. Let’s take each in turn.
Lowering the barrier to entry
Drawing a parallel with the music industry, Spotify’s 163 million ad-supported monthly active users in Q1 2020, up from 123 million a year earlier, suggests a hybrid model offers a net benefit to acquiring new users as the barrier to entry is lower.
Not only can this make it easier to get new users on board when paired with a targeted acquisition campaign – requiring only an email address before they can enter the ecosystem and gain access to a percentage of the overall content library – it also opens up a new subset of potential users. Low-income households who may not have been able to afford the platform if it was a subscription-only service can now use it. And, can be monetized in a different way through advertising.
For both groups, this is akin to the “try before you buy” sales method. It’s an extended service trial, but one where the service provider can still pull in revenue from ad impressions while giving users a glimpse of what the fully paid-up service could look like.
Creating new ways to monetize content and upsell
As a direct extension of this, the hybrid model offers new avenues for monetizing existing content, as well as opportunities for cross-selling and up-selling. Older TV series and movies that have nostalgic value are more readily available, are less expensive to license, and can be used to get consumers in, who can then be upsold to premium content – such as platform originals – that sit behind the SVoD paywall.
Equally, for mid-tier customers who are paying to access the full content library but are still being shown ads, this becomes the best of both worlds as service providers can dual-monetize their content. Depending on the differentiation between the tiers, they can still hold back some content for top-paying subscribers, too, while continuing to monetize customers who will never pay for a full subscription through a combination of advertising and a lower monthly fee.
So, what are the downsides?
As a hybrid service is neither fully AVoD nor SVoD, it has to contend with the weaknesses of both. Although several hurdles exist on both sides, they all filter down into two main categories: engagement and churn.
Whatever way you slice it, customer stickiness will always be paramount to staying in business. And so, mitigating the risks associated with the ad-supported side of a hybrid service means attracting new users at scale and retaining them as long as possible. By its very design, the AVoD arm only generates revenue if there is a high engagement rate. After all, each content view represents an ad impression. This means it is essential to maximizing the amount of time each user spends on the platform, necessitating that they keep coming back for more.
At the same time, if subscribers don’t perceive enough value from the SVoD arm of the business, they will churn. If that happens before the service has recouped the acquisition cost for that subscriber, it will leave the service in the red.
The importance of actionable, data-driven insight
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The effective use of data analytics can arm marketing teams with the platform-wide insight necessary to keep users engaged and coming back for more. It can also unlock the relationship between assets. This can be used to encourage subscribers to continually go deeper into the library through targeted content promotion, enhancing the perceived value of the service overall. In turn, this will increase the likelihood of an entry-level subscriber being upsold to one of the premium content tiers. Or, in the case of a user suffering from subscription fatigue, encourage them to give up one of their existing subscriptions in exchange.
It can also enhance the monetization of the business. Actionable insights are key in determining the frequency and length of ads to implement within the stream in order to maintain user engagement without turning them off and causing churn. Equally, for identifying the tipping point where enough friction exists to encourage a user to sign-up for the ad-free paid model. Data analytics can even identify what type of ads are most relevant for each individual subscriber, thereby maximizing advertiser value and growing ad spend.
Preparing for what’s ahead
As is evidenced by the rise of hybrid AVoD/SVoD platforms, changing viewer habits will continue to impact the way streaming video is consumed. Whatever happens though, the success of OTT services will depend on having a window into the world of their users to predict what’s coming next and know how best to respond in order to drive bottom-line growth. And that requires an audience insights platform like the Wicket Scorecard.
Tags: actionable insights • audience insights platform • avod • OTT • SVoD